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ReachLocal’s IPO Indicative of SMB Internet Market




In an indication that the market is not where people would like it to be, ReachLocal cut the price of its IPO yesterday to below the midpoint of the range for the offering.

Reuters tells us

Internet marketing company ReachLocal Inc (RLOC.O) priced shares in its initial public offering 28 percent below the midpoint of the expected range on Wednesday, according to an underwriter.

The company, based in Woodland Hills, California, sold 4.17 million shares for $13 each, raising about $54.17 million. It had planned to sell shares for $17 to $19 each.

ReachLocal sells services to maximize the effectiveness of online advertising by small and medium businesses.

The initial filing from December of last year had ReachLocal looking to raise about $100 million.

ReachLocal is well known in the SMB world of Internet marketing. The responses to the service are all over the map with many loving it while an equal amount are looking for an escape route. This just underlines how difficult it is for the SMB’s of the world to get an effective foothold in Internet marketing. This is not an indictment of ReachLocal because there are others in the same space including Network Solutions that garner the same reactions from customers.

The lack of overall knowledge of Internet marketing techniques and just what is truly available to them hurts the SMB in general. As a result, they may decide to go with something that looks great in the sales process but in reality falls very short of expectations. By the way, SMB’s expectations of just what Internet marketing should automatically do for their business are often so unrealistic that no one will be able to prove successful enough for them. This disproportionate view of Internet marketing’s capabilities comes in part from being fed up with traditional marketing / advertising plays like the Yellow Pages and the Internet marketing industry itself saying that it is the savior of the SMB. Set the bar that high and your chances of consistent success decrease significantly.

Another piece of the trouble in the SMB Internet marketing space are slick sales efforts coupled with a real significant helping of FUD (fear, uncertainty and doubt) on the part of the SMB makes for bad decisions and disappointed business owners.

And the final stumbling block with the SMB and Internet marketing services? Price points. In many cases, SMB’s simply don’t have the financial resources to put into Internet marketing. The available ‘budget’ they have for these services is so low that there is little chance of being able to hire an ‘expert’ that can truly help them through this maze. With an economy that is still limping along and the SMB space still feeling very unsure of the future this isn’t likely to change any time soon.

Maybe this whole cycle is why the ReachLocal IPO did not reach the goal of raising $100 million it hoped for originally. Every day there are more and more stories of the SMB wanting to be in the Internet marketing game but the barriers to entry are much higher than they are led to believe. What comes out of that scenario is skepticism and even higher demands for performance. This is a cycle for repeated failure that will take some doing to get out of for sure.

So what’s the SMB Internet marketing wannabe to do? What options would you offer to the business that is struggling to survive (other than promoting your own business here in the comment section)?

  • http://www.tru-market.com Doug Sherwood

    Having seen the direct impact of an over-inflated sales pitch to smb, Reach has got to get re-aligned with its core, they are trying to be a one size fits all company. Their analytic offerings and potential reach are ok, their not great.

    When the demands for performance are felt, the question I have is; Define performance, and define the intended audience from that CEO level and lets see how that measures up to an appropriate cross section of smb.

    Inbound marketing has really taken off since Reach entered the market, Google and everyone else has changed their process, adding depth to their offerings. Maybe its time for Reach to do the same. My gut feel is that they are reacting much like the other online (former high up YP companies) and riding it out through pressure and FUD.

    The game has changed, have they? Not from down here, looks the same to me. Attack at the middle and the top, the emperor has no clothes.

    D.
    Tru-Market.com

  • Denis Yris

    indeed!!

  • Akers

    Only $54 million? Looks like the investors aren’t drinking the ReachLocal kool-aide.

    On the plus side, they have a clearly defined strategy and seem relentlessly focused on it. Unlike “traditional media companies” trying to sell SMBs a jumble of their old stuff with a little SEM pixie dust mixed in, ReachLocal has a clear sales focus. ReachLocal reps are armed with technology and product that help them keep a few steps ahead from the newspaper rep who is just learning how to live with out their printed pitch deck.

    While ReachLocal has clear sales strategy, they are arguably not clear on what the SMB is buying. Rumors abound of shady sales techniques and unreasonable expectations. Sales reps are also responsible for managing accounts which means any salesperson worth their weight is spending as little time as possible maintaining accounts and more time selling. After all, they are SALESPERSON right? Have they ever been good at administrative work? (The answer is no)

    So in the end I’m not surprised they only raised half of what they expected. Their model relies on aggressive selling but their longevity relies on account retention. With those two things misaligned their chance for long term success is slim.

  • http://www.7mainstreet.com Andy Leff

    i dont agree that businesses cant afford to spend money online. We sell http://www.7mainstreet.com online products intot osme very rural areas and you would be surprised as to the amount of dollars available once you get outside of the major cities. These rural areas are not serviced by the big guys out there ad they feel neglected. We constantly hear that there is a budget but the SMBs in the rural areas dont know how or where to spend it. We have been able to do some interesting things in these markets with our product.