Fast Company

Can Anyone Tap the $100 Billion Potential of Hyperlocal News?

Community-driven news services have been the next big thing online for years. Can The New York Times or AOL find the $100 billion local-advertising pot of gold?

Outside the local train station, the Maplewood Civic Association maintains a bulletin board plastered with news of jazz festivals and yoga classes for this small, affluent New Jersey town. One day last winter, an unassuming new flyer appeared, nestled between ones hawking a fish tank and a drum set, titled, "Introducing the Local." The flyer describes the Local as "a community Web site by you and for these communities, mentored by The New York Times."

Why is a media titan like The New York Times Co. -- already stretched thin by the challenges of a faltering business model -- dabbling in community news, traditionally the bottom of the journalistic food chain? Call it the Google Effect. The search giant's model, described by author John Battelle as "a billion dollars, one nickel at a time," is a perfect description of how media companies hope to take tiny sources of local revenue and roll them up into big money.

Hyperlocal sites -- covering cities, towns, or just a neighborhood -- can deliver precision-targeted advertising to local and global businesses. As the once-exponential growth rate for most Internet advertising in the United States grinds to a halt, the online local-advertising market is projected to grow 5.4% in 2009 to $13.3 billion, according to media research firm Borrell Associates.

As it happens, one of the architects of Google's success, former head of advertising Tim Armstrong, founded a community-news site called Patch that intends to collect those nickels. Armstrong, in his new role as the CEO of AOL, acquired Patch in one of his first moves. And where, of all places, has Patch set up shop? Maplewood.

Hyperlocal seems like a can't-miss proposition. "There is real demand for good information about our neighborhoods, our children's schools, our streets, our blocks," says Jay Rosen, an NYU journalism professor and media blogger. Except for one thing: Success remains perpetually around the corner, constantly predicted yet never fulfilled. While different people have named hyperlocal as a trend to watch every year since 2004, "everybody's groping for a business model," says Gordon Joseloff, who fits the all-too-typical norm for this space with his popular, distinguished, and unprofitable site in Westport, Connecticut. The Local and Patch -- and by extension, the Times and AOL -- may, too, be destined to find the same trouble.

Carpetbaggers' Quest for Gold

It is no accident that the Local and Patch each selected Maplewood as its hyperlocal testing ground. Patch engineers "had a computer model of the different factors they wanted," says Adam Bulger, the self-described "midlevel reporter" who covers Maplewood for Patch. The algorithm looks for civic-minded towns with a central business district instead of a series of strip malls, and high broadband penetration, which correlates with a burg's affluence.

The Local's Maplewood editor, Times metro-desk alumna Tina Kelley, lists the same traits, as well as the fact that the town is something of a "reporter's enclave." This combination of local features means, of course, that these neighborhoods are likely to have an already-crowded local blogosphere, poised to brand the new ventures as carpetbaggers. When the Local was first announced in Maplewood, the largest of the town's many home-brewed sites, Maplewood Online, hosted a very active conversation in the "Now the NY Times Invades MOL's Turf" thread of its community message board. In one of Bulger's first weeks on the job, a prankster annoyed with Patch's colonial ambitions tried to trick him into posting a story about local gangs whose leaders happened to share the names of characters from the movie Ghostbusters. The Local has encountered similar resistance to its two sites in blog-filled Brooklyn as well. "They're worried," explains the Local's Kelley, "about the big media companies coming in and taking up [their local sites'] advertising dollars."

When AOL announced the Patch deal, CEO Armstrong called local advertising "the largest white space" for the company moving forward. "Hyperlocal is going to be a huge, huge market," says Mark Josephson, CEO of the hyperlocal aggregator Outside.in. "Local advertisers are not online in a major way yet -- like they're going to be."

Boosters routinely note that more than $100 billion is spent annually on local ads -- TV, radio, print, outdoor, direct mail, and online. Although the stat's origins are fuzzy, what's clear is how aggressively folks believe those ad dollars are migrating to the Web. Borrell Associates projects an online local-ad market worth $15.5 billion by 2013, fueled mostly by small businesses ditching the Yellow Pages and local newspapers.

There is a gap between these rosy projections and the more bleak reality. Debbie Galant is the "Queen of Hyperlocal," as crowned by new-media consultant and hyperlocal cheerleader Jeff Jarvis. Her site, Baristanet, serving Montclair, New Jersey, is often cited as proof that hyperlocal can be profitable. But Galant declines to specify what that profit is. "It's real money," she says. "We'll share that our ad revenue is six figures. But we won't go into more detail than that."

The truth is that billions are not migrating to hyperlocal sites. "Advertisers have no interest in community Web sites," says Gordon Borrell, CEO of the analyst firm whose statistics are routinely cited as evidence of hyperlocal's bright future. "They don't have the type of material advertisers want to be around," referring to archetypal hyperlocal stories about high school basketball and drug arrests. "Sites are connecting the dots inappropriately."

Even if the editorial mix changed, the ad model may be irreparably flawed. Consider the business model that Patch is pursuing in its three original New Jersey towns. Maplewood, South Orange, and Millburn have a combined population of around 60,000. Patch charges advertisers $15 per thousand impressions. If every resident in all of these towns contributed one impression a day -- and all of those impressions were sold out -- Patch would make $900 a day in revenue, or about $325,000 a year. Not exactly a windfall after expenses.

"Every town in America would benefit from having a Patch," says publisher and GM Warren Webster. "The local-ad market represents a great opportunity to create sustainable community-specific information sources." What's not clear yet is how these operations would be sustained.

A Hyperlocal Pyramid

The Times' executives behind the Local, to their credit, aren't fooling themselves that they will succeed based solely on advertising -- though targeted local and national ads are two parts of the Local's three-pronged business model. "We're talking about several hundred thousand dollars a year in personnel costs," says Jim Schachter, editor of digital initiatives at the paper. "I don't think the local digital-advertising market anywhere -- not Maplewood; not Fort Greene, Brooklyn; not Dubai -- would cover those costs."

The third aspect of the Local's strategy reveals where the Times sees the most opportunity. If the Local's test run proves to be successful -- meaning that it creates a vibrant content site with an engaged audience -- the Times would look to license the Local's platform to bloggers in other towns as a prepackaged tool kit. "Our hypothesis," Schachter explains, "is that there is a swath of people -- experts of various sorts, journalists, self-trained bloggers -- who would want our assistance in professionalizing their work and who would love to be associated with the Times. We could help those people mobilize their communities and gather local-advertising dollars in extremely low-cost ways. That could work, economically, for these local journalism entrepreneurs, and, at scale, it might work for us."

A New York Times-branded blogging platform would also come with some unsettled issues for the Gray Lady. Right now, every word that appears on the Local has a Times editor reviewing it. Would the newspaper oversee franchised content delivered under its name in the same way? "It's safe to say that we would exercise whatever level of oversight was required to protect the standing of our news brand," Schachter says. Would that even be feasible? "You are ahead of where we are," he admits.

Schachter isn't the only one who sees the potential in creating a franchise model. Baristanet's Galant and her business partner, Liz George, are now helping interested bloggers build sites, offering tips on maintaining a personality, and most important, assisting in securing advertising. In a model conceived by Jarvis (who also had the original idea for Baristanet, sits on Patch's advisory board, and connects his students with the Local), Baristanet receives a chunk of the new site's revenue and an equity stake.

The future of hyperlocal -- according to the people who have studied, lived, and championed it -- seems to be in convincing others that hyperlocal is the future. "Someday soon, somebody will make [hyperlocal] work and turn it into a successful business," wrote hyperlocal pioneer Mark Potts after his company Backfence folded in 2007. "If there's anything I've learned, it's that the power and potential of local communities still is waiting to be tapped." And so it remains.

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