Being a new business, I needed to get my business listed in some website directories. It is one of those SEO tasks that build links and helps potential customers find you. In the UK one of the most popular directories is the yellow pages or Yell.com as they are known these days.
After registering my details, I received a call from one of their account managers asking to confirm a few details with me. He then proceeded to ask some pointed questions in a manner that didn’t encourage me to want to answer them.
But, his manner aside, I was curious as to why he was asking me these questions? After all, Yell.com was just a directory business, right?
A bit of online searching highlighted that yell.com wasn’t just a directory business. They were a digital marketing company that provided website design and hosting services.
It struck me that was quite a pivot, and one worth looking at in more detail. How strategy is used in business is of deep interest to me, so I decided to investigate. Here is my analysis of the Yellow Pages and their transformation in more detail.
Yellow Pages and their business background
The Yellow pages found themselves in an unenviable position in 2013. They were burdened with huge debts and under increasing pressure from their creditors they faced potential disaster, how had they ended up in this position?
Back in 2001, they had been sold by BT for a staggering £2.1 billion to a venture capitalist group. They were then floated on the stock exchange turning them into a huge business.
After the successful floatation of the business in 2003, the business set about a succession of acquisitions. These acquisitions were of other print directory businesses across various countries increasing their dominant position in the market. Worldwide sales exceeded £2 billion lifting their share price in 2007 to 600p a share.
Things were looking great for Yell Group PLC, but the group’s competitive advantage was about to be removed by the advent of technology. This was to prove an early example of how technology would disrupt established businesses.
Yell Group PLC
The internet quickly created the opportunity for any business to reach its customers in a quicker and cheaper way. Certainly, cheaper than being listed in a telephone directory. Furthermore, with technology and the internet, it enabled consumers to use the world-wide-web to search and find information. Business information, once the domain of the telephone directory was now easily found on the internet.
From 1995 through to 2007 the internet became faster and easier to access through broadband and then Wi-Fi. The introduction of faster internet connections and then smartphones made access to these services even easier. The competitive advantage Yellow Pages held through their dominance of the telephone directory business was being significantly undermined.
To be fair to Yell Group PLC, they had seen this coming. Although I think it’s fair to say that they hadn’t appreciated the speed or the scale of the disruption that was coming. They started to change their business strategy as first the internet, and then Google start to become an issue for them.
The first indications of a change in strategy were quite tentative. It was the introduction of Yell.com in 1996 and the creation of an online telephone directory. This created a new revenue stream as a result.
The Yellow Pages Pivot
From the late 1990’s it was clear that the Yellow pages competitive advantage was being taken apart. The business was going to need to change to as its core business was being taken apart. As a result, they start looking for a pivot.
At first, they tried to compete with the likes of Google and Yahoo by building their own online directory. As the years progressed, Google started to become a major force and in 2005 they had seen that this wasn’t a fight they were going to win. One competitive advantage they had been the database of businesses. So, they started building a partnership with Google by agreeing to share with them this business directory data.
The pivot came from a realisation that if they could have their own website then they could build websites for customers and offer other digital services. In 2009 this moved further forward with an agreement with Google to sell ad-words through Yell.com.
More restructuring was done to move the business into the digital marketing space, primarily through management change in 2011. This gave the business the leadership experience to move more deeply into website design, app development and digital advertising management. All of that though couldn’t prevent the business from nearly collapsing in 2013.
The impact on business revenues from the pivot
As I have already touched upon the business very nearly collapsed in 2013. Arguably if it hadn’t been a PLC it would have gone bust over the debt it was carrying. Of course, the debt was accrued as a result of its acquisition policy and the disaster that followed.
Thankfully for the business, and its employee’s the business was able to be privatised in exchange for the debt. The loss of revenue as a result of leaving the print directory business has been significant for the UK operation. You can see this very clearly in the revenue table seen below.
The impact of the internet is clear for all to see. The pivot I have talked about was the introduction of digital marketing services. Without it, the business wouldn’t be trading today.
In just ten years, from 2006 to 2016 print revenues in the UK fell from £639million to £59 million. This was a decline of over 90%. The decline continued from 2016 to 2018 with revenue from print media falling by more than half again to just £24 million.
It’s of no surprise to read that in January 2019 will the last printed Yellow pages distributed in the UK.
What lessons can we take from this business strategy example?
My analysis of the pivot that yell.com went through has revealed a lot more than I had anticipated. The business has been through a rollercoaster of highs and lows in the last 20 years. With the lows bringing the business to the verge of bankruptcy and disaster. The debt swap to private ownership financed the continued trading of the business. It created the capacity to let the pivot work.
The introduction of digital services through yell.com brought a new revenue stream to the business. One that was growing and profitable and gave investors the confidence to keep the business trading.
It’s clear looking back at the figures that without the pivot the business was dead and buried.
There are other lessons though. From the moment the business became a PLC, it went on an acquisition hunt to grow the revenue. The motive to increase the share price and the value of the business. This acquisition hunt helped grow the parent company Yell Group PLC (renamed Hibu) revenue to over £2 billion.
The cost though was significant, revenues plunged from 2008 and by 2013 the business was heavily laden with debt to the point that it collapsed.
It is hard to argue against the damage this acquisition hunt caused. It was a short-term tactic that increased the value of the Yell Group in the short-term. Without this drive, the business would have been more sustainable and probably wouldn’t have collapsed.
Business strategy example — Pivots
The business strategy example of Yellow pages and their pivot is one that makes for a fascinating study. It demonstrates the challenge that comes from being a PLC and the ‘need’ to create shareholder returns. Looking to increase share prices and the value of a business often come at the cost of something. Normally it’s the long-term output, and that was certainly the case with Yellow Pages.
However, that aside, the pivot worked. It enabled Yell.com to transition from print directories to digital media and it gave the business a future. Could they have moved quicker? Maybe, but with any disruptive element, at the time it’s difficult to see how it could evolve.
For me, 2007/8 was when the knockout blow came to print directories. The advent of the iPhone and who had the foresight to see that coming, let alone the effect it would have…
What other business strategy pivots have you come across?