The Canadian advertising giant did many things right as paper gave way to digital and then mobile. But it clung too long to paper and an acquisition strategy, incurring untenable debt.
The Yellow Pages Group went on an acquisition binge beginning early in 2005, when they bought SuperPages, the former Yellow Pages for Telus. The move gave Yellow Pages Group a geographic footprint stretching from the Atlantic to the Pacific -- at a time when the Internet was well on the way to making geography irrelevant. The CEO, Marc Tellier, had bought himself dominance over an industry in decline.
The string of acquisitions continued in the following years. The company was taking on major debt. Tellier had little worry about paying it down, because Yellow Pages was still generating significant cash from its legacy paper advertising business.
Long before 2005 the company should have been investing heavily in digital initiatives, preparing for the day when paper revenues would peak and begin to decline. Like the newspaper business, which Tom Murphy is writing about this week, Yellow Pages was addicted to the flow of legacy cash, and didn't get out ahead of the coming changes.
It wasn't until early in 2010 that the company put on a serious push in the Internet space. Existing and new customers were offered Website development, hosting services, and search-engine optimization. Yellow Pages had an advantage over the likes of Google and Yahoo in this business: feet on the ground. A nationwide network of sales people already had established relationships with millions of businesses.
The digital initiatives made some inroads in the existing customer base, signing up 10,000 for Websites in 18 months. But a number of businesses, becoming increasingly digital-savvy, resisted putting their online fates into the hands of a third party, however trusted its brand had once been. Problems in execution slowed acquisition of new customers, according to a retrospective in the Globe and Mail.
The company was quicker to ride the mobile wave than it had been the earlier Web one. But it was not among the true pioneers. It introduced an app for iPhone and Blackberry in April 2009 and followed with Android in June; iPad came a year later. By November of 2011, the apps had seen 3 million downloads. They offered advanced features to advertisers such as videos and (for restaurants) virtual menus.
By the end of 2011 digital advertising revenues were 25 percent of the company's total, at $345 million. That sounds like significant growth, starting from $8 million annually in 2002, when Tellier took the reins at the company (when it was still a division of Bell Canada). But the growth has arguably been too slow. In the race to remain a player in the digital age, the Yellow Pages Group lands just behind the New York Times company (at 28 percent of revenue from digital) -- the frontrunner in another dying, paper-based industry.
The stock of the Yellow Pages Group is now trading around $0.12, down from the neighborhood of $17 five years ago. Analysts following the company have agreed on a target price of zero. Banks are demanding accelerated payment on the debt.
Agility is hard to come by in a company of this size, with so heavy a legacy of cash flowing from paper. Canada's Yellow Pages Group has done pretty well. But they were 5 or 6 years late in beginning a reorientation to the digital age, and they have been just a bit too slow off the mark in anticipating the changes that followed, especially the stampede to mobile. Their employees, stockholders, and investors may pay the price.