Among the startups I’m watching closely is Yodle, a company focused on local online advertising.  The company is poised to expand into the huge market void/opportunity created as newspaper and yellow page advertising increasingly go the way of the dodo.  How big of an opportunity?  “$20 billion…big enough to support one to three public companies” according to the CEO.

Yodle is also interesting because it’s the classic instance of a startup founded by a young person and transitioned over to ‘real’ management.  Founded as NatPal in 2005 by Nathaniel Stevens (then an undergraduate student at Wharton), Yodle took off.  He was replaced as CEO in 2007 by Court Cunningham, an experienced Harvard MBA and former SVP at DoubleClick.

The company is growing fast: 300%, 400%, 500%, or even 700% depending on which press release you decide to believe.  With $15M in funding, the company is in a race against its competitors to expand quickly across the nation.  They’re hiring aggressively and overwhelming Craigslist with job posts. They already have a presence in 18 major US cities and “will grow the team from 180 to 800 in 18 months.”

What Exactly Does Yodle Do?

Yodle helps small local businesses (think hair salons, florists, car mechanics, and optometrists) advertise effectively online.  Online advertising is too complex and time consuming for the average small business owner to deal with..or so goes the thinking.  By combining an expertise of SEO, SEM, and website design, Yodle seeks to generate leads, driving new customers to small business.

To achieve this, the company first sets up a doppelganger of the client’s existing website.  For example, the TheBodyKlinik’s main website is www.thebodyklinic.com.  Yodle set up a separate mirror site for the business at www.thebodyklinic.net.  Made from a template designed to optimize conversion rates, the page is also extremely SEO-friendly.  This helps the page rank highly on google search results (although some maintain that duplicating a site’s content will cause both to be dinged by google).  This sometimes also results in two similar client webpages: exhibit a and exhibit b.

Second, the company sets up a separate phone number for tracking purposes: notice that the phone number on the .net site is different than the .com site.  This allows Yodle to gather statistics about incoming calls and monitor the ROI.

Third, Yodle purchases online search ads to drive traffic to the mirror site and hopefully drive phone calls too.  Yodle uses predictive modeling to set expectations for how many calls will be generated by a given level of advertising spend.

Additional Services

Yodle isn’t just another SEM/SEO agency.  The company differentiates itself with innovative tools that help optimize a small business’ interactions with prospective customers.  All calls to the tracking phone number are recorded to help the business owner gauge whether staff are dealing with customers appropriately or whether more training is needed.  Yodle also offers consulting services to help plan in-house promotions and address call center staffing issues.

Competition

Yodle’s competition comes in many forms.  First, there are direct competitors like ReachLocal, Webvisible, Weblistic and MerchantCircle.  Reachlocal has $65M in funding versus Yodle’s $15M and both have focused on quickly building out a large and aggressive salesforce. Webvisible has $17M, and Merchant Circle has $14 million in funding.

Companies like Yelp and CitySearch also compete with Yodle.  These business listing/review sites often dominate the search results (SERP) for a business name, and attempt to sell to small businesses ‘premium listings’ designed to drive more customers.

Additionally, each specific vertical seems to have its own set of specialized lead generation companies or directory listings which help small businesses dominate SERPs.  Doctors, for example, can use the service ZocDoc.com to help bring in new patients.

Company Performance

So how is Yodle performing?  Well, if we trust Yodle’s job listings, they currently serve 4,000 customers.  The average spend from each client is pegged around $900 per month but let’s round that to $1,000.  Therefore, Yodle should be doing $4M in monthly revenue and close to $50M in annual revenue.  Much of this spending flows right through Yodle and into Google AdWords.

Googling “Local Internet Marketing by Yodle,” the phrase that appears at the bottom of every site designed by Yodle returns only 200 businesses…let’s hope there’s a flaw to this method of gauging the number of Yodle clients!  Yodle has most recently turned their focus to franchises, which could be a real cash cow for the company.

Potential Acquirers

Yodle’s heavy reliance on search ads immediately rules out yahoo/google/microsoft due to the conflict of interest (remember, when Google bought Doubleclick, Google sold DoubleClick’s SEM division to Publicis due to that conflict of interest).

The big advertising conglomerates (WPP, Omnicom, Publicis, Interpublic) certainly would be interested in Yodle, but Yodle’s focus on local small business advertising doesn’t match the ad conglomerate’s focus on bigger nationwide clients.

Certainly Idearc would be interested.  Idearc is the publisher of the Yellow Pages, White Pages and also Superpages.com, Switchboard.com and LocalSearch.com.  Yodle is eating their lunch.  The problem?  Idearc is currently only worth $52M and couldn’t afford Yodle.

Additional Questions

1) Yodle serves small local businesses by helping them beat their competition to the top of internet search result pages (both organic and paid results).  But Yodle cannot in good faith serve two local competing businesses in the same geographic area.  So what are the competitive limitations on clients?  Can Yodle only serve a single florist across all of NYC?  Or within a specific NYC neighborhood?

2) What is the culture like of a company which grew from a handful of employees to 180 employees in a very short time?  Is there a corporate culture?  Any semblance of stability?

3) Why does the company have no news?  Doesn’t the company have a PR department!?  Shouldn’t they be complimenting their outbound sales team with a marketing/press team to get articles written about how local businesses are embracing new online technologies?  Yodle should help attract customers by getting the Yodle name into every small newspaper across the country!

Interview with the founder: http://www.youtube.com/watch?v=zfJiv7XetDA

Any comments, insights or additional business analysis would be greatly appreciated!