“Say Goodbye to Yellow Pages”

Borrell Associates has released new research on yellow pages advertising collapsing, and a huge drive by local ad sales departments to capture online dollars that are migrating there due to a big shift in small-business spending.  They’re forecasting a 39% decline in yellow pages advertising over the next five years.  Basically, the industry is about to collapse.  The report is entitled, “Say Goodbye to Yellow Pages.”

Excerpts: The headline of this report is not so much a prediction of sudden demise as it is a play on a 1998 report by Forrester Research, “Say Goodbye to Classifieds.” When that report was published decade ago, the newspaper industry scoffed as its print classifieds continued to overshadow upstart Internet sites. Yet the bottom has fallen out of newspaper classifieds, and in generally the same timeframe that they are predicting for print yellow page directories.

Since 2001, half of the annual print classifieds spending by car dealers and job recruiters – billions of dollars in annual sales – has dried up. Last year the newspaper industry saw its steepest ever decline in print classifieds, driven largely by a 23% fall in real estate classifieds.

The conditions for yellow pages publishers are eerily similar. Print directory revenues have shown stability throughout most of this decade despite the rise of the search engines – the same pre-condition that newspapers saw in the late 1990s with the rise of online classifieds verticals. The economic trigger – a recession – is now forcing small-business advertisers to be more careful with their ad budgets. Over the next five years, Borrell is predicting 39% of the ad spending on print yellow pages revenues will vanish as small businesses shift marketing budgets online. After 12 years as an advertising medium, the Internet has finally reached small-business owners with viable marketing opportunities in the form of keyword advertising, interactive directories and low-priced online video commercials.

Until now, the key beneficiaries of this shift have been the search engines. But legacy media companies – yellow pages publishers included – have unleashed a newly trained army of local sales people to hunt down this migrating money. Directory publishers have crosstrained nearly all their print reps to sell interactive media, while newspaper publishers have launched their own interactive directories and have deployed cross-trained sales troops to sell them. All told, online products are being peddled by 34,100 trained local sales reps –
more sales people than any other local medium. With all those reps hawking banners, paid search, interactive directory listings and online video, it is no wonder that local online advertising is increasing at a rate of 61% this year, to $14.1 billion.

Yellow pages publishers have spent the past three years transforming their massive on-the-ground sales forces into marketing consultants who can meet their customers’ demands both in print and online. Their combined print/online packages are simple, low-priced, one-stop solutions to small-business advertising needs. The proof of the industry’s rapid transformation is in the numbers: Of all local media companies, yellow pages publishers have been the most successful in moving toward digital sales, averaging about 14% of their gross revenues from online sales this year. By contrast, the online contribution for most local newspaper, radio, cable and TV competitors is less than 5% of gross revenues.

The main battle for the small business ad spending is between the two or three years is between pure-plays, on the one hand, and the two groups with the largest local sales forces: newspapers and directory publishers. Both have feverishly cross-trained their sales forces in the past three years and added “online only” reps to pursue the hottest-selling advertising product in local markets: interactive advertising, including the fastest-growing format of all, online video commercials.

Yellow pages publishers face the least-certain future of all local media. The business of delivering targeted, affordable advertising to small businesses – the yellow pages forte’ – is being battered by more targeted and even more affordable search advertising. Again, Borrell is forecasting a 38.9% decline in print spending over the next five years – the largest decline of 11 local media categories they track. They expect print directory spending to slide from $12.7 billion this year to $7.8 billion in 2013 as smaller businesses cut back their yellow pages spending in favor of online search, interactive yellow pages, and the hottest category of all – online video commercials.

Publishers have already started making cuts. Idearc recently eliminated 28 of its 1,200 directories, and Yellow Book USA laid off 550 sales reps. Layoffs and folded directory titles are expected to continue over the next two years.

The key drivers of these changes are broadband penetration and the growing sophistication of search engines and interactive directories. Between 2005 and 2007, 10.4 million adults stopped using the yellow pages “during the past month.”

If the trend continues, by 2010 average monthly use of the print directories will have slipped below critical mass: the majority of all adults will not crack open a yellow pages book in any given month. Improving Internet connectivity makes that more likely: broadband users are four times more likely to use an interactive directory than dial-up users.

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