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Hyperlocal Slough of Despond. After EveryBlock, Hipster & Patch Will Authentically Local Create The Sustainable Model? February 8, 2013

Posted by bernardlunn in Hyperlocal, Journalism.
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Today many online publishers will be eying the AOL Q4 results. A small sub segment will be poring over every number and word revealed about AOL’s expensive experiment in hyperlocal news called Patch.

UPDATED: quick look at Q4 results. Good overall, but this is all I could see about Patch – “lower year-over-year Patch expenses”. So, I assume that means no revenue growth or they would be bragging about that and starting to scale back quietly.

Coming the day after NBC closed down EveryBlock without any notice, bad news about Patch will signal that we have reached the slough of despond in Hyperlocal. If that is the case, those who still believe in Hyperlocal will be cheering. This will be like the days in 2002 when everybody declared that the Internet and software were hyped and useless. This Economics Of Dreams picture from the great Israeli entrepreneur Yossi Vardi says it all:

yossi

I think we are somewhere between Panic and Capitulation in Hyperlocal. If I am right, it is a wonderful time to be an entrepreneur in Hyperlocal. This is like being Mark Zuckerberg in 2003 or Marc Benioff in 1999 when everybody sensible had written off social networking and enterprise software.

Hipster was the other Hyperlocal experiment that died recently. Unlike EveryBlock, few attended that funeral. It passed unnoticed.

What all these experiments failed to understand is that there is no hip early adopter market in Hyperlocal. Hipster failed most obviously in this regard. That name is just so appallingly bad for Hyperlocal. The hipster market goes to Foursquare and Instagram. Young singles care about who is hot in a hot bar. They don’t care about the kid’s soccer match, the school budget, the town hall meeting. The hip young singles would not be seen dead hanging with the grannies and the kids at the street parties. To make it worse, Hipster forced you to download an app before you could report news (it even insisted on IOS6, so you had to get crappy maps as part of the package).

EveryBlock did a lot better. Lots of people mourn EveryBlock’s passing. The mistakes are not as obvious as Hipster. It also got some early adopter tech love because the founder of hipster framework Django was one of the founders of EveryBlock. I dropped in once on EveryBlock but did not stay. It did not have content for the place I cared about. But more important, the tone was wrong. There was a lot of do-gooder talk about caring about your neighborhood that did not resonate with me; people who care about the neighborhood are out on the streets and in town halls doing something about it. Being on a forum or tweeting about something that affects a neighbor next door is just weird. Why not pop in and say hello? I hear that a lot of the EveryBlock “community” (a horribly overused word) became very negative in the later stages. EveryBlock was also only a city thing, it did not speak to people in villages and small towns. It was also too US centric.

One blog comment about EveryBlock’s demise, from Mark Armstrong of Nieman Journalism Lab nails the issue. He says you care about Local when you have kids. As a parent I agree. I am not sure I agree that Local news will end up being a byproduct of a parenting app. The issue is broader. How do you reach a mass market without going through the hip early adopter market?

But the most fundamental problem was that EveryBlock did not have a sustainable business model. Getting a one off grant is the worst way to build a sustainable business. VC will at least force you to make business decisions. EveryBlock went straight from philanthropy (money is there to do good) to corporate world (money needs to make a lot more money and it needs to do it this quarter) without going through the normal rigors of start up life that force you to connect to a real need that will generate revenues and profits. There was no real editing of the content, because people have to be paid to edit (curation eventually turns into spam and scam, people need money to do a real job).

That is what AOL is attempting with Patch, paying reporters and editors to cover local news.

AOL’s Patch experiment is a big one. Tim Armstrong, CEO, has made this his big bet. It therefore does not lack for investment and commitment. But he is running a public company and that means he needs to show results that show up in quarterly statements. If the results don’t show up, he will be faced with a “kill Patch or kill my career” decision. An entrepreneur like Steve Jobs or Marc Benioff or Jeff Bezos, with a track record or going against the herd and winning, can play that contrarian game. Tim Armstrong does not yet have the track record to thumb his nose at Wall Street and have Wall Street come back and ask for more.

I think Tim Armstrong made the right bet on Hyperlocal. Whether Wall Street gives him enough runway to prove his thesis, is another matter. I think there is a pony in there somewhere. I am not sure that AOL has found the pony and that it is called Patch. Maybe if Google was doing Patch it would be different. Their massive cash cow can withstand years of investment in dreams until they pay off. AOL only has the dwindling cash cow from dial up subscriptions. But Google would not do Patch, they fundamentally don’t believe in the model of paying reporters and editors to cover the news. I hope Patch makes it. Lots of jobs are at stake. If Patch does not make it, something else will. The reason is very simple and Warren Buffet articulated it years ago when he called local papers the best toll booth around. Buffet is back buying local newspapers. Of course now he is doing it at very low valuations (like 4x EBITDA). That shows the problem. Hyperlocal comes from a Silicon Valley world that wants 10x revenue and 100x EBITDA. That is what you need at exit to fund the start up risk. When Buffet buys at 4X EBITDA, he can wait for a decade for his bet to pay off.

In fact Hyperlocal is a horrible name. I use it because it is the accepted name. I think of it as Hype? Err. Local. It was a pathetic attempt to hype an unsexy business. Local News does not sound like something that will get a VC or Wall Street Analyst salivating. Yet Local News is what this is about. Call it Hyperlocal and you can call it Color and raise $41m in VC funding. Or you can do Yet Another Daily Deals site and get funding. Daily Deals are about connecting you to local merchants. Like Coupons – remember that is where the name Groupon comes from. But do you buy a local newspaper to get the coupons? No you buy it to get the local news and a few coupons fall into your lap. The Daily Deals business is unsustainable without Local News and vice versa. That is a blindingly obvious insight but nobody has connected those two dots yet to create a sustainable business. Somebody will, once we get past Capitulation.

So when all the hot money has left, who will make a success of Local News? I think it will be the same sorts of people who made a business out of Local Newspapers originally, hardscrabble entrepreneurs who are deeply committed to the area they live in and who love reporting the news. You can see the shape of this in the Authentically Local movement. This is tiny today. It is like the Homebrew Computer Club in the 1970s. You need passion to be in the Authentically Local publishing business; you are certainly not doing it for the quick bucks or the financial security. As the founders of Authentically Local say right on their cover – Local Doesn’t Scale. But it may do something more important which is create a sustainable model for news in local communities.

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Comments»

1. Patrick Sand - February 9, 2013

The odd thing about the business model discussion is that no one with much of an interest, much less some experience, in the history of Internet ever speaks up.

Thank you.

Please allow me to air my gripes about the use of the word, ‘scale’ after 20-some years on the Net.

Local is very much based on geography. This, in its own way, proves your point. Our neighborhood is considered a destination for both gay and straight couples with children. Roll that up with the fact that we have something like an island infrastructure and you have the elements needed to create a sustainable business model.

As of the last census West Seattle has 85K people and – while it is a heated matter of much debate – we have somewhere between 400 & 600 businesses, most of which are owned by people who live in the neighborhood. As such we don’t have to travel far for even the most basic services (e.g. groceries or gasoline) much less the more complicated ones (e.g. dentists or contractors).

This is what we need to talk about when we talk about scale – what do you have to work with?

The discussion of what constitutes sustainable hyperlocal success was defined by people who had no idea what they were talking about. Scale was always seen as what it took to make a rubber-stamp model. What they needed to talk about was the elements that make up the necessary building blocks that would make any one site successful. If those people had taken a first-things-first approach (possible readers vs. funding options) we’d be much further along in finding something, which could be called, a workable business model.

And to answer your next question, Patch’s umpteen-point checklist never cut it.

Strictly as a data point – when there’s a man running around your neighborhood who killed 5 people earlier in the day, you kinda reach the younger demographic with your live coverage of the event.

VC?

You’re dead on correct.

We’re not the least bit sexy.

Please don’t make me send the poolside snapshots to prove the point.

Patrick Sand, The Sales Guy, westseattleblog.com


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