InfoSpace Buys for $160M

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InfoSpace bulked up its Internet yellow pages offerings Friday by agreeing to acquire for $160 million in cash.

The deal would greatly enhance InfoSpace's local search presence, bringing much more local directory traffic. According to comScore Networks, InfoSpace received 12.2 percent of Internet yellow pages searches in the fourth quarter and Switchboard got 10.2 percent. As a combined entity, the company's search share would surpass the industry leader Verizon's, which drew 20.9 percent.

"Together they have more opportunity as a unit than they did individually," said Neal Polachek, an analyst with The Kelsey Group.

InfoSpace provides both directory listings and Web search at its site, as well as its metasearch sites Dogpile, Webcrawler and Metacrawler. Switchboard handles the yellow pages section of AOL.

The online directory market is currently a small drop of the $14.2 billion spent annually in the U.S. yellow pages market, but The Kelsey Group expects it to rise from $507 million this year to $5.2 billion in 2008.

"As the volume of these [local] searches continues to grow, we believe more merchants will shift their advertising dollars away from print and local media to online yellow pages providers," Jim Voelker, InfoSpace's chief executive, said in a conference call with investors. "Through the combination of Switchboard and our existing local search and directory capabilities, InfoSpace is well positioned to capitalize on this growing opportunity."

Polachek said that though the Switchboard acquisition gave InfoSpace much more traffic, it still left the problem of many that are trying to tap into the 10 million U.S. small businesses: sales.

"You're still going to have to figure out how you're going to get after the 20 biggest metropolitan areas and get in front of the auto mechanic and the paper hanger," he said.

InfoSpace's directory site currently uses Verizon's for its local business listings. That deal, struck in April 2001, runs for five years. Brian McManus, executive vice president of search and directories, said InfoSpace would continue to work with Verizon, following its model with metasearch of aggregating the best sources of information and advertiser listings.

He said InfoSpace had no desire to try to build relationships with local businesses, relying instead on partners like Verizon, which has a 2,100-strong sales team for

"We'll have direct relationships with merchants that have patience to do self-provisioning," McManus said. "Most of them don't want to do that yet."

The Internet yellow pages market also will see more competition from search giants like Yahoo and Google. Both made forays into local search this month, with Google launching a local search engine and Yahoo adding local search to its map tool. Yahoo's Overture unit plans soon to roll out an ad program for advertisers to target their listings to users within a geographic radius of their business. As a further lure to small businesses, Overture will display a Web page with basic business information for advertisers without Web sites.

"I don't think in three years there is going to be much distinction between Internet yellow pages and local search," Polachek said.


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