I have been saying for many years now that the continuing financial success of the yellow pages industry is due more to inertia than innovation. The only reason the industry hasn't followed the rapid downward spiral of the newspaper industry is its huge market momentum and unusual business model which provides strong competitive defenses. But as we all well know, the Internet has a funny habit of trashing old business models while simultaneously leveling the competitive playing field.

The sublime magic of yellow pages has always been that the advertising is the content. The layer of free content that yellow pages provide is a thin one indeed. Once a yellow pages directory reaches a critical mass of advertising, there's enough content to make it useful to consumers, spurring rapid user adoption. And with rapid user adoption, there is the opportunity to charge a lot more for advertising, something yellow pages publishers do with gusto.

As I said: an incredible business model. But it's not a model you can expand too quickly on a geographic basis, because as you scale, getting a critical mass of advertising becomes harder. At the same time, adding high value content or social networking features isn't a simple alternative. That's because as you add more information about businesses, you decrease their interest in advertising. And advertisers paying thousands of dollars a year haven't shown much interest in ratings or customer comments that they can't control.

Some publishers, such as Zagat and Angie's List, have attempted to flip the model by charging consumers for access to deep and unbiased information on businesses generated by consumers. It's a viable model, but such products are hard to build and grow slowly.

That's why I was intrigued to read the launch announcement for a UK-based online yellow pages called The Brownbook. It's a wiki- based yellow pages. Brownbook supplies the same thin content layer found in all yellow pages (business name, address, phone, business category), then encourages users to add comments and reviews to business listings. Businesses are encouraged to maintain their own listings, and can add a wealth of supplemental information for a modest fee. To get around advertiser's traditional distaste for user comments and ratings, Brownbook neatly addresses the issue by turning it into a marketing opportunity for businesses: burnish your image by resolving negative comments and other issues right on the site, proof of your concern and responsiveness. It's an innovative approach Brownbook can afford to take as a start-up.

Scaling issues still exist (Brownbook offers national coverage), but they are less daunting than for a traditional yellow pages.

Brownbook has a tremendous amount of work in front of it to simultaneously build audience and a base of advertisers. That said, the business model is fresh, interesting and well executed. I might go so far as to say it's exciting -- a word rarely used in the same sentence as yellow pages.

Labels: angie's list, brownbook, thebrownbook, yellow pages, zagat