Q&A with ReachLocal co-founder Zorik Gordon

SMBs need to go online because their customers are going online, but they're going to need help

Zorik Gordon is a busy man.

You're seeing some fascinating visions if you ever imagine that the co-founder and CEO of a company as successful as ReachLocal, which foreshadowed the now-booming IPO market with its own public offering, could eventually take a little time for rest and relaxation. Not so with Gordon.

In spite of that, we found some time to catch up on the phone yesterday, just a week in advance of Gordon's keynote presentation slated for Vator Splash LA on Thursday. For the unacquainted, ReachLocal is one of the most important companies helping small to medium-sized businesses (SMBs) take their revenue models online--a truly 21st century problem.

Read the interview to learn about the rise of social, local and deals. And where it's taking us.

I'd like to start from the beginning. You've been with ReachLocal since its founding in 2004, so why don't you share with us your vision for the company.

We started the company because we saw tremendous opportunity in “local,” all the offline businesses and their advertising dollars, primarily. And we knew they were going to move online as their customers and consumers moved online. It was really kind of the holy grail that no one had been able to crack, so [we] decided to go after it.

It’s really important as an entrepreneur to try to pick as big a space as you possibly can, and local is one of the biggest. We tried to figure out why merchants weren’t following their customers.

Fundamentally, SMBs have historically never had to do any media buying. They’d get in the Yellow Pages, newspapers, billboards--then they’d go back to running their business. These aren’t huge businesses, these are five to 50-employee companies, and they’re busy producing revenue. They’re not going to sit there doing Google Adwords and figuring out the latest trends on Twitter and social networking.

We’re agnostic. We go into the world of SMBs with a really huge salesforce--over 1,000 people across the globe--reestablishing that relationship that historically existed with Yellow Pages and newspaper guys. They’re educating these SMBs on what they should be doing. And we start moving their budgets to our technology platform.

We do that through search, so we spend a tremendous amount of money on Google and Yahoo. We do it with display, moving from offline display to online display. We now do it with social, with a product called ReachCast where we set them up on Facebook and Twitter; we tweet on their behalf and monitor and manage their reputation. Finally, we do it with deals.

Today, we’re in the U.S., Australia, Canada, the U.K., Germany, but we see this as a global problem. We’re bringing SMBs around the globe into the digital world in an intelligent way and it’s a really big problem to solve. We’ve found a big space.

Right, so you went public in December 2009, and it was a very successful IPO. Since then, are you focusing on getting your name out to more businesses or are you still innovating the platform?

Absolutely. It’s everything.

It’s interesting: we’re in that phase where we’ve got a very large core business. We’re getting close to $400 million in revenue (hopefully) this year. More offices, more people, more markets--there’s this real distribution opportunity ahead of us, but, at the same time, we’re constantly innovating and trying to stay ahead as the marketing environment online is changing. Where two or three years ago, we were almost exclusively search, we’ve now done display; a big part of our business is social; now, deals.

It’s part of sustaining a 1,500-person global operation to reach the world of SMBs and at the same time we’re really an innovating technology company on the cutting-edge. As entrepreneurs, we’re privileged to run such a big company, but we always love the next big thing. Mobile, social, local--since all these things are affecting every aspect of the SMB life, we get to innovate like crazy, and that’s awesome.

Going off of that, you’re one of those local-serving Web companies with over 1,000 employees, and I’m sure you’re still growing. It reminds me of how Groupon is considered a weird Web company with a giant workforce instead of just a few engineers. Is this a trend we’ll see happening as the online world connects more with the real world?

When it comes to local and you’re dealing with these offline businesses, you have to go out and reach them. They’re not going to come to you. The Web has been a little bit spoiled, I think, with these self-service models.

ReachLocal golden rule number one, which we figured out very early, is that the SMB is never going to self-service. They want somebody to do it for them. If that’s the case, then you have to build your own infrastructure. Companies like ourselves and Groupon understood that. Some companies choose to partner with us to reach those people. Google doesn’t want to do it, Facebook isn’t doing it, so they’re partnering with us to reach those people.

Let’s talk more about those partnerships. The first is DealOn.

There’s a whole new set of marketing products that Groupon has innovated around deals, the deal of the day. It’s a real turning point in local because, for the first time, you can actually buy online an offline service. You can buy a restaurant meal online. You can buy a spa service online. That’s a really seminal thing: you are able to buy services just like products on Amazon or BestBuy.com.

We acquired [DealOn] to get us in the deal business. We’re out there deploying a deal sales force, bringing merchants to folks like Facebook. (We’re in the Facebook pilot.)

You can own the eyeball or the advertiser. We’re really about being hyper-focused on owning the advertiser relationship and bringing it to deals, display advertising, search, social, whatever pockets of the Internet there are.

So, is the answer similar with Google, who you also recently partnered with? Are you working more closely on advertising and targeting?

We’ve been working with Google from day one. From day one, we’ve been sourcing deals for Google. Search is our biggest product. Let’s say our average budget from an advertiser is $1000 per month, Google’s going to be a big part of that budget.

Small advertisers are not going to Google, Facebook and Yahoo by themselves. They’re just not. It’s not worth the time and the effort for them to do it themselves. So, they look to companies like us to be their outsourced marketing arm, where we take those dollars and deploy them.

We’ve been spending money on Google since 2004, but we just expanded the relationship with this more global announcement.

So what does that mean exactly: are you working in more global Google properties?

It’s a financial relationship, where they're assisting us a little more financially to expand more aggressively because we’re a leading partner for them in the U.S., Australia, Canada--all the places we’ve entered, we’ve done a really good job of sourcing really high-quality merchants that weren’t [going to Google] themselves. We struck a partnership deal where they’re going to help us move into eight additional countries over the next three years.

Which countries are those?

We don’t really disclose what countries those are, but they’re some of the bigger countries we’re not in yet.

Finally, we’ve got Facebook Deals, obviously drawing a lot of attention. How would you say this fits into that whole new model?

Deals are a new ad unit. Every one of [Facebook’s] users is local, so it’s a great way for them to monetize. I think they’re going to be a very significant player in the deals space. We think it’s a smart move on their part.

Deals are sort of an immature ad model right now. Would you say Facebook has more leverage versus other players in the space simply because of their relationship with users?

Clearly, it’s an advantage. Historically, on the Web, first-mover advantages have been very, very strong. I think Groupon has a very strong position, but Facebook has an unprecedented consumer base. But they’re still playing catch-up, right?

You’re right that Facebook came late to the deals game and when you think of daily deals, you think of Groupon. But Facebook has the real identity network and they’re, like you said, local by definition. How might that competition play out?

[Facebook is] going to give Groupon a run for their money. If anybody has a chance to catch up or be a significant player, it’s them. But they’re playing catch-up no matter what.

Do you see all those Groupon clones dying out eventually?

Yes.

Pretty straightforward answer. Any reason you think so?

It’s high stakes to play in that space. These guys are going to die out.

You’ve seen it happen very fast in China. There were a thousand Groupon clones and more than half closed in a few months. It’s just one of those things where this market is going to consolidate very quickly.

On the other hand, I’m tempted to compare it to social gaming companies, many of which seem to be riding on Zynga’s coattails. Lots of those studios see no problem finding nice exits, even if that means getting acquired by Zynga.

At least with game companies, they have unique content and capabilities. These guys are exact clones going for the same customer base.

For ReachLocal, is there anything on the horizon that we should be looking for?

We have a fairly robust portfolio. We do a lot of search and display, we have a social product called ReachCast, we now have the deals business and we also launched something called Bizzy, which has now turned into a location application. While Foursquare has check-ins, with Bizzy you can “check out.” So if you’re in a place, you actually open up Bizzy, check out and say whether you liked it or not. You can share that within Bizzy or with your friends on Facebook.

At its core, it’s a recommendation engine, so we match people who like the same places. If you and I like the same restaurants, I’m actually going to use you as a recommendation.

One of the things that really sucks online today is, while we have all these review sites, there’s really no context of who these people are and whether you should trust their reviews. Tastes are so different, especially when it comes to food, vendors, music and all these other things.

People just want recommendations; they don’t want to sift through tons of reviews. They want a tool that just tells them where they should go and the best basis for recommendation are people who like the same places you do. I’m not a big believer in this “your friends are a good source of recommendation.” They may be a good source of information, but, just because you’re friends, that doesn’t mean you have the same taste.  Me and my dad, we’re father and son, but we have completely different tastes in food.

So we think Bizzy is a great idea and it’s a great app. We’re building that up because we think recommendations is kind of the next hot space in discovery. That’s kind of our first crossover in the publisher side.

Then there’s a lot of opportunity on the local front: deals are just the beginning of what’s to come. I think you’re going to start to see more and more transactions that historically occurred offline happening online in different ways. I think that’s going to be the biggest trend in local, by far, over the next many, many years. As funny as it sounds, Groupon, I think, is just a bare start in what is yet to come in local.

Finally, can we expect to hear any exciting new announcements at Splash?

I’m thinking about some things. I want to lay out the future of local, as I see it.