A friend of mine runs a local based vertical directory. When he first started it he listed many local businesses for free, listing their business name and phone number.
As fields got crowded and listed businesses developed websites he started selling links to their sites and top of category placement. $3 a month, $4 a month...$50 a year.
As paid listings started coming in those were listed above unpaid listings, but the unpaid listings were still left on the page to draw in searches for unpaid local businesses and hopefully send them out via the paid listings.
As his site aged and became well trusted he started selling links for $500 to $1,000 a year.
As the search economy developed he started comparing the per click costs for the most competitive terms for each category. He tracks outbound clicks via redirects and then compares that volume of traffic for what it would cost for a person to buy similar traffic from a major engine, using the most expensive terms to further define the baseline.
Then if there became enough paid listings in a saturated field he decided he may even pull some of the free listings to force them into a buy in scenario if they wanted any exposure.
Although much of the traffic that comes into the site is searches for official business names many of the businesses end up paying $1 a click for traffic they would have got free if they would not have bothered to have been listed in the vertical directory.
What value does this vertical search service add to the individually listed businesses? Not much really on a per business basis. The main value is for those businesses that were too clueless to create a site and market it, or for those who have small brands and want to leech off the value of the larger listed brands.
Sometimes intermediaries will raise their costs because their businesses have become more expensive to run, while other times they will raise their costs just because. Eventually search ads (and many vertical search services) become a zero sum game.
- If you buy in on vertical search services make sure you are not creating competition for yourself that will require you to pay for what you may have otherwise got free. If you do buy in make sure you also market your business directly so you are not as reliant on an intermediary.
- If you create a vertical search service do not be afraid to give away value until you build enough of a traffic stream that people will pay for it.
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