Hyperlocal Businesses Try New Revenue Models

Hyperlocal startups in a crowded marketplace are testing new ways to stand out, and they discussed their strategies at the Street Fight Summit in New York City this week. Here are some lessons learned.

New Revenue Streams: When sites can’t compete on CPMs, where else can they find revenue? The St. Louis Beacon, a nonprofit online publication for regional news, sought to tie revenue strategies to its mission, business manager Shawn McGinness said. The site derives about 10 percent of its revenue each year from events. The Beacon also created what it calls “SpAd packages,” which give sponsors exposure on the site, at events and in printed materials and also provide them with engagement consulting to help them frame their message, design their ads and use social media. (Jeff Jarvis has previously stressed the importance of efforts like these.) And its coverage of the health/biotech industry, which makes up the bulk of the startup scene in St. Louis, has led to donations larger than those raised through typical development efforts.

For many sites, though, advertising is key. Display ads make up “95 percent, maybe 98 percent of revenue,” said Debra Galant, the co-founder of Baristanet in Montclair, N.J. Meanwhile, the site has scaled back its effort to offer daily deals. “We felt like we had to be in the deal space,” Galant said. “But it just doesn’t turn out to be a lot of money. Sometimes it makes sense for an advertiser; we have the apparatus there and can sell it, but it’s not our emphasis now.”

Success As a Standalone The key to starting a small hyperlocal site from scratch is to think about it as a business, as well as a journalistic enterprise, said LocalAmerica‘s editorial director Tom Grubisich, who moderated a panel on the topic. Baristanet’s Galant said, “We’re like the community elders. That’s how we stayed valuable.” How valuable? The site pulls in “well north of” $100,000 per year. “I’d like to see Patch sites as standalones competing against us,” Galant said, and “see how well they do without the AOL (NYSE: AOL) infusions.”

Scott Brodbeck, editor and publisher of Arlington, Va.’s ARLNow, said the journalistic product is the key to a good business. The site grew its audience by offering a “consistent product,” he said: all content is written by fulltime or freelance reporters with backgrounds in journalism. The site links to local blogs and their reporting, but “I don’t really view them as competition,” he said.

Going Hyperlocal In Silicon Alley A panel moderated by Curbed founder Lockhart Steele focused on the startup scene in New York City, and whether hyperlocal businesses started here can scale nationwide. It depends, said Owen Davis, managing director of early-stage VC firm NYC Seed: The “car culture” in other parts of the country may hinder the expansion of a startup focused on “trying get people to interact and purchase.”

Steele asked whether, given fatigue on the part of local merchants, startups are better off demoing a product outside NYC. “San Francisco is more fatigued than New York,” said David Tisch, managing director of seed funding firm TechStars. “Here you can test 15 different kinds of neighborhoods”–tourism- and finance-focused Midtown, neighborhood-y Brooklyn–without leaving the city.

The Next Big Thing (Hint: It Is Not Daily Deals) Offline retail is still an open space, said Tisch. “When was the last time your in-store experience was changed?” Steele pointed out that NYC is a great place to test a retail-based startup. Tisch mentioned Prism SkyLabs, which used footage from stores’ surveillance cameras to build heat maps of how people walked around the store and finding which aisles and shelves got the most attention. “That’s innovative,” he said, “taking existing technology and finding a data layer on top of it.” As for daily deals, Davis said it’s an oversaturated space with little new innovation.