• by Larry Dobrow , September 5, 2003

It's no secret that newspapers are leaving few stones unturned in their quest to replace the ad dollars that disappeared a few years ago. The medium, however, seems to have found an unlikely ally in the form of online auctions.

Employing technology engineered and managed by CityXpress, a seven-year-old tech firm based in Vancouver, an increasing number of newspapers across North America are using auctions in order to forge stronger connections with advertisers who may be skeptical about the medium's value. Among the papers who have already worked with CityXpress or have contracted to do so in the near future are the St. Louis Post-Dispatch, Denver Post and Calgary Herald.

"I think newspapers are willing to listen to just about anything nowadays - it's been a difficult time for them," says CityXpress president and chief executive officer Phil Dubois. "That's what's driving the growth of this product. The auctions have proven very effective in getting new advertisers into the newspaper."

The arrangement seems to be catching on because it is low-cost and low-risk for all parties involved. Here's how it works: the newspaper hires CityXpress to provide software and hardware for the auction, which runs on the CityXpress servers. Newspapers then send their sales minions into the field (with guidance from a CityXpress rep) to sign up advertisers for the auction. "The reason we provide training is to make sure the sales associates go after the ad categories that tend to work best," Dubois notes.

After meeting with the newspaper's reps, interested advertisers commit products and services to the auction - everything from auto detailing to automobiles. The newspaper runs a catalog of the auction items three to five days before it commences - thus giving advertisers exposure even if their products do not sell - and then CityXpress conducts the auction over a 10-day period. The newspaper can access the auction database at any time and is given tools to monitor its progress.

If a product is sold (each has a minimum reserve price), the newspaper receives the money directly from the winning bidder. The advertiser, in turn, receives an ad credit in the newspaper that generally has to be "cashed in" within three months. So let's say somebody wins a $200 gift certificate from a local merchant with a $100 bid: the newspaper gets the $100 and the advertiser gets $200 in ad credit. CityXpress receives an insertion fee for every item that goes into the auction as well what Dubois calls a "performance fee" based on the auction's success. "Our revenue depends on how well the newspaper does," he says.

Though the company ran 20 newspaper auctions in 2002 and will have run upwards of 80 before 2003 is finished, Dubois notes that the company continues to learn from each experience. He has identified categories in which the auctions generate the most sales - "automotive, travel, accommodations, home and garden, gift certificates for just about anything" - and ones where they don't. "Anything that either doesn't have mass appeal or where personal taste is a big factor, like artwork or jewelry, those are tough," he explains. "This is not a slam dunk by any means."

For newspapers, the primary benefit of the auctions is less the additional revenue than the advertiser relationships created - which isn't to say that the revenue is negligible. Dubois notes that small-circulation papers can expect to generate $80,000-$100,000 during a ten-day auction, while larger papers have netted as much as $1.5 million. The usual "auction discount" on most products and services falls between 32 and 38%. Forty to 50% of merchants in a given auction tend to be first-time advertisers; Dubois does not have data about retention.

He adds that participating advertisers generally report an increase in walk-in traffic in the days before and after an auction, and that 40% of bidders make an in-store visit. "For [advertisers], the costs are extremely low," he says. "It's nothing more than the wholesale cost of the product. And if it's a service, it tends to be even lower."

As for the future of his company, Dubois is predictably bullish. "We're growing mostly via word of mouth," he says. "It's an industry where everybody knows everybody else. Also, the business isn't tremendously competitive internally - most towns are one-paper towns."

Though CityXpress has only one direct competitor right now (edeal, which has coordinated programs for the Toronto Star and New York Daily News), it seems logical to expect a host of others to emerge. Additionally, CityXpress and its ilk will continue to compete with any number of other marketing initiatives. "Newspapers are looking for new ideas," Dubois says. "Anybody who's doing something different or new or smart is going to get their attention."