InfoSpace Sees Green in Online Yellow Pages

Former House Speaker “Tip” O’Neil once said, “All politics is local,”
meaning that what mattered most to constituents was what happened in their
own neighborhoods. A similar philosophy is emerging in the search industry.

While search has grown to be an essential marketing tool for companies with
nationwide reach, search players are increasingly positioning themselves to
help users find information closer to home: the phone number of a local
plumber, directions to the hot new restaurant or the name of the nearest
auto repair shop.

Seeing that opportunity, InfoSpace said today that it
will buy local Internet yellow page specialist Switchboard for $160 million in cash.

If approved, the deal will make InfoSpace the leading U.S. online directory
provider. According to comScore/MediaMetrix, the companies’ combined
networks comprise approximately 23 percent of total online yellow pages
searches, just ahead of Verizon’s SuperPages site.

Some of the traffic Switchboard brings to the deal comes from the
syndication of its listings to other sites, including America Online, which
owns 8 percent of the firm, and newspaper sites owned by McClatchy Co., the
Washington Post Company and the Houston Chronicle.

“We believe that traffic is the most valuable asset to own and we’ve
substantially increased our share, improving our attractiveness to
advertisers and distribution partners,” Jim Voelker, InfoSpace’s chairman
and CEO, said on an investor conference call.

InfoSpace, of Bellevue, Wash., isn’t alone in betting on the trend. Earlier
this month, Google introduced a
beta version of local search tools allowing users to search for local
merchants by zip code, city name, or address. Google’s offering depends on
Internet yellow pages data, but it won’t say who is providing the
information. And Yahoo! has been gearing up to bring the
battle down to local level, relying partly on its own yellow pages
information, which it gets from BellSouth and InfoUSA. Search player also recently teamed with Verizon to add pay-per-click
advertising listings on the telco’s site.

Industry watchers say the thick yellow pages books that phone companies drop
on customers’ doorsteps are still the primary source of local merchant
information for consumers. The yellow pages industry generates nearly $15
billion in annual ad sales in the United States, but there’s a movement
toward online, according to The Kelsey Group.

In 2003, the online directory market was approximately $450 million. And the
number of online yellow pages searches are projected to grow 25 percent
annually and to account for more than 30 percent of total yellow pages
searches by 2006, The Kelsey Group said.

InfoSpace’s acquisition of Switchboard is expected to close around mid-year,
and requires approval from shareholders, as well as Switchboard investor
ePresence, which holds about 51 percent.

Assuming the Switchboard purchase closes on or near July 1, 2004, InfoSpace
anticipates the pickup of the Westborough, Mass., company will contribute
approximately $10 million to $12 million in revenue and $4 million to $5
million in search and directory segment income for the second half of 2004.

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