The demise of yellow pages

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Phone-book companies are heading for a long, slow decline

WHEN the drains are blocked, the air-conditioning has given up or your life depends on someone delivering a take-away, you pick up the phone book. In most countries the companies that produce them have big chunks of the advertising market and enjoy some of the fattest margins in the media business. But now, because of the internet, investors have taken fright. Shares in Yell, which owns phone books in Britain, America and Spain, fell by 26% on May 20th when it announced its results. That was partly due to concerns about slowing economic growth and the company's debt load, but also because of worries about its long-term future. The firm's shares have now fallen by 75% in the past 13 months.

The problem for yellow-pages businesses in developed markets is that people are increasingly searching for local services online. A survey by the World Advertising Research Center found that in 2005, 57% of Europeans said they would turn first to the printed yellow pages when seeking goods and services. A year later that number had fallen to 51%, and 24% said they would go online, up from 20% in 2005. Small and medium-sized businesses (SMEs), which make up most of the advertisers in yellow pages, are noticing the shift. The fear is that they will follow the audience and jump ship for the internet.

“Ten years ago SMEs had one marketing option: printed yellow pages,” says Paul Zwillenberg of OC&C Strategy Consultants, in London. “Now they can buy space on Yell.com, or they can bypass yellow pages by building their own website and optimising it on Google, or simply buying keywords from Google.” There are signs that larger, more technologically aware SMEs are already doing just that.

Yellow-pages firms are moving onto the internet too, but they face intense competition online, unlike the near-monopolies they enjoy in print. In Britain Yell.com attracts fewer visitors than Google Maps, the search giant's local-search service. Only three big yellow-pages firms, in France, Norway and Sweden, have recreated their dominance on the internet. The biggest of these is PagesJaunes Groupe in France, which beats Google Maps for visitors. It helped that customers were already familiar with Minitel, a precursor to the internet that featured PagesJaunes. In addition, the firm started to invest in its website ten years ago, says its boss, Michel Datchary. Other yellow-pages companies, he says, have tried to protect their print products at the expense of online growth.

Another difficulty in moving online is that directories dare not allow reviews or recommendations, because they earn money from advertising. But “people now want more than a book full of advertisers—they want word of mouth and a sense of community”, says Douglas McCabe of Enders Analysis, a research firm.

Yellow-pages firms have two great strengths which mean that their decline is likely to be gradual. First, the information they offer is still far more extensive and reliable than most of what can be found on the internet. Google acknowledges this, and pays directories firms around the world to use their data. Second, small firms are loyal to phone books, because they get results. In Spain, where Yell owns Páginas Amarillas, eight out of every ten searches in the phone book resulted in a call to a small business. Pirate's Cave Chandlery, a boat-supplies firm in England which employs six people, launched its own website four weeks ago, but plans to stay with the Yellow Pages for the time being. “Lots of people don't have computers,” explains Debra Hardy, the accounts manager, “and we don't want to miss them.”