BusinessWeek on the business of local online media: "'We have not been able to determine a revenue-generating stream from that traffic,' says Robin Saul, president of the Greensboro News & Record, a paper noted for its smart, locally grounded Web strategies."

Others have the same problem. But local advertising dollars will start flowing to online outlets.

If someone wants to put up a fraction of the $3 million raised by the ill-fated Backfence, I bet we could figure our a workable business model for this region.

Comments

[Anonymous]

Evidently due diligence by Backfence on their market was not a precursor to getting millions in funding. Backfence chose a market in northern Virginia that was already dominated by a community newspaper group that delivers its newspapers for free to homes in Vienna, McLean, and elsewhere in northern Virginia. Although the BusinessWeek article refers to communities being underserved by a major daily (perhaps such as the Washington Post), those towns already had a strong -- and free -- source of local news that has done well. In addition, from what I have seen of BackFence's websites, they have relied on readers to supply news and have provided very little original news themselves. In order to generate the advertising they need, they'll need to do more than have blogs and photos from high school football games.

The market is tough for local advertising online for papers. After talking with people at around 30 NC newspapers in the last few months, there is only one that I talked with which is making money for their online divisions and they are making it from national advertisements. The challenge is not getting news, it's converting those local print advertisers over to online advertisers -- something that will simply take time as local "mom and pop" stores become more sophisticated in their advertising efforts online. It won't happen overnight and it won't happen without original local content.

[Ed Cone]

Anon, please contact me via email, I'd love to talk with you. Thnx.

[Darian]

Actually Backfence did quite well in terms of getting local adoption as well advertisers. So, in fact, it did prove you could get traction and get advertisers interested in it. The issue was that the infrastructure needed revision so that content could be self-selecting and organizing rather than having editors, promoters and separate business units for each regional area. That's just to costly.

Given that I wasn't there that long, but long enough to see how to improve, unfortunately we ran out of time, miscalculated on accounting issues, and left ourselves in a difficult position to quickly get a new round of financing. When Backfence started a lot of these optimization, automation tools didn't exist. Unfortunately we didn't move quickly enough to ad them once they were available (look at outside.in as a company that is using this approach).

The idea works. It only needs to be tweaked with less overhead, more automation, and actually, a greater number of cities. The game ultimately is horizontal and not vertical. Simply setting up one region isn't particularly attractive, setting up a nationwide service with each city focused laser-like on their community turns into a viable business for both local and national advertisers.

The way I see it, we were quite close, and even the VCs will tell you that they thought we proved the basic model. Just ran out of time before it could be fully implemented to have a lower burn rate, higher content integration, more communities participating.

I'm always curious as to why people don't actually ask the folks who worked there before coming to their own conclusions based on misinformation and factual errors.

[Anonymous]

After hearing plenty of companies try to put a spin on bad news and why they failed (ran out of funding, technology wasn't there, etc.), I think what Darian is trying to say is that BackFence.com simply didn't sell enough advertising to support it's operations.

Was this based on "misinformation and factual errors?" I think not.

BusinessWeek: Potts concedes that ad response was "not what we wanted it to be."

In addition, if the venture capitalists felt that it would have succeeded then you would have found secured additional second or third rounds of funding even if the initial investors were crammed down. VC's don't like to see their investments disappear and they traditionally try to get follow-on investing to keep their portfolio firms from folding.

I'm sorry it didn't work out, but I think the "cookie-cutter" approach that was applied here is not the answer and quite frankly was probably what led to BackFences' downfall.

[Darian]

While not wanting to beat a dead horse, their were internal issues that the VCs aftern initially agreeing to re-up and fund decided not to. The fact is, the model was beginning to work. Yes, there were plenty of issues with how well the advertising worked but advertising and membership where the two things that the VCs agreed worked.

One raises money to allow the business to build over-time. Very few large scale busineses (especially Internet based) are able to break even immediately when trying to also execelerate growth. The plan was never to be break-even in the first couple of years. Look at ebay, amazon, yahoo, et al and you'll see they followed this same model.

[Bubba]

"While not wanting to beat a dead horse, their were internal issues that the VCs aftern initially agreeing to re-up and fund decided not to."

Internal issues (second thoughts) having to do with the concept/business model?

Or were they strictly market based?

[Anonymous]

I agree with you Darian that if BackFence had more time and funding, it would have been much more likely to succeed. They would certainly benefit from being in the game over the long haul and being able to have staying power in market helps greatly.

By the way, I'm certainly not saying that BackFence's idea was not workable, just that in my experience local advertisers are not advertising on the web on the level that is needed to support such an online only news operation. We've seen national advertisers move a lot of their dollars to the web, giving national sites income potential. But I think it's still early to count on "Mom and Pop" stores and other traditional community newspaper advertisers to put their money into online efforts.

You can enter the market too early. In 1996, there was at least one venture-backed company that I am aware of that received funding and developed a working technology that is basically what iTunes is today, with copyright protection, selling MP3's online, etc. It took Apple, with its larger resources, as well as almost 10 years of time passing to finally get the record companies to change their minds to get the technology and business opportunity to mesh with market conditions.

I feel the same will happen with online news websites that are local in nature or are intended to serve as community news operations. It will take a few more years for local advertisers to transition their advertising efforts to the web in such a manner as to sustain such news operations that do not have a print component to support them. The market is just not there yet.