Local Corp. bills itself as the “No. 2” player in the online directory marketplace, second only to Atlanta-based YP Intellectual Property LLC, which runs Yellowpages.com.
But the road to the top was anything but smooth for the Irvine-based digital media company, which connects local businesses with online consumers.
“It wasn’t all butterflies and rainbows for us,” said Heath Clarke, Local Corp.’s chairman and chief executive, referring to the company’s early years. “We actually had a tough period of time when we didn’t know whether the company was going to make it. But we did believe in what we were doing, and we kept at it, no matter what.”
Local Corp. has posted a 19.9% increase in revenue since 2011. Superpages.com and Dexknows.com are its other main competitors.
Clarke said his team’s biggest strength is its ability to recognize and adapt to marketplace trends.
“Online advertising is a very rapidly evolving space,” he said. “There is good news and bad news in that—the bad news is you can be out of the business quickly if you don’t adapt; the good news is … that if you do adapt, there are massive opportunities for you.”
Local Corp. has undergone two major transformations since its 1999 inception, and it’s still in the latest one. Both changes focused on adapting its search technology to emerging market trends.
The company in its early days broke into online advertising with a downloadable toolbar that enabled consumers to search for goods and services from their desktops.
In 1998 and 1999, “most Internet access was through a dial-up (connection),” Clarke said. “Our solution … was much faster than clicking around the website, and advertisers paid to be listed in [search] categories in which they were relevant.”
The then-private venture, financed by an Australian investor, had $20 million in revenue at the end of a five-year period ending in 2004 that Clarke labeled as the “very lean years.”
“There was a lot of desperation,” he said, referring to the dot-com bubble burst that plagued Internet-based companies from roughly 1999 to 2001. “We managed to scrape pennies together and defer payroll. … We came out of it in 2003 with an investor who helped us out significantly.”
In 2004 the company filed an initial public offering, raising $25 million, plus $15 million in a follow-on offering. The year also marked its first technological rebirth when it discontinued its desktop toolbar in favor of facilitating searches through a network of websites it either powered or partnered with.
Local Corp. also focused on delivering better local search results through its proprietary technology powering the new network, as Clarke said a quarter of Internet searches at the time failed to deliver relevant results. He said his team managed to reduce the failure rate to 2%.
The website network also generated new sources of revenue.
“We developed search technology and licensed it to others, but what we [found out] after the first 12 months is that yellow-page publishers were not really concerned that their searches were failing,” he said. “We realized we can probably beat them at this game by doing it ourselves,” he said, referring to facilitating searches rather than selling technology. “And that’s exactly what we did—within five or six years, we were No. 2 in that segment,” he said, pointing to company analytics that show it’s attained that market share.
Local Corp. in 2005 purchased the Local.com domain for $700,000. The company, which at the time had less than 40 employees, aggregated a database of 12 million businesses across the country. It published the data—such as contact information, ratings and reviews of products and services—on Local.com, Clarke said, making it discoverable to search engines.
Local Corp. also shares its database with some 1,600 “partner websites,” such as the Pittsburgh Post-Gazette.
“When a consumer goes to Google, Bing or Yahoo and searches for flowers in Irvine, sometimes our listing on [one of our partner’s websites] will appear, and that will drive consumers into that section of the website,” Clarke said.
The majority of the company’s growth since 2010, though, has resulted from its partnership with Google Inc. in 2011 that enabled Local Corp. to increase the rate at which it monetizes search traffic. Clarke said about 1 million consumers interact with its database each day while searching for local goods and services and that most are likely to make a purchase.
“Google or Yahoo … want to put their advertisers’ listing in front of our consumer when they do that search, because that consumer is more likely to click on that ad and buy something from that advertiser,” he said.
Both “buckets of revenue” have helped the company improve its revenue from $74.8 million reported in June 2011 to the $89.7 million it posted in June, and it now has 90 employees.
Recent divestments didn’t hurt, either.
In 2011, Local Corp. bought three companies—Rovion, Krillion Inc. and Screamin’ Media Group Inc.—all of which were unprofitable but were “bets on things we wanted to be doing,” Clarke said, referring to its efforts to beef up its technology offerings.
The rich media advertising technology of Rovion, a Boston company purchased from Irvine-based DigitalPost Interactive for $1.5 million, enabled production of interactive display ads and videos for media companies and small and midsize businesses.
It bought San Juan Capistrano-based Screamin’ Media for $12.5 million in cash and stock, rolling the company’s operations under its Spreebird daily deals brand, which offered similar discounts for goods and services provided by merchants.
Local Corp. sold Rovion to Gannett Co. in October 2012 for $3.9 million after deciding to focus exclusively on channel-sale opportunities, eliminating direct sales efforts. The sale of SpreeBird to nCrowd Inc. of Atlanta followed in July.
The divestments helped Local Corp. narrow its losses from $3.8 million in the third quarter of 2012 to the $1.7 million recorded for the same period this year.
The company held on to Krillion, a location-based product search platform purchased for $3.5 million, and made it the core of its second iteration—a shift to real-time, mobile product searches.
The move was spurred by statistics that showed 30% of its searches stem from mobile devices, a figure that’s estimated to reach the 80% mark over the next four years.
The company has “mobile-enabled” its websites and is developing an application powered by Krillion technology.
It said the latter, set to deploy by year-end, will help refine search results to product-level data, such as real-time inventory at local stores. For instance, if a shopper covets a particular sweater, she’ll be able to check whether a local store has it in stock.
Clarke’s strategy is compatible with the increasingly popular “showrooming” trend, in which consumers research products online but buy offline. Consumers, once they choose a product, will go to a store for final inspection and then get on their mobile devices to check if anyone is selling it cheaper locally.
And that’s where Local Corp. comes into play.
“Because we have access to what’s in that store, plus what’s in 70,000 retail locations nationwide,” Clarke said, “we can tell you if that Pioneer 50-inch plasma is cheaper up the road at Sears than it is at the Best Buy you are standing in and tell you if it’s in stock right now.”