TWST: Would you start with a short history and overview of Local.com?
Mr. Clarke: Local.com has been around for 10 years. We've had a different life, but we've always been in search advertising. We were doing what we call today Tier 2 search advertising for the first five or six years. Subsequently, in 2005, we began to transition to the local search, which we recognized was a rapidly emerging market and where a lot of online ad spending was taking place. Early in that year, we acquired the Local.com domain and launched Local.com. So the current business has effectively been ongoing for about four years.
TWST: I understand that there are over 10 billion unique searches each month, and that 40% of those have local intent. How does your Syndication platform leverage this development? Would you give us a high-level view of what's happening in your field?
Mr. Clarke: I'm not sure about those specific numbers, but the segment of the universe that we serve at Local.com is consumers who are looking for businesses, products or services in a specific location. So I might go to Google (GOOG) and do a search for flowers in Irvine and that would be what we call an explicitly local search, and as you notice, there are sometimes searches that have local intent.. So if I went to Google or Local.com to search for auto mechanic, the intent is that it's a local one. You're really not looking for an auto mechanic in another state. So the universe that we target is definitely about 22% of all searches on the Internet. One-fifth of all searches represent our potential target market, and where our private label Syndication network fits into, that is, we publish small business directories on approximately 700 regional media sites. That means we put in corporate local search engine technologies that are tailored to specific regions into a local newspaper's Website, television or radio station's Website, and we basically publish content into that site.
And so when you go to Google, Yahoo (YHOO) or MSN (MSFT), and do a search, in many cases you'll find our content index by Google. And when you see a local brand in Orange County, our local brand is OC Register and their Website is ocregister.com. So if you went to Google, did a search for tax preparation, Irvine, typically you'll see an OC Register listing in the number one or number two spot on the OC Register Website. And if you click on that, it takes you two searches out on the OC Register's Website and that's actually powered by Local.com.
So not only do we have our own brand, Local.com, which has about 10 million visitors a month, we also have our private label network product, which is 700 regional media site business directories in each of those and we have about nearly 10 million visitors on that too.
TWST: What are your various sources of revenues in a month?
Mr. Clarke: It's all ad-based revenues, and we have two major sources. First, there are our ad partners and Yahoo! is our biggest one. The way this works is through business development relationships, where our partners display their ads on our site. And if you did a search on Local.com, the first three listings would be from Yahoo!, the next three listings would be from Idearc (IDAR.PK), and that's our second largest partner. Then you'll see other listings, which are from Local.com. So the relationship with Yahoo! and Idearc is, they publish their ad listings through us. They are very targeted ad listings.
Obviously, if the consumer is doing a search for a product or service in a location, we want to deliver very relevant results. So we think we do that, and we're always trying to get better. Basically, if a consumer clicks through on one of those ad listings, then Yahoo! or Idearc charges that advertiser, and then they do a revenue share with us. So that's one stream of our revenue. The second source of revenue comes from our own direct advertiser base, which we've been developing. This commenced last year and will continue to be a priority for us throughout 2009 and 2010. And what we're selling at Local.com is our entry-level product, which is a subscription ad product for about $50 a month. So a small business comes to Local.com or their agency and they can sign up for a product that gives them premium placement in our search results. That's very valuable to a small business, as it enables them to acquire more customers. Currently, we have about 30,000 small business customers and plan to grow to 50,000 by the end of the year. This really represents an increasing portion of our revenue stream. The goal is to have our direct advertising base become the primary source of revenue over time, and the other relationships which we have with Yahoo! and Idearc would be complementary.
TWST: What kind of competition do you have? What are your advantages and what differentiates Local.com from your competitors?
Mr. Clarke: We're competing with all the major search engines, as it relates to getting search traffic to our site. We're really not trying to compete with everybody, though. What we're trying to do is compete mostly with the directory publishers. So Yellowpages.com, DexKnows, Yelp or Yellow Book, and Superpages.com, those are our key competitors. And what we're trying to do is grow our online presence bigger than our competitors and of course, monetize it more effectively than they do. Typically, the companies that we're competing against are very, very large entities, good at what they do and have been around for a long time. Google, Yahoo! and MSN all have local search products as part of their suite of services they offer to customers and they're doing a variety of different things. Then you've got fewer players like Yelp, for example, that are focused heavily on user-generated content. It's something that we're focusing on, but not as heavily as they are doing. Local is in a very competitive space and, given that, I think we've been pretty effective in carving out our segment of this space. Aside from our team, one of our biggest assets is Local.com, the name.
Perhaps, it's under-utilized and we are paying closer attention to how we can more effectively utilize that asset in terms of branding. There are a lot of Websites out there that are starting out and using derivatives such as localrestaurants.com. But how we're trying to differentiate from, let's say, a Google Local is, in many ways, the experience that a consumer gets on our site. We have some interesting products related to video that we're bringing to the market later this year. So that when you do a click on the profile page, it's oriented around the business. That would be one way in which we differentiate from Google, Yahoo! or MSN. The way in which we differentiate from our directory peers is in terms of the search relevancy. We spend a lot of resources on research and development for developing our search engine. At the end of the day, a consumer who goes to a search engine wants extremely relevant search results. Reports show — including those prepared independently — that we are consistently in the top one or two positions in terms of search. And I think that is where we differ significantly from all the other directories.
TWST: What can we expect from Local.com over the next two to three years?
Mr. Clarke: We're focused on building three key areas, namely, traffic, technology and advertisers. We have set a goal of 50,000 advertisers — small business customers — we want to acquire by year-end. We currently have 30,000 advertisers. So we're going to continue to grow that, and we are also looking to add new products. Our current entry-level product is $50 per month. We're working on a plan for a product that serves between $250-$500 per month advertising, to different ad segments. We've got more bells and whistles coming, and that's something you would see later this year. And you can expect new advertisers and new products to continue over the next couple of years as we build out our products and services for small businesses across the United States. Organic traffic, that is, traffic coming to our Website through our search engine optimization and repeat usage, we're looking to build that too. Right now it's about 50% of all traffic.
About a year and a half ago, it was actually 10% of all traffic. So we made a conscious decision to increase the amount of organic traffic to Local.com. We're going to continue to do that, in part through the expansion of our private label Syndication network. We have approximately 700 regional media sites today. We're looking to go upstream and target larger regional media publishers and even nationwide publishers, and we have been making progress on that front. So expansion of our Syndication network drives expansion of our search engine and this optimizes our SEO traffic, which is all organic and builds our value. Also, as I mentioned earlier, the name Local.com is an under-utilized asset. So we will be doing some brand-based advertising to build brand recognition among consumers and that would feed into our repeat usage. Also feeding into our repeat usage is improvement on the site itself. We significantly enhanced the site earlier this year and there would be incremental improvements, such as ad user-generated content, having widgets that one can use to track their favorites and tapping into social networks, all of which we find very interesting. And on the technology front, the creation of the new product is one part.
However, what we're trying to do is create a platform in 2009 that will service our customers in 2010 and beyond. So we're making pretty significant investments in our infrastructure in order to continue to grow and we're also filing a few patents. We filed one, I believe, earlier this month and we'll continue to do that. We have about a dozen patents pending; so far, three patents have been issued.