Yellow Pages directories have been appearing on doorsteps across Australia in recent weeks. As often as not, they go straight into the recycling bin. In the world of the internet and e-commerce, the very notion of a book the size of two bricks being the source of valuable purchasing information seems plain silly. Once directories like the Yellow Pages served a valuable need in most developed economies. They provided basic and inexpensive local advertising, especially for small businesses. As the internet emerged as the preferred means of accessing such information, the potential for directory owners like Telstra to translate directory information into a valuable online business opportunity seemed promising. As is often the case in the unpredictable world of the internet, it was not quite so simple. In January 2014, Telstra sold a 70% share of Sensis, its directories subsidiary, to a US hedge fund for A$454 million, only 2.4 times projected 2014 earnings. This is quite a turnaround from the A$12 billion value suggested to Telstra’s Board in 2005. At the time, Telstra’s chief executive Sol Trujillo declined to spin-off the business, suggesting Sensis (Telstra’s directory business) would be “bigger than Google”. Google Schmoogle? Indeed, with characteristic ebullience, Trujillo commented in November 2005, “Google Schmoogle”. Contrary to that prediction of sorts, since 2005 Google’s market capitalisation has increased tenfold, to more than half a trillion dollars. Among Trujillo’s many strategic mistakes, his misunderstanding of the relative potential values of Google and Sensis probably takes the cake. It’s fair to say, however, that Trujillo was not alone in misunderstanding the radical changes in the economics of information over the last decade. These changes have completely upturned the value of directories businesses globally. The investors who bought Telecom New Zealand’s directories business in 2007 for $2.1 billion (at an earnings multiple of 13.6 times) at the height of the private equity bubble have done most of their dough. Knowledge is Power (and Money) The 2.4 earnings multiple on the recent Telstra sale suggests two things - that the business is still profitable, but that profits are expected to rapidly erode. How can we explain this sudden, anticipated and precipitous decline in the value of information available through directories like the Yellow Pages? The economics of information is changing rapidly. Economists George Akerlof, Michael Spence and Joseph Stiglitz won the 2001 Nobel Prize for economics for their seminal work on the economics of information, especially information assymetries between buyers and sellers. Most famously among the suite of work done by these economists was Akerlof’s 1970 paper “The Market for Lemons”. Like all great academic work, its beauty lay in its simplicity. In essence, buyers and sellers have “asymmetric” information. In the example in his paper, the seller of a used car knows if it is a “lemon”, though the buyer rarely does. A consequence of Akerlof’s Lemons paper for sellers is that it made sense for them to signal to the market aspects of the quality of their products – by suggesting that they are selling “cherries” (great used cars) and not “lemons” (cars on their last legs). One simple way to do this was through advertising. This was especially useful where the buyer’s knowledge of the seller was limited, as would often be the case for the buyers from small businesses who advertise in directories like the Yellow Pages. Better information, less asymmetry The steep decline in the generic, supplier-provided data that is the essence of Yellow Pages has been driven by a set of related phenomena. First, sites like TripAdvisor have emerged to provide detailed and generally reliable information on services including hotels, tourist attractions, restaurants and the like. Importantly for Yellow Pages, sites such as these are becoming the first place for buyers to visit. As the quantity of collected reviews increase, the value of such sites increases greatly, as they provide a level of information on sellers that static directories cannot match. Second, the costs of “searching” for information is in steep and terminal decline. Once, buying a set of golf clubs for the best price, for example, required a multitude of phone calls or, worse still, visits to stores with pushy salespeople. Now, finding the best price in the market is a few keystrokes away through Google. Too late for Sensis? This begs the question – can the Yellow Pages reinvent itself to be a new portal for information on sellers that will be valuable for buyers, and thus continue to attract advertisers? The answer is probably not. As a late mover into such information provision, it will have an almost insurmountable challenge to build an equivalent body of information in comparison to its competitors. More so, it will be a generalist in an industry full of specialists, the last site visited by buyers and thus the least valuable site for sellers to direct their advertising dollars to. This makes the 2.4 times 2014 earnings paid in January for Sensis seem about right. Such a multiple suggests that this year’s Yellow Pages might be the last one to lob onto Australia’s front porches. If this is bad news for Sensis, it is good news for the millions of trees that will be saved! By John Rice and Nigel Martin. Rice is an Associate Professor in Strategic Management at Griffith University. Martin is a lecturer at the College of Business and Economics at Australian National University. Rice is a member of the National Tertiary Education Union and the Australian Labor Party. Martin does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations. This article was originally published on The Conversation. Read the original article.
Facebook’s latest changes to its layout creates more problems for small business using social media, as the real estate available on its site for eyeballs gets smaller. The social media giant has been catching criticism recently for changes to its algorithm that make it harder for businesses to be seen online. In the hospitality industry, discontent was articulated by the Eat 24 website, which closed down its Facebook Page after finding the problems too hard. With the changes to the online advertising feed, it makes it even harder for small business to be seen on the platform as reduced space means higher prices for the space that remains available. It’s hard to see small businesses getting much traction with the changes when they’re up against big brands with large budgets. On the other hand for the big brands, the importance of proper targeting becomes even greater. A challenge for small business The big problem now for small business is where do you advertise where the customers are? A decade or so ago, this was a no-brainer – the local service or retail business advertised in the local newspaper or Yellow Pages. Customers went there and, despite their chronic inefficiencies, they worked. Now with Facebook’s changes, it’s harder for customers to follow small business and this is a particular problem for hospitality where updates are hard. The failure of Google Google should have owned this market with Google Places, however the service has been neglected as the company folded the business listing service into the Plus social media platform. Today, it’s hard to see where small business is going to achieve organic reach – unpaid appearances in social media and search – or paid reach as the competition with deep pocketed big brands is fierce. Services like Yelp! were for a while a possible alternative, but increasingly they are stitching up deals with companies like Yahoo! and Australia’s Sensis, which marginalises small business. So the online world is getting harder for small business to get their message out onto online channels. For the moment that’s a problem although it’s an interesting opportunity for an entrepreneur – possibly even a media company – to exploit. This article first appeared on SmartCompany.
Wesfarmers chief executive Richard Goyder has warned that negative chatter risked harming consumer confidence, in stark contrast to the good news coming from the World Economic Forum in Davos. “In January I left Davos feeling really good about the world, having been there for a week and people were talking up the US economy, being pretty satisfied where Europe was and satisfied where the rest of the world was, and I've come back to Australia to incredibly pessimistic sentiment and I can't reconcile the two, to be frank,” Goyder says. “I think consumer sentiment is still somewhat fragile and I think we all need to be careful that we don't inadvertently, or otherwise, talk it down when the bottom line is, I think, Australia is still very well placed economically. “You have got superannuation funds that will be performing well, people's wealth increasing as housing prices move up, employment is still generally strong, interest rates are low and we all have to be careful we don't get ourselves into a downward spiral … it's not helpful.” Abbott pushed for wage cuts at SPC Ardmona The federal government pushed SPC Ardmona to slash employee wages by up to 40% in order to receive a bailout package, with some staff at the Shepparton plant seeing wages slashed by $20,000 to $30,000 a year, according to a Fairfax report. While Industry Minister Ian Macfarlane did not directly address the claims, he did stress the importance of boosting productivity in reducing labour costs. “I do want to reduce labour costs but it's not necessarily reducing wages,” Macfarlane says. “If we boost our productivity, if we increase the number of units that a person produces, then wages can remain stable but we do have to have competitive working conditions and we do have to make sure that some of the things that have happened in industry in Australia in the past are addressed.” Sensis slashing 800 jobs Sensis has announced it is cutting 800 jobs, with 330 jobs to go in Victoria and 400 in NSW, as part of a restructuring plan, with half of the positions being sent to the Philippines. “These changes are designed to support our growing digital business, respond to competition and deliver improvements in the service we provide to our customers,” Sensis managing director John Allan says. “As a leader in digital marketing services and print directories serving Australian businesses, Sensis needs to remain responsive to the changing media landscape. While these decisions are difficult, they are necessary to ensure Sensis maintains its competitive position.” Overnight The Dow Jones Industrial Average is down to 16,066.3 points. The Aussie dollar is down to US90.02 cents.
Telstra is building a multi-billion dollar war chest for acquisitions and to return funds to shareholders as it plans to sell a large stake in its Sensis directories business, The Australian Financial Review reports. It says US private equity firm Platinum Equity Partners is believed to be in final negotiations with Telstra to buy a controlling stake in Sensis, which publishes the Yellow and White Pages print and online directories. The AFR reports that analysts have valued Sensis at about $3 billion. Federal government targets red tape The federal government plans to abolish more than 8000 redundant federal laws as part of its plan to slash red and green tape by $1 billion a year, The Australian reports. “This is an area where previous governments have over-promised and under-delivered,” the parliamentary secretary to the Prime Minister, Josh Frydenberg, says. The government plans to hold a “repeal day” in March to overturn a raft of laws. Don’t outsource Australia’s financial markets: ASX The Australian Securities Exchange has warned against outsourcing its financial system overseas. The Australian newspaper says ASX chief executive Elmer Funke Kupper says in a submission that it’s important that Australia’s regulators keep a level of control over key markets and that investors can continue “to have access to financial markets that allow them to manage their risk and collateral under Australian law”. “To achieve the right outcome, it may require explicit measures and mandates to ensure that Australia does not find one day that it has ‘outsourced’ its financial markets to overseas financial centres – balanced against the reputation of Australia as an open and competitive economy,” he says in the submission to the draft terms of reference to the “Son of Wallis” inquiry into the financial system. Markets The Dow Jones Industrial Average is down 0.05% at 16,437.05 points and the Australian dollar is buying US90 cents.
The chief executive of Melbourne-based tech start-up Miiy has offered to find positions for retrenched Sensis staff within his company, which is developing a range of business services.
Telstra claims its customers will receive better customer service after Australian call centre jobs in its Sensis advertising and directories business are outsourced to India and the Philippines.
Sensis is to roll out a fresh ‘hackathon’ in Melbourne this weekend, including an impressive list of mentors such as Lonely Planet’s Gus Balbontin and Scott Rogers from Seek.
Sensis has launched a series of challenges to inspire developers to create viable apps, offering a $2,500 “bounty” for the concept that best utilises its API content and functionality.
Start-up incubator Pollenizer has teamed up with Sensis to host a two-day hackathon later this month, inviting entrepreneurs to vie for a share in more than $50,000 worth of prizes and perks.
Australian search engine Sensis will host a start-up “hackathon” at Melbourne’s York Butter Factory this weekend, in the latest move by a large company to embrace start-up events.
The business-to-business services sector is set for a gloomy Christmas trading period, according to the latest Sensis Business Index.