The Yellow Page Market in transition – which business models can profit besides Google?

The Yellow Page Market i transition – which h ll k in ii hi h business models can profit besides Google? prepared for b-to-v Core Croup Internet and Mobile St. Gallen, March 2009

Overview 1. Introduction 2. Market 3. Segments & Funding 4. Successful players 4 S f l l 5. Findings & Discussion g 6. About b-to-v p. 2

Growth of online e-advertising despite crises p. 3

Shift of advertising spend towards online media p. 4

Some „major brands“ in German online publishing p. 5

Local advertising – What’s the occasion? Consumers are searching... ...but small business is not capitalizing. – 66% typically find what they need when – Only 44% of small businesses have a Web searching on the Web, though 39% have site. trouble finding specific businesses when – Of those that do have a Web site, 61% they are not adequately represented on spend less than three hours a week the Web. marketing their Web site. – 92% of Internet users have researched a – Of small businesses that have a Web site, p product or service online, then purchased p 51% believe both the quality and ability offline from a local business at least once. of their site to acquire new customers is – 71% of consumers feel the local business only “fair” or “poor.” Web sites they visit are good or great. – 78% of small b i f ll business owners d di dedicate 29% feel they are “fair” to “very bad.” 10% or less of their overall budget to – 82% say search engines were among the marketing efforts. many tools they use to find local – Half of small business owners spend less businesses. than 10% of their marketing budget on Internet advertising, while 30% do no Internet advertising at all all. Source: Study by webvisible & Nielsen: The Great Divide 2008 (issued 2009) p. 7

This is also true for the German-speaking market p. 8

… it is reflected by website popularity p. 9

U.S. expects local ads shift towards digital media p. 10

U.S. expects interim decline of local media & ad spend p. 11

However, remaining spend will shift towards digital p. 12

Customer survey Private consumers Small business owners as consumers Which of the following advertising resources Which of the following advertising resources do you turn to first to locate a local business? do you turn to first to locate a local business? 50% Search Engines 41% Search Engines 24% Yellow Pages Directories 31% Yellow Pages Directories 10% Internet Yellow Pages 9% Internet Yellow Pages 4% Local Newspapers 4% Local Newspapers 3% White Pages Directories 4% Consumer Review Web Sites 1% Television 2% White Pages Directories 2% Direct Mail Source: Study by webvisible & Nielsen: The Great Divide 2008 (issued 2009) p. 13

Customer survey - continued Search is the most widely used tool for finding a local business among consumers. Of those surveyed, 82% said search engines h d id h i (such as Google, Yahoo!, or MSN) were among the many tools they used when seeking a local business. Although business search clearly dominates among Internet users, consumers use search in combination with other local media. 49% Internet yellow pages 57% Yellow pages directories 82% Other search engines 53% Local newspapers 49% Television 37% Direct Mail Source: Study by webvisible & Nielsen: The Great Divide 2008 (issued 2009) p. 14

Further information about searches Source: Study by webvisible & Nielsen: The Great Divide 2008 (issued 2009) p. 15

Users like “online” in Europe, too Source: FAZ (Jul 08) p. 16

Also in Germany local search is a significant market Source: FAZ (Jul 08) p. 17

Segmentation overview – USA (some examples) 1. Yelp: USD 31m funding from Bessemer Ventures, Benchmark Capital and DAG als Ventures. Ventures Horizonta 2. Insiderpages: Acquired by Citysearch (previous USD 8.5m funding from Sequoia Capital and Softbank) H 3. Superpages.com: belongs to Idearc Media (Market Cap: USD 10m) cals Vertic 4. HomeAway: USD 459m funding from Redpoint and Technology Crossover Ventures. 5. Rocketlawyer: USD 2m fuding from Lexis Nexis Online 6. Angie‘s List: USD 66m funding from Battery Ventures, BV Capital, Lighthouse Capital, among others. 7. Zillow.com: USD 87m funding from Benchmark C i l and L B h k Capital d Legg Mason, among M others. p. 19

Segmentation overview – Europe (some examples) 1. Gelbe Seiten: belongs to 16 regional publishers and DeTeMedien als Horizonta 2. Qype: USD 13m from Wellington Partners, Partech International and Advent Ventures H 3. Quoka.de: Leading classified portal (acquired by Vorarlberger Medienhaus) cals 4. 4 Anwalt.de: Anwalt de: Portal with lawyer listings Vertic (financed by private investors) 5. Blauarbeit.de: Auction portal for local services (financed by private investors) i (fi db i i ) Online 6. Imedo: Portal around medical issues (financed by privat investors) p. 20

Selected Successful Horizontal Players in Europe – Leading review portal in Europe focussing on lifestyle venues and restaurants – More than 5m unique users per month M h i h – Funding: Series B over EUR 8m from Wellington Partners, Partech International and Advent Ventures – Financials: EUR 1.5m revenue (2008e) – Germany's second largest directory assistance provider, employing roughly 2,400 staff at10 locations in Europe. Its "11880" brand has a market share of some 37% in Germany 11880 and is also a partner for many well-known mobile providers – Market Cap: EUR 150m – Financials: EUR 178m sales and EBIT of EUR 31m (2008e) (in the short-term declines in classic directory assistance operations are increasingly being offset by ad financed online ad-financed local search) p. 22

Successful local advertising player in the US – ReachLocal helps local businesses to attract customers via search engine advertising and online yellow-pages marketing – Funding: USD 64m from Vantage Point Ventures and others – Financials: USD 100m revenue – Integrated advertising solution for local business focussing on a) search enginge marketing and syndication of listing, b) customized websites and c) lead management through click-to-call click to call – Funding: USD 25m from Bessemer Venture Partners, Draper Fisher Jurvetson Growth and Jafco Ventures – Financials: USD 30m revenue Further VC-funded players include in the US, among others, Not yet any major specialized players in Europe! p. 23

Is this an attractive industry? – Threat of new entrants: – Bargaining power of suppliers: High as large international players with Medium but decreasing as buyers will put industry f i d focus, l large offline players with ffli l ih forward that many other suppliers are f d h h li industry focus and well-known brands, available are likely to enter the market with – Rivalry high as generalists and specialists relatively low barriers to entry (only costs) have already occupied most of the – Bargaining power of buyer: attractive niches and will continue to Medium but growing by the day as battle for customers based on additional buyers get more sophisticated and will services and price cease to accept high prices for simple ads; buyers will note that not everybody can have a fully optimized search engine position – Threat of substitutes: Medium to high as buyers are aware that they could advertise their company on Google, Yahoo!, KennstDuEinen etc. p. 25

Blueprint of an attractive invest Core competences and success factors (and indicators towards promising investments): – Focus on execution, i.e. sales towards long tail (call-center based, standardized service portfolio, high degree of automatization), compare to KennstDuEinen – Known or at least self-explanatory brand name, if possible with a history (and somewhat credentials) from the offline world, e.g. GoYellow – Strategic f focus of a „horizontal“ business model: Only attractive f established f for player suffering from poor management – Strategic focus of a „vertical business model: Attractive with exceptional vertical“ execution and focus on markets with premium leads (e.g. finance, law), most likely in large yet immature markets like Spain p. 26

Food for discussion – Will all business directories be killed by Google in the long-run? – If so what would be their defense strategy given their strong brand awareness? so, – M&A (last acquisitions: billiger.de, dialo) – More comprehensive local avertising solutions (compare stronger SEM offerings with partners, activities of GoYellow Media) – Given that Google relies on partners for the acquisition of local SMEs as this activity does not scale enough for Google itself how do efficient sales activities look like? – Experiences of successful online sales approaches – Experiences with outbound call centers (conversion rates) – Experiences with street sales representatives etc representatives, etc. – Should vertical players extend their service offerings through closer collaboration with online marketing services (SEM, SEO, customized website)? If g ( , , ) so, should they build these know-how in-house or outsource it? p. 27

b-to-v at a glance – At the heart of what we do is the b-to-v Investorenkreis, an exclusive circle of entrepreneurial investors from Europe – b-to-v renders exclusive services to members of the b-to-v Investorenkreis, e.g. it enables the confidential sharing of investment opportunities, supports the g pp , pp processing and structuring of deals, and helps to manage and control investments – Admission to the b-to-v Investorenkreis is granted only to candidates who have proven their business acumen, investment expertise, and personal integrity – Our approach gives entrepreneurs the unique opportunity to discuss their ventures and financing needs with senior entrepreneurs, benefit from their experience, experience their networks, and receive funding from them networks p. 29

Cornerstones of the b-to-v Investorenkreis – The b-to-v Investorenkreis has 54 members – Members come from various industry backgrounds (e g high tech internet (e.g. tech, internet, telecom, clean tech), and have – founded > 100 companies – and have invested in > 1’000 deals – sold > 300 – realized > 100 IPOs – In I sum, th members’ annual direct equity investments volume amounts t the b ’ l di t it i t t l t to EUR 20-25m p. 30

Co-Authors Florian Schweitzer (Partner) co-founded Alexander Stoeckel (Investment Manger) b-to-v and built its network of private holds an MBA from the University of investors s ce 2000. He studied Business esto s since 000. e stud ed us ess Oxford. Prior to b-to-v, he worked as fund- , Administration at the University of of-fund manager and as executive St.Gallen. management assistant. Sven Eppert (Investment Manager) studied Business Administration at the Catholic University Eichstätt Ingolstadt Eichstätt-Ingolstadt and the Warsaw School of Economics. Prior to b-to-v, he worked in asset management and in consulting. t di lti p. 31

b-to-v overview BrainsToVentures AG Blumenaustr. 36 / P.O. Box 142 Dr. Jan Bomholt, Partner and co-founder CH-9004 St. Gallen Dr. Christian Schütz, Partner Contact T: 41 T +41 71 242 2000 Florian Schweitzer, Partner and co-founder F: +41 71 242 2001 www.b-to-v.com Christoph Schweizer, Partner info@b-to-v.com Dedicated people 54 members of the Investorenkreis Core personnel 8 investment professionals Deal flow p.a. (average) p g 1,500 business plans p Deals done p.a. (average) 20 Investment strategy Opportunity driven Geographical preferences Europe, USA and Asia Financing stages Early stage, expansion stage, and later stage, as well as MBI and MBO projects Most recent Exits Three IPOs (XING, Codfarmers, Fidor) and three trade sales (Cycleon, myBet, Plazes) p. 32

The Yellow Page Market in transition – which business models can profit besides Google?

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