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New Online Directory Attempting to Tear Up the Phone Books

TIMES STAFF WRITER

Yellow Pages publishers have had it made for decades. Their directories are easy to produce, provide billions in nearly automatic ad revenue and qualify as a must-have for most consumers and businesses.

So it’s only natural that a bevy of online companies want to snatch the business.

Switchboard.com and the directories offered by Yahoo and America Online are among the early leaders on the Internet. But YellowOnline.com, a privately held Los Angeles company, has emerged as one of the contenders in what is likely to be a tough fight between ink-on-paper publishers and online upstarts.

Founded in late 1998 and stocked with defectors from Pacific Bell’s Yellow Pages unit, the company publishes 250 online directories that mimic the printed books, including 11 business-to-business editions.

Already, the company has raised more than $28 million and expects to add $50 million when a new investment round closes at the end of this month. Nearly $1 million of the initial funds came from current or former employees at PacBell’s directory business. Then friends and others joined in, and later two overseas telephone companies became shareholders as well.

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This week, YellowOnline.com plans to announce an exclusive deal with Internet services company Terra Networks of Spain to produce the online Yellow Pages directories for all of South America, Spain, Portugal and parts of Mexico. The company plans to create 15 such international Internet directories under a series of deals with overseas phone companies.

Despite not having phone company backing in this country--PacBell, BellSouth and others have their own online directories--or partnerships with large sites such as Yahoo, YellowOnline draws a fair amount of traffic on its own.

In July, the site drew more than 1 million different visitors, or 1.2% of the nation’s estimated 80 million Internet users, according to PC Data Online, an Internet research firm. YellowOnline’s July traffic figures placed it in third place behind AnyWho.com and WhitePages.com among the directory-only sites tracked by PC Data Online.

(Switchboard.com and the directory portions of Yahoo and others are ranked separately as Internet portals by PC Data Online.)

“I feel like we’re in a race to provide a way to bring the local [Yellow Pages] advertising online, because right now nobody’s doing it right,” said Robert Davis, who founded YellowOnline.com and remains its chief executive and largest shareholder.

“The phone companies started out online by essentially putting their white pages business listings online, with name, address and phone number,” Davis said. “Then they sell banner advertising that is generally not associated with the category--which is against the Yellow Pages model.”

Davis said he believes that the best way to win a bigger piece of the $12.7 billion in annual printed U.S. Yellow Pages advertising is to make the online version more like the book, complete with display ads that include more than just basic information.

So to jump-start the business, YellowOnline took complete listings for the top 100 Yellow Pages headings in 72 U.S. markets and then gave all the display advertisers in those categories a free online replica of their ad for a specified time. The result: a starting base of 45,000 display ads. Although free, they made the site look robust.

Now the company’s sales force is tailing phone company directory schedules, hitting up local businesses as they review printed book advertising renewals. YellowOnline said it then throws in links to e-mail, a three-page Web site and a phone link through Internet telephone carrier Net2Phone.

Overseas, YellowOnline’s model differs. The firm puts a partner phone company’s directory online, and the phone company sells the online space for an extra $5 or so per month, splitting that fee with YellowOnline.

“With Terra Networks, we’re hoping for 5 million businesses [going online] at $5 a month. . . . That could give us $50 million a year in revenue,” Davis said.

So far, the strategy appears to work. Davis said the company has grown to 150 employees, sold $2.1 million in advertising in July and is on pace to book $20 million in sales for its fiscal year ending Sept. 30.

Even so, he expects YellowOnline.com to lose $3 million this year and to be profitable by the end of fiscal 2001. An initial public offering of company shares is tentatively planned for early next year.

Charles Laughlin, an analyst who follows the Yellow Pages industry for Kelsey Group in Princeton, N.J., said it has been hard for new directory companies to match the established sales forces at the phone companies. Consequently, it has taken longer for the online world to strip away business from the directory books.

“Yellow Pages, by definition, is broad-based, and you’re trying to reach all the local businesses,” Laughlin said. “It’s a difficult thing to do, it’s hard to scale, and it’s expensive.”

That explains why Internet Yellow Pages sales reached just $225 million last year, or not even 2% of the $12.7 billion for U.S. printed directories.

“In this [online] market, you’ve got to build a brand, build a product and build a sales force . . . and YellowOnline is far along in two of those areas,” said Laughlin, who admits to being unsure about YellowOnline’s strategy of using a print-like version online. “The proof of the pudding for them will be two years out, when we find out about their [advertising] renewal rates.”

Conventional wisdom holds that phone companies with printed directories and complementary online versions have a strong advantage over YellowOnline and others, according to Larry Small, a vice president at trade group Yellow Pages Publishers Assn.

“Publishers who are in both businesses will develop much better synergies between the electronic version--which has timeliness, but the content isn’t as good--and the paper version--which has excellent content but is not very timely,” Small said. “But it’s still pretty wide-open right now because there’s so much to choose from.”

In the meantime, YellowOnline.com is steadily building momentum. The company has made three acquisitions with stock: a Yellow Pages publisher in Africa, a Florida-based advertising sales business and Rancho Cucamonga-based Digital Odyssey, a Web site development company. The company also runs telemarketing operations in Florida and Riverside County.

“They are looking at quite a globalized model . . . and if YellowOnline closes at least some of the contracts that they have in the works, they unquestionably could bring in more revenue than any other Internet company in that space,” said Antony Gordon, a Morgan Stanley portfolio manager who is a personal friend of Davis. “It becomes very hard to ignore a company with that kind of revenue.”

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Times staff writer Elizabeth Douglass can be reached at elizabeth.douglass@latimes.com.


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