I had lunch with one particular analyst last week and he explained that 90% of all businesses LISTED in yellow pages services are businesses with 5 employees or less. Imagine that, there are MILLIONS of SMALL businesses out there.
And I happen to know that on average less than 15% of all businesses listed in yellow pages services are PAYING advertisers. In fact in one example I looked at (and note this was one of the world’s top 3 yellow pages by revenue) it was just 9%!
Now then, if you look at the UK’s big yellow pages provider (Yell) you see that they make about £700m a year from around 200,000 paying businesses (and they have around 2.2m businesses listed). That seems strange because that means an AVO (Average Value Order) of around £3,500 (how many 5-man businesses do you know that would take that hit on yellow pages advertising? Yep, not many). Obviously the AVO is dramatically skewed by the few very large (and national) businesses that are paying considerably more. Once you take out those big guys the AVO comes down somewhere near £900/year.
Still, one of the points I want to make is the similarity between the yellow pages industry and the book sellers industry before Amazon came along and changed the game forever. The big book stores in the US (Borders, Barnes and Noble) have high inventory costs of holding books on shelves in expensive retail space, so employing the ‘long tail distribution‘ curve they determined that they needed only stock the top selling n titles – indeed it was uneconomical to stock any that sold less than a certain volume.
But, along came Amazon with its dramatically different business model and cost model that allows Amazon to list (and fulfill orders for) many thousands more titles. To Amazon the incremental cost of holding that next title was almost zero, so they listed it. Now, the long tail model when applied to electronic retailers says that the area under the curve of the long tail (the revenue) is an enormous new opportunity that can be realised by these new smarter entrants like Amazon, and the traditional old-world stores could not compete on the same footing. And so it is that Amazon became the world’s largest book seller (and of course no they have grown way past just books).
So, coming back to the yellow pages industry, and what all this has to do with The Brownbook… Well, if the yellow pages industry has a solution for only 15% of all businesses, if they are paying on average £3,500 per year, and if 90% of the businesses LISTED employ 5 people or less – I’d like to know who is going to build the solution for the other EIGHTY FIVE PERCENT of the market? Well, thats where we step in. When you’re talking about the long tail of any market you can’t provide for it with expensive cost structures (in the case of the yellow pages industry that means large staff budgets, big call centres, data cleansing operations, huge on-the-road sales forces) it just doesn’t stack up. But, what you can do is do something revolutionary, like peer-production for example, allowing you to rip the bottom right out of the established pricing models and provide an economical solution for the long tail.