Is the online directory business model broken? — Credo
Do you remember phone books from when you were a child? If you weren’t born until the late 90s you may not, but I remember looking through phone books as a child to find the right phone number to call for somewhere.
We take this for granted now with Google Maps in our pocket on our iPhone, but 10+ years before the iPhone even came out we were looking in phone books.
This may come across as a “get off my lawn” rant, but stick with me.
Do you also remember how companies would game it?
Why do you think AAA is named that?
Because it showed up first in the phone book.
Hilarious, right? Yes, but also very smart of them.
If you’re first, you’re going to get calls.
If you’re as old as I am, you’ll remember that people would find the page where the letter started, then flip to where they needed to be. But they were hitting these index pages, if you will, all the time.
The internet, of course, started as a directory. It was paid for the most part, there were very few sites online, and it was really hard to search. There was even search engine aggregator Dogpile that would search all of the search engines so that you had a better chance at finding what you were looking for!
That is, until Google came along.
Even though I’ve been in the SEO/search marketing world for about a decade now, this article isn’t really about Google. Google is, of course, kind of the ultimate rich media directory. If you rank #1, then you get more clicks than #2 which gets more than #3 and so on.
This is precisely why Google put 4 ads on top of the search results rather than 3 — to get more paid clicks. They said it’s better for users (and often when browsing as a consumer I have a hard time disagreeing!), but of course it’s also better for them.
With the base set about Google as the ultimate directory, let’s talk about the directory business model.
For the last 4 years, I’ve been running my company Credo. I recently announced our shift to a marketplace from a lead generation service, and with that we’ve closed down our public-facing directory effective this publish date (October 15 2019).
Why? Why would I do this when I spent two years working for Zillow Group where one of their core values is “Power to the people”, which means they take data that was previously hidden to consumers and make it open? Rich Barton, one of the cofounders, has also done this with Expedia and Glassdoor (and funded many others making the same play) to great effect and success both monetarily and in shifting entire industries.
After Zillow and I parted ways in September 2015, one of the first things I did was launch profiles for everyone in the network. Over the years, those profiles have generated at least 850 “leads” for those pros that we can directly track, and from conversions with agencies who have been found by people browsing Credo I estimate there are at least a few hundred more out there that we haven’t been able to track.
So why close this down when it’s “working”?
Three main reasons:
- As far as I can track, almost none of those have turned into clients whereas a higher-than-industry-average percentage of pre-vetted prospects we introduce actually hire a firm and therefore see results (as of the end of 2018, businesses hiring an SEO firm through Credo saw a 100% increase in organic traffic over the course of a year, vs ~26% increase for clients who did not hire through us. Data from SEMrush, data mentioned here).
- The directory model online fundamentally benefits those listed who are willing or able to pay their way to top, as opposed to those who are doing the best work;
- Credo is not playing the directory game (we have “competitors” who are doing that well, and they serve that role well). We’re playing a completely different game.
I’m not really going to talk about numbers 1 or 3 because they are not the purpose of this article (though you can see how Credo works here).
I am however going to talk about #2.
The directory model is broken
We started off talking about phone books and Google as the ultimate rich media directory.
Early internet was the wild west. People would put crazy things online, and it took a long time for broader society to embrace the internet as a thing.
Since then we’ve been through the dotcom bubble, fake news, and so much more. With the rise of Facebook and other social networks, the internet is super personalized these days. In fact, Google personalizes your search results even when you’re logged out. That’s how much data they have on you.
If pre-dotcom was Internet 1.0 and since then Internet 2.0 took off, I would say that we’ve solidly moved into Internet 3.0 which is the internet of personalization.
So why do we keep being reliant on directories? They can be great for research and top line discovery but when it comes to making buying decisions and potentially spending thousands of dollars with a firm, why trust them?
How directory business models work
Here’s how a directory business usuallyworks.
The company behind it creates as many profiles as possible. The good directories then gather information on those companies themselves or rely on the companies to provide the data themselves (to varying degrees of accuracy and honesty).
The company running the directory then drives traffic to their pages, mainly through SEO traffic. Let’s be honest — directories are not viral. They’re not sexy. No one enjoys them because it’s an overwhelming amount of data thrown at you at once. If your job is to just create a list of agencies for your VP to review and then tell you to “reach out” to all of them to set up meetings, then they’re great.
Or are they?
Let’s talk about how directories make money. There are, really, two ways:
- Promoted listings
- Businesses paying the directory to enhance their profile
Some directories also sell “business intelligence data” on the backend, which basically means they’re even more monetizing the data that they are collecting via whatever means.
Now that you know that, see the problem?
The problem is that those who are willing to or can pay the most get an outsized portion of the clicks and contacts, even though they are not necessarily the best.
To illustrate the point, here is a screenshot of the Advanced Web Rankings tool visualizing Google clickthrough rates across desktop and mobile. As you can see, position 1 receives an outsized portion of clicks, then position 2, and so on:
Positions 1, 2, and 3 are incredibly valuable! Within Credo’s own directory, the majority of “leads” through profiles (which are a small part of overall inquiries and projects matched through Credo, and also were not vetted and therefore not quality which has also fed into our decision to close down the directory) went to those ranked #1–3.
When one profile was removed from the site and a new one took the #1 ranking, that profile improved views by 21% from two months prior.
Succinctly put, directories are a great business for the companies able to pay the most to be put on top and the directory businesses able to drive the most traffic to charge as much as possible for those coveted top spots.
But this leaves a big problem. Can you spot it?
Directories are not good for the consumer, the person that the directory should ultimately be serving.
Directories are easy, marketplaces and networks are super hard
After four years of running this business, I see why directories are so popular. They can be super high margin and very lucrative as long as you can drive audience so you can charge premium placement prices. I know one of Credo’s directory competitors is run by a super small team and makes millions per year at a very high profit margin. For the digital entrepreneur wanting a cash-generating machine, that’s a great business in many ways!
Marketplaces and networks on the other hand are super hard to build and get right. You have to balance supply and demand, build a ton of product, track a lot of things, deal with challenges around finances (and legalities within that), and a lot more.
And a network where the supply side pays to be included in it (like our model)? That’s really hard. I’ll explain this model a bit more below.
“Are you an exclusive network or a shitty directory?”
In October 2018 I was in Cabo San Lucas for CaboPress, a business conference put on by my friend, coach, and mentor Chris Lema.
I was talking with a fellow attendee about the Credo business. The person asked me who our competitors are, and I told him.
He pulled them up on his phone and browsed my site and our competitors. He looked me in the eyes and said
“Looking at these, I see that they have thousands of firms and you have about 100. So are you a vetted exclusive network or a shitty directory?”
Wow. That stopped me in my tracks.
As I thought about it more, I realized he was right. Public profiles were a great growth hack to piggyback off the brand searches of firms on Credo at the beginning, but as we’ve gained market share and audience we’ve come to realize that there are also very real downsides to continuing to maintain and have them.
Why we shut down the Credo directory
Ultimately, we made the decision to close down the public facing fully browsable directory for a few reasons.
Note: the directory is different from the Credo network of vetted firms and consultants. You can see our 3 step vetting process, which every network member must pass before we include them. Moving away from the directory means we’re not tempted to take their money if we can’t show them success within the timeline I’ve set for success.
The reasons are:
Leads from profiles were minimally qualified
- The “leads” coming through profiles are minimally qualified;
- We refuse to let people pay to promote themselves higher than they deserve;
- The need that other directories fill is already met, and we think there’s a bigger need to be met.
As stated above, we’ve sent over 800 trackable “leads” to pros in the Credo network via profiles. To put that in context, we’ve also generated over 2,200 inquiries that scheduled calls and ultimately were introduced via the network. This is Credo’s core, not the directory.
While some of the “leads” coming via profiles have been qualified and quality, very few (that we know of) have turned into actual paying clients for firms. And when we made the marketplace announcement in early September 2019, I received feedback via some private channels that some directory members (we had a directory-only offering for a while) did not renew because they “didn’t get any leads from it”.
The truth is that these directory members had profiles that are/were buried deep in the directory (page 3 or 4) because they didn’t have reviews on their profile and didn’t invest in making it rank better, but still. The narrative being told was that “Credo leads are junk” or “I paid and didn’t get anything”, which unfortunately was true and is entirely my fault. I thought I could defy the directory odds. I was wrong.
So the leads were often not qualified and too often the people paying for the listing didn’t renew because they didn’t get a return.
Why would I keep the directory live still, when the non-directory side (of clients contacting Credo and Credo introducing them to two hand-picked and vetted pros from the network) has made firms over $10,000,000 in the last couple of years?
Pay to promote isn’t good for consumers
The directory just didn’t make sense.
At the risk of repeating myself from earlier, I believe that the pay-to-rank model of traditional directories is bad for consumers.
I feel a moral obligation to help companies coming to Credo find and hire the right firm for their needs. The pay-to-promote model works against that.
In interest of transparency, for the now-sunsetted Preferred model on Credo (where they paid a monthly fee and often commission to be referred more often when they met the needs of the project) did count positively towards that pro’s profile ranking better on Credo. It was a small factor (we had over 15 factors in the ranking algorithm, I believe), but a factor nonetheless.
While this did float the better ones to the top more often because we also vetted Preferred to a deeper level than just the directory members, it still in retrospect wasn’t the right thing to do.
To be completely honest, if I just wanted to run Credo as a directory and allow people to promote themselves higher on pages as I’ve been asked many times, Credo’s revenue would’ve grown faster than it has to this point.
Isn’t paid inclusion problematic though?
But I have been and continue to be unwilling to do that just to make a buck.
I’ve received a fair few questions about our business model of paid inclusion plus the commission structure, so let’s discuss it quickly. We have a paid-inclusion model for a few reasons:
- As a bootstrapped company, it covers our tool costs to support the network;
- We want network members to prioritize matches we send them, and take great care of them;
- We don’t want to be the only place they get clients, but rather the place they get their favorite clients;
- We can continue to invest in helping network members get better at sales ad retaining clients.
Because we also take a commission on all work coming through the network, we do not rely on annual network fees to drive our business model. If we did, then there would be the temptation to lower the barrier to entry by lowering quality standards. But since we make the vast majority of our revenue from retained work through the network, our incentive is to only bring in the best pros who do a fantastic job of retaining work and whom we can help see success with a closed project within just 2–3 months from joining.
We don’t have to go for a huge scale of network members to have a fantastic business, which cannot be said for directories.
The bigger vision of Credo
So what’s next? What are we working on and why?
Credo’s business has always primarily been about helping companies find and hire the right digital marketing firm for their specific needs. We’re leaning into that completely and betting the company on the fact that this is a real need.
Nothing makes me happier than to be on the phone with someone and they say “I’ve hired too many people who couldn’t deliver, and I am so happy to have found Credo.”
Over the course of 2019 we’ve been building and then beta testing the platform. So far we’ve paid out over $100,000 to firms and the amount we’re paying out monthly is growing every month.
When I added it up recently, I arrived at the fact that conservatively Credo has made marketing firms over $10,000,000 since 2015 and we’ve helped hundreds of companies find and hire a firm. In an industry that has studies published saying that only 30% of clients would recommend their firm, we are incredibly proud that 98% of projects we place report being happy.
We’re just getting started. We’re building the platform and network that:
- helps companies find, hire, pay, and work well with their firm while enjoying protections no one else in the industry can make;
- helps great marketing firms get more great clients and be guaranteed to get paid when they deliver work on time and to expectations;
So there you haven’t. The future of the internet and business isn’t more directories or paid rankings of providers.
Stay tuned for an upcoming post about network business models. If you want to be notified when that launches, sign up here.
The future of the internet is personalized, personal, and ultimately geared towards being a win for everyone, which is why we’re doubling down on a network of the best providers.
Originally published at https://www.getcredo.com on October 22, 2019.