Tuesday, November 27, 2007

Lead-Generator Yodle Pulls in $12M

by Ken Schachter 26 November 2007, 13:55

Yodle, which aims to solve the knotty problem of using the web to connect potential customers with the local plumber, pizzeria, or podiatrist, has landed $12 million in a second round led by Draper Fisher Jurvetson, the company announced Monday.

Also participating was prior investor Bessemer Venture Partners, which led a $3 million first round in 2006.

Yodle competes against the many print and online Yellow Pages companies as well as Los Angeles-based ReachLocal, which in October closed a $55.2 million fourth round of venture capital led by Rho Ventures. The Kelsey Group, a Princeton, New Jersey, research house, forecasts that global local search revenue from Internet Yellow Pages, local search, and wireless will climb to $13 billion in 2010 from $3.4 billion in 2005.

Andreas Stavropoulos, managing director at Draper Fisher Jurvetson, said New York City-based Yodle tackles “the unsolved problem” of using the web to generate sales leads for local businesses.

“Of all the companies I’ve seen, it’s the closest to having a scalable model,” he said. “It’s a huge market and one that’s very difficult to crack in a scalable way.”

Yodle Chief Executive Court Cunningham, said the company, founded as Natpal in 2005, plans to ramp up to 10,000 customers from the current 1,000 within 20 months.

Despite the web’s frantic growth, historically, local businesses like the neighborhood locksmith would never consider advertising on the web, Mr. Cunningham acknowledged. But with more local content migrating online, the web has become an important source for finding consumers.

“We’ve hit that tipping point,” he said.

The company, which expects to expand its work force from 70 now to about 200 within a year, helps local businesses buy keywords on the major search engines and guide web surfers who click on the link to a Yodle-designed web site set up for the client. Should a potential customer call, the message is delivered through the Yodle phone monitoring system, which provides statistical analysis.

Yodle reaches local businesses by advertising on the web and through a direct sales force, Mr. Cunningham said. The company offers service in New York, Boston, Philadelphia, Atlanta, and Washington, D.C., and plans to launch in up to 10 additional cities next year.

Mr. Cunningham, a former executive at online advertising company Doubleclick, said Yodle is growing revenue at a rate of 350-400 percent per year and that the new cash infusion is expected to bring the company to profitability.

My Take
There is a big difference between a "lead" and a "sale". This should go without saying. Yet Yodle seems to offer "leads" - leads that are expensive and time consuming for a small business to convert into revenue.

Yodle may be bypassing the opportunity to create something revolutionary. Are they going to settle on being another expensive VC funded Web start up?

Granted they offer a unique feature - direct contact with the consumer.

But how is this scalable? When I think 'scalable' I think Craigslist. Did Craigslist need so much VC$?

When I think 'direct sales force' I think expensive. Did a CraigsList sales rep knock on your door?

Is this why they need $12 Million?

Isn't this the opposite of the direction that the Web is heading?