ReachLocal is about to waste a lot of money

So I just finished reading Greg Sterling’s post about ReachLocal getting $55 million in funding, and I’m a little shocked. As he says, this is just a “mindboggling” amount, and it is, in my humble opinion, a direct route to ReachLocal overspending on the wrong things. ReachLocal is trying to become the brand that local small businesses go to to buy their online advertising; since they don’t own their own local online properties, they are resellers for the platform players like Google. Obviously the market is juicy; Greg’s rough stats are that there are 20 million small businesses in the US on paper, half of which spend money on advertising. The Yellow Pages companies make about $14 billion a year off just over 3 million of the 10 million local businesses buying advertising. Greg’s point is that there are at least 7 million small businesses that need help with their advertising, so the potential opportunity is huge.

ReachLocal’s strategy is to create a huge salesforce and to brute force attack their way into the hearts and minds of small businesses. I think this is a recipe for disaster. There is a much better and more cost-efficient way to win the hearts and minds of local businesses, but I doubt ReachLocal will discover it. They’ll be too busy spending their money.

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Author: JontheWayne

Published:: February 8, 2008

Category:: Business Analysis

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Chis Sullivan 08 Feb 08

Hey I noticed your post and I kind of smiled because I’m sure from the outside it may seem like its a total waste of money. However, if you really understood the technology they are using you may have a different opinion about it. The fact is, since most people are not using the yellow pages anymore and are going online, i have seen some really great results from people who have used their platform. It doesnt work for every type of business, but if its implemented correctly with the right setup it will. Also, they must know something about what they are doing, Rupert Murdoch is one of the backers. If I had the choice, I’d choose them over Yellow Pages any day.

Willy 08 Feb 08

It’s great to hear outlandish remarks about how to and how not do things - especially when they are not followed up with the alternative solution - this post is totally uninformative.

Art 09 Feb 08

Its the product that ReachLocal provides its online advertisers. We have work with the ReachLocal marketing software for three years and know of nothing that matches it for publishing and reporting. Its call tracking system is revolutionary.

JontheWayne 11 Feb 08

@ Willy - thanks for calling me on that. I do have an alternative solution in mind, but it’s the basis of a startup I want to try myself, so I’m keeping it on the downlow for now.

@ Chris & Art - it’s awesome to hear your informed opinions on ReachLocal. It sounds like ReachLocal has inspired serious user-love, and that means a whole lot. Your comments are definitely updating my own opinions.

Honestly, I probably shouldn’t have mouthed off without trying the product in-depth. I was just reacting to what I felt was a huge over investment. In my mind was the fact that Google became the behemoth they are today with just $20 million in initial funding.

From countless sources of startup advice you hear that the more money you have, the more you spend, and the less you embrace constraints and the creativity they can bring you.

But of course, I’ve heard that the development of the iPhone cost over a hundred million dollars, and they’ve found huge success. So every case is different. I just think there might be a more efficient way for ReachLocal to scale than buying national tv commercials, etc.

ReachLocal is about to waste a lot of money

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