• by Laurie Sullivan  @lauriesullivan, June 24, 2015

YP says it will separate its digital advertising and print directory businesses to create two companies. YP, and the newly formed Print Media LLC, will operate independently with dedicated teams and under separate leadership, but will continue to serve existing and new customers through a joint sales organization. Analysts reflected on the changes and whether the decision could move the company closer to an acquisition.

Under CEO Jack Freker, who most recently served as the senior executive at YP overseeing the print directory business, Print Media will package, publish and distribute the nearly 90 million YP-branded print directories distributed annually in the United States. The print directory business will continue to focus on innovation and advertisers, and is expected to release additional product enhancements in 2015.

David Krantz, who has led YP since its separation from AT&T in 2012, will continue as CEO of the company, overseeing and supporting the digital business including YP.com and YP app.

Gordon Borrell, founder of analyst and data firm Borrell Associates, calls the move "brilliant." "YP has a history of listening to local businesses and crafting digital products that serve their needs, as opposed to forming a product set first and then trying to cram it down their throats," he said. "With $1 billion in digital sales, YP is already among the Top 5 local media companies when it comes to digital revenue. I suspect this move will significantly increase their growth rate and push them even higher on the list."

Home services categories like heating and cooling systems, roofing, painting, and other small SMBs in home service rely most heavily on directories. The Borrell Associates survey shows that businesses with less than $500,000 in revenue will stick with print directories, while the larger advertisers have abandoned them. Still, Borrell does not expect to see many print directories around in five years, because home services and professional services, their mainstay, continues to quickly migrate to the Internet.

"I'd give it six months to a year before you start seeing headlines about books no longer being published in bigger cities, and three years before directories become rare," Borrell said, pointing to a study that shows residents prefer the phone book over Google for business look-ups in rural markets with fewer than 100,000 people.

Borrell doesn't believe print directories will disappear completely because print remains a viable medium, especially in smaller markets where directory ads make the phone ring." 

"Now we wait for M&A news," said Abid Chaudhry, senior analyst at BIA/Kelsey. "The attractive assets are a digital revenue stream in local, a huge established sales team, and emerging innovations in ad tech to bring their SMB ad business to national, brand, and agency world."

Chaudhry said the digital side of YP's business becomes a nice target for any tech company looking to inherit a sales team and solid revenue stream. "I'm thinking Yelp, Yahoo, and possibly Amazon as the wildcard," he said, but admits that YP acquiring another company to bolster their assets is also possible.

The split will not mean much in the short term, but over time the company will align its resources and product teams to focus more on digital products and services. The shift should lead to an overall increase in things that advertisers care about such as business leads, building an online presence, and having an easy way to track the progress and return on investment of their marketing investments.  For the print side, Chaudhry sees a similar story, but the mandate for Jack Freker is interesting in that we all know "'print is dying,' but it's dying a slow, and still very lucrative death." 

YP plans to make several product enhancements this year. YP CEO Krantz told Chaudhry a multi-year strategy will pivot the company into a full-service digital media business for the "true" mom-and-pop SMB, but also for national and regional brand advertisers looking to enter the local market. The product updates are related to building YP's cachet and strength in search marketing. YP recently announced they would fulfill and manage their $220 million in SEM business in-house using their own proprietary platform, moving away from the vendor relationship they had with Marchex. They also plan to build out the company's yield optimization, programmatic, and agency related platform and practice, which to Chaudhry means that YP wants to connect local with the world of AdTech.