Fascinating morning at this first day of the EADP conference in Barcelona. We heard from a variety of top executives from European directory publishers but two of them stood out: Donat Rétif, CEO of Truvo (the multi-country publisher), and Alon Raz, VP head of customer division, at Golden Pages in Israël.

Rétif started the morning with sobering thoughts about the industry. He talked about the fact that directory publishers are facing both cyclical and structural challenges. In terms of structural challenges, he mentioned:

1. Online will not offset Print decline (usage, advertisers and revenues). He added that “the print product will not prosper in its current form” and “online directories will not be enough” to offset loss of usage and revenues in print.
2. ROI is becoming increasingly important
3. Large and small accounts behave differently (larger accounts are impacted much more)
4. Significant variation in user needs, usage and revenue across categories
5. The importance of search continues to grow

For cyclical challenges, he discussed about the fact that the recession means lower ad spending by SMEs, that print is more heavily impacted than online, and that everyone in the industry (including search engines) are feeling the pain.

Based on those thoughts, Rétif said the focus at Truvo is currently oriented around:

1. User focus to grow user engagement and usage
2. A rich network of traffic (first and third party)
3. It’s about leads, clicks and contacts provided to advertisers (the end of the paid inclusion model basically)
4. Simplicity in an increasingly complex world will be a differentiator

But this means having to radically transform organizations. In specific company departments, it means:

• Sales needs to go from “product focused and infrequent customer contact” to “cross-media and related service adviser with account management”
• Fulfillment needs to go from “shallow and with limited customer contact” to “deep expertise, frequent customer content with upselling”
• Online needs to go from “an add-on to a print business – peripheral to the business” to “drives the organization, people, technology, process, etc.”
• People (HR) needs to go from “majority of staff print focused and difficulties in recruiting” to “all online aware and skilled. Talent management focused”
• IT needs to go from “closed and proprietary approach built on print systems” to “open (ex: APIs) and flexible approach enabling speed designed for new world”
• Finance needs to go from “terms & processes designed for printed product” to “flexible payment terms with supporting systems and processes”

Rétif’s concluded by saying the directory publishing industry has strong assets (database, high customer retention, large experienced sales force, well-known brands, a collection of highly used directory products) but rapid and significant change is needed, moving from advertiser/product focus to customer focus, deepening the content and distributing it in a variety of ways, adapting sales and fulfillment capabilities and deploying agile technology and processes to support change.

Later in the morning, Elon Raz from Golden Pages, came on stage to tell us about their experience and it was eerily similar to what the Truvo CEO told us. Raz started by saying he thought Golden Pages had executed perfectly  on their online strategy but even with that execution, there was a problem, and that problem was the future. In terms of revenues, print is going down quickly, around 15-20% per year. Online average revenue per advertiser (ARPA) is far lower than print ARPA, large customers are not willing anymore to pay what they have paid in the past (large customers ARPA is down 36% in 2 years), and in many cases, directories are perceived as inferior to other media channels (ex: Google). He added that “the online business cannot compensate the loss of the print” .

They’re now deploying what they call a Second Step strategy involving these two elements:

1. Value: create it, measure & manage it, communicate it
2. New game: establish a new category of revenues, prepare it and attack

To change the rules of the game, they need to enter new territories while leveraging their assets. They consider their assets to be their sales force (1000 meetings/day), their customers (40K), their database (260K listings) and their brand. Golden Pages is good at “selling advertising”, “talking to plumbers” and “managing a sales force”. To some surprise, they clearly put a stake in the ground and declared their biggest competitive threat was Google. Most publishers say the relationship with Google is coopetitive but I think what Raz said openly what is said behind closed doors at most directory publishers, that the competitive aspects of Google are starting to outweigh the cooperative side.

So, where are they going? They’re going to enter what they call “the advertising area”, by selling customers an entire advertising solution (SEO/SEM, YP, radio, newspaper, direct mail, etc.).

Why are they doing it?

• The advertising market for SMEs is unaddressed. Only large firms work with ad agencies.
• Google is not active in that field in Israel (focused solely on AdWords).
• It’s a huge market, approx. 3 times Golden Pages sales volume.
• It’s natural, they possess the relevant assets.
• Gaining a leading position may strengthen their relationship with customers

They intend to become the largest advertising agency in Israel. The sense of urgency is there. As Raz said “shifting to online is insufficient! The Yellow Pages business alone cannot sustain the shift from print to other means. We have to be where Google isn’t. We have to bind the customer with services. Unless we change, on the long run, we are doomed to disappear. We could become irrelevant on an horizon of 5 to 7 years”

What it means: Wow. First time I hear directory publisher executives openly say that online directories revenues will not be sufficient to cover the loss of print revenues and that the future is possibly at risk. I’m a firm believer though that online revenues at directory publishers can cover the loss of print revenues but they need to be much more aggressive and much more innovative with their online initiatives, to build up usage on their own network of sites. They also obviously need to continue aggregating traffic from third party and re-sell it ad-network-like.  Elon Raz says publishers should go “where Google isn’t”. I agree but as I said in this post, publishers should go where Google is thinking of going (and where the online market is growing) and in my mind, that’s the real-time world and social media. As Rétif said, “Get prepared now to take advantage of the economic recovery and recognize we will be operating in a changed world”.