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Online services march into Yellow Pages’ turf

The World Wide Web won over Wall Street in 1995, when Netscape’s dazzling debut ushered in the dot-com era.

Main Street, however, has been a tougher crowd. Although websites have long been a marketing tool for merchants, restaurants and service providers, the medium’s interactive power has had a relatively modest effect on local economies. Now a wave of start-ups, as well as giants like Google Inc. and Yahoo Inc., are trying to tap the multibillion-dollar potential of using the Internet to connect consumers with nearby providers of goods and services.

The “local Web,” as it is often called, is rapidly evolving amid the converging forces of online social networking, location-savvy smart phones and an array of new business models. The trend represents new opportunities for small and medium-size businesses -- and new challenges for stalwarts such as newspapers and the Yellow Pages. Many of the new start-ups are certain to fail, but venture capitalists are betting hundreds of millions that some will succeed.

“The local space is on fire,” said Jennifer Dulski, a former Yahoo manager who is now the co-founder and chief executive of Center’d, which uses search technology to create online guides to U.S. cities. “It’s one of these nuts people have been trying to crack for a long time, and now all these elements seem to be coming together.”

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The potential of the local Web was vividly demonstrated by Craigslist, whose free classified ad listings gobbled up a market once dominated by newspapers. OpenTable, an online reservation service that persuaded thousands of restaurants to use its software, is a niche success whose initial public stock offering in early 2009 provided encouragement to other local Web entrepreneurs.

Yelp, a site that encourages consumers to post reviews of local businesses, is among the best-known and most controversial local Web start-ups. Not long after Yelp reportedly walked away from a $500-million acquisition offer from Google, it was hit with a class-action lawsuit from businesses alleging that its sales technique amounts to extortion -- a charge Yelp denies.

The start-ups compete for local dollars in a variety of ways. Milo, NearbyNow and Krillion promote shopping in brick-and-mortar stores. LivingSocial and Groupon offer special local “deals,” with costs reduced by group buying. Redbeacon and Thumbtack try to connect consumers with service providers; RentCycle aims to simplify equipment rentals. Facebook features, Twitter and smart phone applications alert consumers to nearby goods and services.

Traditional businesses are adapting to the local Web. Perfect Shine Housekeeping, a family-run business in Campbell, Calif., that since 1995 has dispatched cleaning crews around the Bay Area, created a website in 2006. Owner Eric McDonald said he was long wedded to “the old-school philosophy” of relying on his Yellow Pages display ads, which cost about $500 a month.

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A few years ago McDonald dropped the Yellow Pages and applied his ad budget to ServiceMagic, a website that connects customers with service professionals, but was frustrated that it charged him $13 for every lead it generated, regardless of whether he got the job.

More recently, McDonald has bid for jobs on Redbeacon. That start-up aims to automate shopping for service providers. A San Jose resident, for example, recently posted a request for someone to take out a broken toilet and install a new one at a specific date and time. Within 24 hours, nine bids came in, ranging from a handyman seeking $50 to a plumber asking $150. Redbeacon takes a 10% commission.

Founded by three Google veterans, Redbeacon debuted six months ago at the TechCrunch 50 start-up showcase, winning top honors and a $50,000 prize, even as skeptics questioned its ability to grow.

Redbeacon has had more success attracting service providers than consumers, CEO Ethan Anderson said. He’s hoping that changes through a revenue-sharing integration with BigTent, a San Francisco start-up that provides Web services to hundreds of clubs and nonprofits, including many mothers’ groups. Moms, he said, are a crucial demographic for Redbeacon because they tend to make many household decisions.

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Redbeacon is also adding a social element through Facebook’s Connect feature.

Just about every local Web start-up poses a challenge to the Yellow Pages, which has long been the go-to source to find local businesses. Keith Rabois, a director of Yelp and Milo, points out that many people now use search engines instead of print directories.

AT&T Inc. launched its own Web offerings years ago, enabling its 5,000 salespeople to sell “multimedia” advertising packages, spokesman Bob Mueller said. The physical Yellow Pages directories produced by AT&T and others remain thick and ubiquitous, Mueller said, while online traffic is growing at Yellowpages.com and YP.com, where many listings now include user reviews.

Harris writes for the San Jose Mercury News / McClatchy.

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