Time, tide and the print YP

King Canute

R.H. Donnelley, the big Yellow Pages publisher, has lost more than 90% of its market value in the past year — much of it since last week, when it revised its 2008 outlook and announced the resignation of Jake Winebaum, head of its digital operation.  The traded part of the company is now worth about $400 million, vs. $4 billion a year ago.

Same thing, more or less, for competitor Idearc: Down about 85% in the past year.

These are astonishing votes of no-confidence in what are, after all, profitable companies with billions in revenue.  Seems like a few things could be happening:

Investors are overreacting.  YP companies will get punished by the economy, just like everyone else, but then they’ll recover.

Investors are overreacting.  Sure, YP companies are in a secular decline, but it’s slow & there’s no reason to panic.

Investors are right.  Still, the problem is with these specific over-leveraged companies, or the US market, or something else — not the global print YP market.

Investors are right.  For print YP, this is the last stop before oblivion.

In the world of local experts,  all of whom I respect, no one takes the extreme view: See Greg Sterling, John Kelsey, Perry Evans.  The consensus is that we’re looking at a slow decline — while they ought to get it in gear, YP companies have valuable assets (revenue, sales force, customer relationships) and time to react.

Hard to argue.  And yet … all of this seems weirdly familiar.

In late 1989 I joined the Wall Street Journal to report on IBM.  At the time, the computer giant bestrode the technology world, but there were rumblings from upstarts called Intel and Microsoft.

For the longest time, I believed analysts who — even as they acknowledged the upstarts’ importance — talked up IBM’s huge mainframe revenue, its formidable sales force, and its customer relationships.

More recently, I worked for AOL.  Its planned to build something new and valuable while allowing its huge dial-up base (30 million subscribers!) to erode sloooooooowly to broadband.

In both cases, the tide came in far faster and deeper than expected. 

I suspect it’s ever thus: No one here is Canute*, exactly — but when the future is lapping at your feet, big lungs aren’t a viable strategy either.

My gut tells me the tide is coming in quickly for YP publishers. Whatever the stats say about numbers of lookups, I see more & more piles of shrinkwrapped directories that sit for weeks before being tossed.

Only two things are holding back the ocean:

• The lack of a popular tool that makes the Web easier to consult than a phone book.  The iPhone and similar handsets will change this within 18 months.

• Merchants’ failure to realize that their YP ad dollars are buying less and less.  By 2009, this will be impossible to ignore.

What follows will be a real crisis, not just today’s crisis of confidence. 

These companies aren’t 100% print YP, of course.  They include online components.  But they’re fitting things into a print-oriented culture, rather than starting from fundamentals.  Again, it reminds me of IBM, ca. 1990, fitting PCs into its mainframe-oriented strategy.

I visited R.H. Donnelley’s Web site today.  I was greeted by this slogan:

connecting you to the future
building on the past

“Building on the past.”  If I were an investor, I would sell too.  In today’s environment this is an epitaph, not a tagline.

*Aside: So now I read that King Canute was actually making a point to his fawning courtiers.  What use is he, if not as a metaphor?