One out of every four Internet searches is estimated to be local in origin. There are roughly 60 billion searches each year across the web. To local search technology companies ReachLocal and Jambo, these statistics signify a potentially very lucrative market. While the two firms work in slightly different ways, they share a similar goal: to put the traditional yellow pages and other traditional forms of local advertising, out of business. The President and CEO of Encino-based ReachLocal, Zorik Gordon maintains that his company seeks to serve as a vice president of marketing for companies too small to have such a position. Founded just last year, ReachLocal has already completed two rounds of venture capital funding, the most recent coming last month, with a $7.75 million infusion led by VantagePoint Venture Partners of San Bruno, Calif. Targeted for small businesses of five to 10 employees, ReachLocal aims to give typically offline companies such as plumbers, dentists and car dealers, an advertising presence in the online world. “We aim to take a customer who hasn’t advertised online and in 15 minutes we can get them up and running and advertising on Google, MSN.com, or Yahoo.com with tremendous tracking coming back to them,” Gordon said. “We don’t just give them a bill with how many clicks they received. We tell them how many calls they’ve received from the Internet ads and how many people have e-mailed them. We strive to make it clear for them to understand whether or not they are getting profits from the ads.” ReachLocal’s tracking abilities would hinge upon a patent pending technology that would allow them to take any of their clients’ websites and replace the site’s contact phone number with an alternate number. This alternate number would still connect to the business, but still allow ReachLocal to track the progress of the ad. “We charge per click, per action. Advertisers are able to control the amount they want to spend each month to a minimum of $100. The ad would show up as one of the sponsored links on the search engine of the advertiser’s choice,” Gordon said. “If you look at the marketplace, the percentage of small businesses that have advertised on the Internet is minimal. They are too focused on their business to spend time thinking about handling online ad campaigns. We’re targeting the guys who want to a cut a check and get results.” Thus far, the company seems to be gaining some traction in the market. Gordon claims that it has well over 1,000 clients scattered across the United States, each with an average monthly advertising budget of $1,000. In addition to the 25 employees it has working in Encino, ReachLocal also has hundreds of advertising representatives fanning out across the nation, paid based on commission. ‘Viable’ market James Avilio, an analyst for the First Albany Corporation, sees at least short-term potential for the local search technology sector. “The market is clearly viable from an advertiser’s perspective. Companies like ReachLocal are onto the right thought process. Yellow page advertising is a huge industry, bringing in between $10-15 billion every year,” Avilio said. “For the most part, the small businesses are getting leads but they don’t know how many. Furthermore, consumers are increasingly using the Internet to find local businesses instead of picking up a big yellow pages.” Yet Avilio remains hesitant to fully endorse aggregator companies like ReachLocal. “The value in the advertising landscape is to be somebody that owns the content or the destination. An aggregator company like ReachLocal stands between the publishers and the advertisers. Eventually, they run the risk of being squeezed out.” Judging from the pedigree of Jambo’s management team, the fledgling Agoura Hills-based company would seem to have a great deal of potential. Founded just this month, Jambo is headed by CEO John Melideo, the founder of Westlake Village-based call tracking firm, Callsource. Jambo will also be run chief strategic officer Ronald Burr, the co-founder of NetZero and Todd Tappin, the former CFO of Overture. Jambo intends to provide local search solutions which would allow consumers to connect directly from search listings to a business via telephone. “Our technology works like this: say you’re on the Yahoo! local service and you want a locksmith in the Reseda area. You would type in the information and get a listing of results,” Burr said. “Traditionally, there are two things that could happen: you would get the locksmith’s phone number and his web site. Jambo has a virtual number server where we supply local phone numbers with the search engine. When a customer calls that number it goes through our service and connects you to the merchant. It’s similar to a pay per click service, but we would enable the company to charge a pay per call.” Though both ReachLocal and Jambo strive to steal advertisers away from the print-based medium, Jambo’s business plan differs from ReachLocal’s in terms of its intended customer base. Whereas ReachLocal is reaching out to the local advertisers themselves, Jambo is marketing its proprietary technology (of which it has 12 patents pending) towards the major online publishing firms themselves. Burr describes Jambo as an “enabler” technology that could allow major firms like Yahoo!, Google, and other search engines to obtain previously unrealized advertising dollars from local companies. Selling to merchants “Yahoo! and Google have yellow pages’ online, but the bulk of the listings that come up aren’t paid for by the merchant. Google and Yahoo! are just buying their information from an aggregator. 99 percent of the merchants that get listings in the Yahoo! Yellow Pages aren’t paying for that service,” Burr said. “The challenge that a Yahoo! has is to get out and sell to the 11-14 million merchants in the U.S. Our service allows them to implement processes right on the web server that connects every merchant to the consumer without having to go out and pre-sign them to a contract.” According to Melideo, Jambo received its initial funding from an angel high network. The firm is currently in the process of receiving another round of funding from an undisclosed venture capital group. Within 12 months, Melideo plans to have over 100 employees. While no announcements have been made with any Google or Yahoo!-sized firms, Melideo expects to have a major deal inked in the next few months. “On a 1-10 scale, the companies we have spoken to have been a 10 in terms of excitement to this idea. Part of the reason is the team we have assembled. We’ve done this kind of thing before” Melideo said. “Eventually, our ultimate goal is to do an IPO or possibly get some other investment groups involved.” Stephanie Atkinson, an analyst with In-Stat Corp. believes that the Jambo technology could prove beneficial to large online publishers, but wonders about the privacy issues that come with such innovations. “It all would depend on how much information would be shared between Jambo’s customers and the person searching online. Jambo will have to be very careful,” Atkinson said. “I know right now with cookies on all of these online sites, we often unwittingly let advertisers see what we’re looking at and all of our data. There are a lot of security concerns right now.”
