Switchboard, AOL Form Agreement

As president of online directory Switchboard Inc., Dean Polnerow believes the days are numbered for the traditional phone book and Yellow Pages.

As ads and information migrate online and new devices to access the information roll out, Polnerow foresees the day coming soon when “there will be no reason to reach into the closet for that phone book.”

Now, in a bid to dominate the online market for local-business listings and ads for years to come, Switchboard has reached a deal with American Online to provide AOL with a platform to sell business listings and ads to local merchants.

News of the pact sent Switchboard’s stock up as much as 27 percent Monday afternoon before shares settled down. Late Monday shares were up 0.688 to 5, a jump of nearly 16 percent.

The cost of getting the service in front of AOL’s 25 million-plus subscribers is high: Under terms of the agreement, Westborough, Mass.-based Switchboard will pay AOL $26 million to develop the new directory and local-ad platform. Switchboard expects to recoup the initial investment through ad-revenue sharing with the media giant, Polnerow said.

Additionally, AOL, which today owns 3 percent of Switchboard, will also boost its equity stake to at least 6 percent and as high as 18 percent, depending on unspecified revenue benchmarks in the coming years.

Though its making a substantial investment, Switchboard will get its service in front AOL’s 25 million subscribers plus 2.8 million users of its CompuServe subsidiary, a lucrative market for advertisers.

Switchboard, through its own site, already gets more than 100 million page views per month from consumers looking for phone numbers of friends and local-merchant information such as phone numbers, maps and store information. (The company has a partnership with CBS, which gives Switchboard national exposure in TV and radio ads.)

Switchboard’s technology will let AOL run an online ad platform for brick-and-mortar businesses, enabling them to advertise online, post current information about sales and merchandise, and offer maps and contact information. (Switchboard will also integrate links from the yellow pages to Netscape’s NetBusiness Cards, part of Netscape’s new initiative to help small businesses succeed online.)

It’s that kind of up-to-the-minute content and information that lets Polnerow predict the coming demise of the phone book — which, he notes, updates just once a year. It’s also addressing a category that includes local-newspaper advertising.

Polnerow said it’s clear advertising dollars are moving online. “Switchboard has built its business to be the center of that universe,” he said.

And it’s the partnership with AOL that he says will give the company exposure to millions of Web users and the advertisers who want to reach them.

For online ad strategies to be most effective, Polnerow cites the need for a “critical mass” of consumers and local merchants turning to the same platform.

He says, “We believe that by marshaling our strengths with those of America Online we will be helping to create one of the most information rich online resources for both consumers and local merchants.”

David Aponovich is associate editor at boston.internet.com, an internet.com property.

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