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The Kelsey Report® White Paper

Searching For Profits:Yellow Pages and the Challenge of Pay-per-Click
Greg Sterling , 6/12/2003


0.0 Executive Summary

In the Hollywood film "Maid in Manhattan," the character played by Jennifer Lopez has a young son who asks her why Simon and Garfunkel broke up. As they're rushing to catch a bus, she responds, "You got me, you can Google it at school."

When a product becomes a verb, you know there's something significant going on. Indeed, consulting agency Interbrand named Google "brand of the year" in 2002, beating out such revered offline names as Coca-Cola and Starbucks. Forbes magazine estimated in February that the Google brand is worth something in excess of US$2 billion.

Of the estimated 600 million or so daily Web searches, roughly 200 million of those are performed on Google or using Google technology though its partner sites (such as Yahoo!). According to sources cited by the New York Times, the search engine's revenue will jump from "less than US$300 million in 2002 to US$750 million or more this year, with gross profit margins of 30 percent."

What's so striking about all this is that Google has ascended to its lofty online perch in little more than three years without spending any real money on marketing or advertising. Arguably, it did so by providing "best-of-breed" technology and a better user experience than most of its competitors.

Seeking to monetize its enormous traffic, Google has more recently begun to compete with Overture Services Inc.'s keyword-based pay-per-click advertising model, which charges merchants only when Internet users click on their ads. And while these two companies are not the only ones operating in the search-based advertising arena, they are currently the dominant players.

Once regarded as something of a niche market, the rise of search-based advertising has been almost meteoric. USB Piper Jaffray estimates that the market grew from roughly US$400 million in 2000 to more than US$1 billion in 2002. By 2007, that number is projected by U.S. Bancorp Piper Jaffray to be US$7 billion - approaching half of what The Kelsey Group (TKG) estimates will be the revenues of U.S. print Yellow Pages publishers.

Should Yellow Pages publishers be worried? According to an informal survey of directory industry insiders TKG recently conducted, almost two-thirds said "yes." But what is the precise nature of the threat, and how immediate is it? Those are the questions this White Paper addresses. We also offer recommendations about what Yellow Pages publishers should do to position themselves for the future, and suggest ways publishers might leverage search for their own benefit and that of their users and advertisers.

Copyright � 2005 The Kelsey Group. All Rights Reserved.
This published material is for internal client use only. It may not be duplicated or distributed in any manner not permitted by contract. Any unauthorized distribution could result in termination of the client relationship, fines and other civil or criminal penalties under Federal law. The Kelsey Group disclaims all warranties regarding the accuracy of the information herein and similarly disclaims any liability for direct, indirect or consequential damages that may result from the use or interpretation of this information.

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Copyright© 2006 The Kelsey Group. All Rights Reserved.