InfoSpace Acquires

Just weeks after Yahoo! and Google announced their new local search offerings, interactive Yellow Pages (IYP) aggregator InfoSpace staked its claim in the online Yellow Pages marketplace after reaching an agreement to acquire IYP listings provider The move, announced Friday, will cost InfoSpace $7.75 per share, or approximately $160 million. It also means that InfoSpace gets 23 percent of the IYP market through its combined network of sites and distribution partners, according to comScore Networks' comScore MediaMetrix.

Jim Voelker, Chairman and CEO, InfoSpace, notes that the acquisition immediately establishes InfoSpace as the premier online aggregator of Yellow Pages content: "Through this acquisition, we nearly double our share of online directory traffic, gain a proven technology platform, and add several new and important partner relationships."

Like Web search, the IYP market is growing fast, but some industry analysts believe listings networks like InfoSpace could face some serious competition for traffic and ad dollars from their larger search cousins, which are also making significant investments in local search.



"The question is--which platform is easier for advertisers?" says Greg Sterling, program director, digital directories-interactive local media, The Kelsey Group. "Internet Yellow Pages generates considerable traffic, but it pales in comparison to Google and Yahoo!" While he admits that companies like InfoSpace will be competing with the Web search kingpins for traffic, Sterling says there may be less competition for advertisers, since many advertisers will want to advertise across multiple mediums.

Sterling claims that currently, there is no clear winner in terms of data quality between online Yellow Pages and Google and Yahoo!'s local services. "Historically," he says, "Web search provides the better user experience." The user interface, he notes, is something most consumers are already familiar with. For advertisers, Sterling says that AdWords is a proven platform for traffic-generating keyword buys, but more and more IYP publishers like Verizon's SuperPages are starting to implement pay-per-click keyword search.

Ultimately, Sterling says, "whoever provides the better user experience will be the winner, de facto. That'll be where the loyalty goes." This is clearly Google's strategy, and Sterling says this is something Yellow Pages providers like InfoSpace will need to make a priority. "Going forward, Internet Yellow Pages will have to provide a superior user experience because they already have such a traffic disadvantage."

Brian McManus, executive vice president, Search and Directories, InfoSpace, contends that Web search and IYP are more complementary than competitive services. "We have partnerships with Google and Yahoo!" McManus notes. He says that the way Google and Yahoo! generate results is markedly different from the way IYP does. Google and Yahoo! crawl the Web for links and ranks according to the number of times the search query term is mentioned. InfoSpace, as an aggregator, crawls Yellow Pages listings across multiple listings providers to bring back actual listings and exact matches.

McManus says that 70 percent of local merchants don't even have Web sites, so they can't advertise with search, and even the ones who do probably don't have too many links to their site. He says that local merchants are therefore more likely to provide their listings to Internet Yellow Pages than Google or Yahoo!.

While he concedes that Google and Yahoo! generate significant awareness from their brand images and higher traffic than IYP, McManus says that InfoSpace is not in the business of directly trying to compete with either for their traffic, because there is a market for both. "[Google] won't own all the traffic," he says. "Their reach is big, but searchers are going to a lot of other sites too--and that's increasing, not decreasing," McManus maintains.

In fact, McManus says that through Switchboard, InfoSpace is actually positioned to partner with most of its major competitors. "Switchboard has done a great job creating relationships with major merchant aggregators and vertical merchant aggregators." He adds that Switchboard's ad server, while not on the scale of a network like DoubleClick, enables advertisers to manage their individual campaigns the same way they can through search.

Interestingly, Verizon SuperPages, one of Switchboard's largest competitors in providing IYP listings, currently powers the Yellow Pages for InfoSpace's search engine properties WebCrawler, MetaCrawler, and Dogpile. McManus says that InfoSpace has no plans to replace the SuperPages listings with Switchboard listings. "We've got a great relationship with SuperPages, and we expect that to continue," he says, adding that "[the partnership] allows their advertisers to have a larger reach too." McManus claims that InfoSpace is more interested in adding partners than distancing itself from its competitors. "Aggregation is the key to good user experience," he says.

For local merchants, many of whom don't have Web sites, Yellow Pages directories are a crucial source of consumer traffic. A recent Kelsey Group study says that the Yellow Pages industry generates nearly $15 billion in advertising revenues, and is receiving marked increases in the number of online consumer searches versus print-based consumer searches. The study expects the number of online Yellow Pages searches will grow 25 percent annually, accounting for more than 30 percent of total Yellow Pages lookups by 2006, and 45 percent of total lookups by 2008.

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