Why Yahoo Likes Newspapers

November '06 will go down as the month the search giants got serious about newspaper plays. Google has unveiled plans to enter ad management for newspaper classifieds across 50 papers; last week, Yahoo countered by entering strategic partnerships--starting with collaboration on job classifieds, but set to expand into Yahoo help with newspapers' maps and search presences--for 176 newspapers' online divisions.

When you think about it, the Yahoo move seems surprising. Newspaper moves make sense for Google, which has long expressed plans for expanding into traditional media; and which, besides, goes for over $500 a share and has money to burn on new initiatives. But Yahoo's poor Q3 performance, probable eminent downsizing, and "Peanut Butter Manifesto" that looks to streamline Yahoo's activities, rather than expand them, makes a sudden shift into newspapers seems odd. It's especially odd in light of the tough times that newspapers currently face, making Yahoo's move into newspapers a change of course right into an ailing industry.



So my question for this week is: What does a troubled Yahoo see in a beleaguered newspaper business? The answer to that question, of course, lies in local advertising.

It's not surprising that Yahoo would feel itself lagging in local. From its roots, Yahoo has been a leader in the general online world, from search to e-mail to online content. But leadership in general online services is very different from leadership in the local markets. Consider search: while Google nearly doubles Yahoo's share of overall search (Google has roughly 50% of all searches, to Yahoo's 25%), Google leads Yahoo by only a slim lead in share of local searches  (according to an e-Marketer study from earlier this year, Google holds about 29.8% of all local searches to Yahoo's 29.2%).

That general search/local search split makes a good deal of sense, as broader channels operate in nearly opposite ways from local media. Most of the Internet--including search--is used to bring a wide, unknown world a little bit closer to you. That includes finding the Web site you don't know about through search; it also includes letting you e-mail a friend you can't speak to because you're not in front of her. Services for the general Web focus on building better, smarter communication pathways to make a big world smaller.

Local advertising is something entirely different. Local channels focus on enhancing audiences' participation in a corner of the world that's already, quite literally, very close to home. Local media isn't about making a big world small; it's about entrenching people's relationships with a world that already is very small. And so while winning in most Internet services relies on excelling at bridge-building across different locations and types of information, winning in local channels relies on becoming an extension of your particular locale. Google's a powerhouse in global information-bridging, allowing it to take the lead in general search; but it's Yahoo, which offers rich local information on its portal, that becomes a portion of users' local experience, thereby reaping the rewards in share of online searches.

Yahoo understands this. And it also seems to understand that, at the end of the day, it's newspapers that have the infrastructure to make themselves a part of the local scene in a way that globally-focused online players--including Yahoo itself--simply can't. Newspapers have what Dean Singleton, CEO of MediaNews Group (which is partnering with Yahoo), refers to as "a huge sales force involving thousands of sales professionals"; they also have lots of local reporters creating enormous amounts of online locally-focused content. By tapping into those thousands of ad salespeople, Yahoo is able to capture local advertising markets it's not built to capture on its own; meanwhile, by helping with the search presence of newspapers' online content, it's able to enhance the local results on Yahoo search (where that local content is now more likely to appear), without needing to create its own small army of local beat reporters.

In other words, Yahoo understands that it's got two choices for expanding its local reach. It can either deliver moreof its own local offerings--which will mean defying the Peanut Butter Manifesto by building a workforce to create more local content--or it can outsource its local workforce to the local experts (the newspapers), while doing what it does best as a global online service: serving as the network that takes information from the world's many locations, and delivers that information to its users. By opting for the second choice, Yahoo's managing to expand its local reach, while working less. Which is why Yahoo's move into newspapers may look like it's taking on more; but it's actually a way to become more efficient by honing in on its core competencies. Far from being a dangerous expansion, that's smart business.

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