Benchmark’s Gurley: Dollars Are in the “Lo” Part of “SoLoMo”

Benchmark VC Bill Gurley has written a lengthy post on the SoLoMo segment and where he believes the real business opportunity resides: in Local. Of course I generally agree with his point of view. Local is also the glue that connects social and mobile:

  • Social: word of mouth, user-generated content
  • Local: online research –> offline buying
  • Mobile: the internet “in context” (time/space)

Here are a few choice bits from Gurley’s piece:

Today, the small business owner’s attitude has shifted from denial to anxiety, and, as a result, these local business owners are rushing to the Internet in droves. In Benchmark’s own portfolio, we have eight companies (OpenTable, Uber, Zillow, Yelp, DemandForce, GrubHub, 1stdibs, and Peixe Urbano, *) that generate the majority of their revenue directly from local businesses. Based on estimates, these companies will represent approximately $735mm in revenue in calendar year 2012 . . .

For the eight companies mentioned above, mobile usage already represents between 25-50% of overall customer usage depending on time of day and day of week . . .

By organizing small business owners, supplementary service providers, and customers on a single canonical set of data, these [new local] companies are not only providing new ways for customers to discover local businesses: they are creating new ways for local businesses to interact with customers . . .

This latter point is especially important. It’s a point I’ve made numerous times about companies such as Demandforce, which get into the daily operations of the business — or to a lesser extent Constant Contact. The local market and next-generation companies are moving from providers of advertising (impressions) to a broad array of services that may include or extend to advertising but fundamentally help businesses operate more efficiently and do things like manage existing customer relationships.

Gurley’s example is OpenTable. Along those lines, he also discusses the advantages of focus and vertical domain expertise:

Going “deep” [into services]  . . .  requires a deep understanding of the industry, access to all the key content and its structure, a targeted and experienced sales structure, and a willingness to invest in a market that may seem “niche” to the broader service provider. You have to be willing to get your hands dirty. These large companies favor a horizontal, one-size-fits-all approach, offering a widget that all local companies would potentially use (such as virtual loyalty cards). But these lightweight offerings from the incumbents will fall well short of the “automation” features and functionality enabled by the innovators digging deeper into the vertical . . . 

One thing that Bill Gurley indirectly discusses but doesn’t get deeply into is the shift from “advertising” to other services that we might group under the three broad headings: presence, customer acquisition and retention. Once upon a time a newspaper or yellow pages display ad was the local business “presence.” The ad was the equivalent of a website and distribution rolled into one.

Today, presence and distribution are separate and much more complicated. “Advertising,” as in media buying, for most local businesses has become a secondary concern. They want new customers of course but they’re less interested in “advertising” (i.e., paid search, online display, Facebook Ads) than they are in tangible leads.

So some of the $X billion in local “advertising” that’s migrating from traditional media to online “disappears” and shows up in services that don’t involve direct media buying. Newspaper and directory publishers are making this shift into services (see e.g., Yell/Hibu) but probably not fast enough.

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2 Responses to “Benchmark’s Gurley: Dollars Are in the “Lo” Part of “SoLoMo””

  1. Plumber says at

    Its great that Bill Gurley has taken the time and effort to write this piece. It shows that there remains strong interest in the SoLoMo space, and that it isn’t just another piece of jargon that will soon disappear.

    In particular, his line “the small business owner’s attitude has shifted from denial to anxiety, and, as a result, these local business owners are rushing to the Internet in droves” is very true. The denial stage is well and truly over, and whilst they are not yet at the acceptance stage, small business owners are getting closer and closer to understanding the importance of the internet.

  2. Eaco says at

    This article points out the exact reasons why we built Eaco. 

    Small businesses are no longer interested in just “advertising”, they want an entire end to end solution that will help the with every aspect of their business from lead generation right through to tracking customer satisfaction.

    Like Demand Force, and Constant Contacts growing suite of services, Eaco is designed to be the integrated business management platform that SMB’s want from their marketing partners these days.

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