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Local.com by Interchange

Distribution meets Destination

3:38 pm on Mar 7, 2005 (gmt 0)

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Local.com URL purchased for 700K puts Interchange into the destination game. [home.businesswire.com]

The Local.com brand will be marketed to consumers as a local-search destination site, and will incorporate a local content and search syndication model.
4:02 pm on Mar 7, 2005 (gmt 0)

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That's a big shift.

Their model thus far has been centered on selling their technology to other destination websites in order to expand their distribution network. Even [localdirect.epilot.com...] which is currently the interchange local platform is geared toward showing off the technology to sell it, not as a destination in-and-of itself.

This will certainly stir the pot with their current paying distribution base. I don't know that they will be able to play both sides of the fence like this.

7:07 pm on Mar 7, 2005 (gmt 0)

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This is a fundamental shift in strategic direction for Interchange. In my previous conversations with the Interchange team, we often broached the destination vs. distribution argument. Interchange's answers to date were clear: We are focused on technology and distribution, not destination.

Now that they have changed their minds, I wonder what their 200+ distribution partners (destination plays) are going to think. Current distribution agreements were struck under the premise that Interchange's partners have an opportunity to derive destination value using the Interchange Ad and Assured Response platform, while sharing advertiser dollars. Now they are arguably direct competitors.

I believe that Interchange recently lost their Yellow distribution agreement, and maybe they feel that in order to generate stable advertiser value and appeal to and generate new advertising dollars, they have to introduce a more visible and maintainable destination environment of their own with a strong brand. This in turn will help them from being susceptible to the whims of their distribution partners.

Destination is a long, hard road that requires time and significant capitalization. Sure local.com is a great brand, but Yahoo, Google, Yellow, SuperPages, Amazon, AOL, Ask, and others are competing for the same eyeballs and destination value.

I wonder whether local.com is destined to become a marginal destination environment, not too different to what GoTo.com was back in the day - essentially a platform to generate advertisers that are more likely to serve their ads off-site than on.

Interchange business model is to generate a platform which faciliates for its partners to easily introduce pure search utility with assured response and shared advertising dollars. Now, it will try to enable its technology + distribution focus, while attempting to become a top-of-mind destination site. Playing both cards will be quite an accomplishment.

From what I gathered to this point, there was little to *no* outreach to their distribution partners letting them know of their plans. If local.com becomes a viable outlet for their partners to serve more of *their* advertisers ads, current sentiment amongst partners may change. If local.com struggles, however, while tapping into the strategic marketing knowledge and direction of their partners, things could get a little strange.

8:07 pm on Mar 7, 2005 (gmt 0)

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From a publisher's perspective, it was a pretty compelling proposition to share your advertising dollars with a company that was not going to turn around and use those dollars to lure visitors that might otherwise visit your site.

Now that Interchange is pursuing a destination site model, I have to think their sales pitch to distribution partners just got weaker.

As a publicly traded company, Interchange must believe that they can make more money faster pursuing a destination site model than a private level model. Why could this be? I assume they ran the numbers and concluded that

Clicks From Distribution Partners X EPC / 2

is less than

(Clicks from Destination Site X EPC) + (Clicks From Distribution Partners X EPC / 2)

What their assumptions are (and why these assumptions changed) is anyone's guess.

3:05 am on Mar 8, 2005 (gmt 0)

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Two possibilities as I see it. They see their current business plan as unsustainable or they truly believe the Keyword-DNA powering their local platform is an attractive product. The Local-Direct product has been discussed in this forum and I agree with the consensus that it carries a "wow" factor.
Punts by public companies like this are rare. All the eggs going in one basket, very risky.
4:42 pm on Mar 11, 2005 (gmt 0)

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Let's not forget ePilot. A well trafficked destination site makes your advertising network look stronger.

local.com may legitimise ePilot. Who knows.