Ownlocal scores funds to get small firms online

pile of newspapersIn a world of ubiquitous WiFi, smartphones and Twitter addiction, it’s easy for the hyper-connected elite to forget that there’s a vast number of people and services that aren’t online.
Even in high-tech countries, get outside of the big cities and you’ll find loads of small businesses that exist in the gray area just off the web.

That’s precisely the target market for Ownlocal — a Y Combinator graduate which is today announcing a new round of investment from a string of investors including the Knight Enterprise Fund, Automattic, the makers of WordPress, and a number of prominent angels.

“You call it gray space, but I call it white space,” says Lloyd Armbrust, Ownlocal’s CEO, from the company’s HQ near Austin, Texas. 

“There are 14.1 million businesses in the U.S., and only somewhere between six and eight million have some sort of web presence.”

That means that around half of businesses don’t exist at all on the web — covering everything from hardware stores to contractors to beauty salons and law firms and more. And even when they do have a site for customers to visit, many of them aren’t satisfied with what they’ve got.

That’s why the company thinks it has found a space to offer basic online presence, including web hosting, social media and blogging services to the underrepresented portion of small businesses across America. It isn’t the only company doing so: big players like Reachlocal (s:RLOC) are also active, not to mention the plethora of small town web design shops and friends-of-friends who hack together sites for people they know. 

The difference with Ownlocal, says Armbrust, is how it sells. Instead of taking on the time-consuming and money-intensive job of setting up a local or national sales operation, the company is partnering with people who already have serious connections: local media outlets.

“What we do is work with small businesses to help them with their web services — but we do it through local newspapers, radio stations, even chambers of commerce'” says Armbrust. 

The idea is that when salespeople at, say, a small-town newspaper are doing their normal advertising deals with local businesses — many of whom they have been working with for decades — they can try and upsell them to Ownlocal’s services as well. If the company buys in, both sides split the revenue — usually straight down the middle.

That’s a great deal for Armbrust and for imperiled regional media, who get not only a slice of revenue but — perhaps more importantly — recurring income, not just a one-off sum.

That’s one reason why Knight, which is a spin-off off fund from the venerable but non-profit focused Knight Foundation that puts money into profit-seeking businesses that can help journalism, has joined the round. It also marks the first strategic investment for Automattic, which is an interesting move since Ownlocal’s services aren’t based on WordPress (full disclosure: both GigaOM and Automattic are funded by True Ventures).

But neither are putting a huge amount into the round, which is being referred to as a “seed plus”.

That’s not just a reference to the relative size of this new funding (which isn’t being disclosed, although the company says it has now raised $2 million in total). It is also intended to express the fact that the company is trying to complete its transition from previous incarnation Seeing Interactive, which graduated from Y Combinator last year and scored angel investment from the likes of Gmail and Friendfeed guru Paul Buchheit and Delicious founder Joshua Schachter.

Back then, the company was focused on tools targeted at helping local news outlets sell ads: it then started to shift to offering a daily deals service. So is this the end of a transition, or just another stop along the way?

Armbrust says it’s happy with this pivot, since break-even is just a few months away, and customers are already starting to stream in. Will it work? He says yes, not least because the pivot is based on intimate feedback in the field.

“In the last year we must have spent thousands of hours each out there, talking to businesses about what they want,” he says. “We now have enough examples where we can say to people, ‘here’s how somebody else used our services successfully’. That’s really important.”

Disclosure: Automattic, maker of WordPress.com, is backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, GigaOm. Om Malik, founder of GigaOm, is also a venture partner at True.