US Yellow Page Battles

The US Yellow Pages market has been largely controlled by the Baby Bells. Now, Yellow Book is upsetting the applecart with its aggressive pricing. WSJ has more:

Mr. Walsh, the 41-year-old chief executive of Yellow Book USA, a unit of Yell Group PLC, is riling the once-sleepy yellow-pages industry with a simple formula: selling cheaper ads that attract more advertisers. In just 10 years, Yellow Book has grown from a small local directory service to the publisher of more than 500 directories with a total distribution of 72 million in 42 states.

While Wall Street is fixated on the brutal competition to provide phone service, there’s an equally brutal competition under way in the $14 billion yellow-pages industry. As recently as 1995, Baby Bell phone companies and other incumbents snared around 96% of yellow-pages revenue, according to the Kelsey Group, which analyses the industry. Now, they get about 86%.

The Bells badly want to protect this lucrative franchise from further inroads. While yellow-pages advertising accounts for a relatively small part of the revenue for the former Baby Bells, it accounts for a much larger share of their profits.

For now, Mr. Walsh’s Yellow Book USA appears to be the most ominous threat to the Bells. Through a combination of acquisitions and internal growth, the company’s revenue in 2003 hit $1 billion, compared with $46 million 10 years ago. Today, three out of four Americans live in a market with Yellow Book directories, and Mr. Walsh aims to push that number higher.

It’s not just acquisitions that make Yellow Book tick. Mr. Walsh’s strategy is to go after smaller customers. Where Verizon charges around $3,300 for a full-page ad in Philadelphia, Mr. Walsh charges less than $1,900 for the same. Mr. Walsh says that he can live with Yellow Book’s profit margins being a lot lower than those of the Bells’ directory services, which can run well in excess of 50%.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.