Newspaper Reactions Stall Zip2 National Ads Temporarily

By: Steve Outing Last Friday, newspaper online vendor Zip2 held a conference call for newspaper Web clients who use the Zip2 online Yellow Pages service, announcing some new changes that were to be implemented in the next version of the service -- due to be introduced in one week's time. Most of the newspaper new media managers who took part in the call were none too happy about what they heard.

The newest version (4.0) of the Zip2 Yellow Pages includes a new interface, but the change in the service that got the newspaper clients so upset was the introduction of national advertising into the product. National ads -- some of which might compete with local advertisers who pay the newspaper site to be included in local listings -- would be served up alongside local listings. A consumer using the service to search for florists, for example, might see not only directory listings (some paid) and ads for local florists in a results screen, but also in theory see national ads for companies like 1-800-FLOWERS, or a national floral chain that directs Web users to local franchises. Accepting the national ads was to be a mandatory part of carrying the Zip2 Yellow Pages service on a newspaper site.

The reaction from Zip2's clients (the company primarily serves the newspaper industry, and several media companies are investors in Silicon Valley-based Zip2) was fierce and quick. "These ads can be in direct competition to our local advertisers," one newspaper new media manager who asked not to be identified wrote in a private e-mail to me. "Despite a minimal revenue share, we see no benefit to our business, especially to our local advertisers."

At Zip2, executives were a bit surprised by the reaction, but acting CEO Derek Proudian acknowledges that the company moved too hastily and didn't adequately consult with and get feedback on the concept from its clients before announcing the change. As a result, a decision on incorporating the national ads into the Yellow Pages services is being deferred until October 1, and discussions with newspaper clients about the issue are being scheduled for the coming weeks. The new redesign will still move ahead, though its debut has been delayed by one week; it will be introduced on August 24.

Fast vs. slow

"We probably made a mistake in trying to go faster than was possible," Proudian says. There's a constant tension in the Zip2 business model between wanting to respond to rapidly moving competitive forces in the Internet environment, he says, yet not moving so quickly that it can upset traditional businesses like newspapers that are not accustomed to rapid change. The acting CEO says that Zip2 was moving fast to counter recent moves by Yahoo! and Microsoft that demonstrate that those companies are getting more serious about the online directory space. Internally, Zip2 executives feel pressure to respond quickly to the market, but their customer base often is uncomfortable with that.

Proudian sees the introduction of national ads into the Zip2 Yellow Pages service as inevitable and necessary, primarily for competitive reasons. The online Yellow Pages model needs to be like print Yellow Pages in the respect that consumers get all the information that's available, he says. To omit some national ads from an online directory because they would compete with local businesses is self-defeating; it might mollify local advertisers who don't like the national competitors operating in their local markets, but it means the online directory service will have less depth than those of competitors and ultimately lose.

The consumer using a local online Yellow Page service wants to know the location of the coffee shop nearest to her home, Proudian says, and she may not care whether it's a local independent business or a Starbucks found by way of a national Starbucks online ad that allows the consumer to type in her address and find the Starbucks shop closest to her home.

"Our mission is to be a technology equalizer," Proudian says. "We can't just ignore what's going on in the rest of the Internet."

Because Zip2's primary clients are newspapers, the company has not to date done much execution with national advertising. Now that Zip2 has upward of 160 clients using its Yellow Pages directory and other services, Proudian says that the company felt a critical mass had been reached that would support national advertising as part of the revenue model.

Earlier in the year, Zip2 introduced a trial national advertising component called "The Money Bar," which accepted banner ads from a small number of Internet-related companies into the Yellow Pages service. That experimental program gave newspaper sites carrying the service the option of accepting or declining those ads -- which generally were not competitive in nature to a newspaper's local-market advertisers. Since the new (now delayed) national ad program was to have been mandatory, that may have contributed to the upset felt by some newspaper executives who felt that they should continue to have control over the national advertising issue.

During last Friday's conference call, participants say that they expressed their displeasure about the mandatory nature of accepting national ads in the Yellow Pages product -- termed as "franchise content" by Zip2 -- but were told that this would not be changed. Molly Wollenburg, who manages the online city guide site of the Indianapolis Star/News in Indiana and took part in the conference call, says several call participants asked the Zip2 representatives to postpone the decision, but were told no. By early this week, however, enough complaints had been fielded by Zip2 executives that they indeed did postpone implementing the national ad strategy pending more consultation with their clients.

Inevitable conflicts

Such conflicts are likely to continue -- and indeed escalate -- as newspaper companies engage in relationships with third-party vendors. Publisher and vendor have mutual interests, but at the same time conflicting ones. At Guy Gannett Communications in Maine, for example, its newspaper Web sites use InfoSpace as their Yellow Pages provider. Joe Michaud, editor of Guy Gannett's New Media Development Group, says over the last year he's become increasingly concerned over some of the national Web banners that InfoSpace has placed in the Yellow Pages services -- such as real estate finder services that compete with his own similar online offerings.

Recently, InfoSpace began including banners promoting a room-booking service that included hotel listings in Guy Gannett's region. Gannett's Yellow Pages product also is going after that market. "This is a national service, contracting (for fee) with local media and then marketing itself directly to the local advertisers," Michaud says. "This is the dark side of some of these free services that are showing up."

Mike Lawrence, Guy Gannett's new media general sales manager, says he doesn't like what InfoSpace is doing, but it's not something he's going to get overly upset about. Nor is he likely at this time to switch Yellow Pages vendors over the lodging service issue; the same issue is likely to come up with any other vendor, he says. Anyone who produces content and then licenses it to others is still going to want to sell national advertising on it. Besides, says Lawrence, the lodging service in particular is not much of a competitive threat, because its content is thin compared to the Guy Gannett lodging information service.

The key to Lawrence's more relaxed attitude about InfoSpace's national ads is that "I'm not hanging my hat" on the InfoSpace deal to bring in revenues. Rather, that relationship is complementary to a line of business that Guy Gannett New Media does own outright: Building and maintaining small Web sites for local companies which are linked to from the Yellow Pages directory.

Lawrence "applauds my fellow publishers" for coercing Zip2 to hold off on accepting national advertising that would compete with local advertisers. But he says it's inevitable that they'll have to accept it some day. The online space will be competitive, and we all need to accept that. The Web may not be much different from television, he suggests, where local affiliates don't have control over national ads in network and syndicated programming that might not be appreciated by local advertisers. Should the Web publishing environment really be any different?

Online fantasy league games: Follow-up

In my recent column about online fantasy league sports games, I fear I may have confused the issue for some readers by not pointing out how the online fantasy games are different from the games that many print newspapers have been running for years. Jeff Thomas, president of the Sports Buff Network, wrote in with these comments, which clarify the issue:

"The Sports Buff Network is in its sixth year and I sit on a committee of the top four or five online and print game managers. I have been monitoring the Kyl bill to ensure that Kyl and others understand the differences between print and online contests. It's important to note that a true newspaper fantasy contest is nothing like the new, totally online game, offered by the company from Sacramento.

"It's very confusing, especially to people that will read your article and group all games in the same basket. For example, the Dallas Morning News has done a print game for years and it has been very successful. It's nothing like the online game that they were considering.

"We are the market leader in the U.S. and offer two types of football games to newspapers. Both are games with no entry fee. Contestants have an option to pay $5 for services -- an entertainment package which includes the ability to get automated updates every week. In the newspaper world, this contest is like Bingo or a Treasure Hunt or any other similar circulation-driving promotion. The fact that the concept is fantasy has nothing to do with the design of the game or whether it is attached to the Kyl bill. That's a very important distinction. The Kyl bill applies to online contests with required entry fees. No newspaper Sports Buff contest requires a fee of any kind. ...

"The new media people in the newspaper industry are unfortunately getting bombarded with calls from start-ups. ... Since we attend most of the INMA and NAA conferences and meet with marketing and promotion managers, we haven't run into many of the new media people before they make their quick decision (based on false projections from a start-up). Yes, there's a little bit of bitterness in seeing someone come into the marketplace like this, but business is business and we were a start-up once. The problem is they do not have the experience and they will not get anywhere near the numbers they are projecting to newspapers. And because what they are doing has a 'fantasy' title, it could hurt the industry, because most people are not aware of the differences -- it's just 'fantasy.' ...

"The majority of our customers play a basic, circulation-driving game much different than the one you have described. I would hope that our potential future customers do not get the wrong impression. Thank you for the opportunity to provide feedback and clarify the issue"

Contact: Jeff Thomas,


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This column is written by Steve Outing exclusively for Editor & Publisher Interactive three days a week. News, tips, and other communications may be sent to Mr. Outing

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