VCs chasing fool’s gold in funding ‘hyperlocal’ projects that ‘scale’

Over the past three days or so, I’ve had a few conversations about "scale."

If you haven’t dealt much with the IT side of the online world, you may not be too familiar with the meaning of the word in context.  For years, the only time I heard the word "scale" was when applied to server architecture.  You need software and hardware to scale, meaning grow, in order to handle increased traffic demands. That’s the simplest way to put it.

Now scale is being applied to "hyperlocal" start ups.  And the meaning in this context, as I take it, is that a "hyperlocal" business needs to have the capability to expand in multiple towns and neighborhoods rapidly at a very low cost.

I woke up this morning to this tweet from Jeff Jarvis:

jeffjarvis @howardowens But there’s no way to afford one full-time pro from an organization per town or neighborhood. Doesn’t scale.

He was referencing a debate we had on his blog about a new Times/CUNY "hyperlocal" project.  In comments, I offered up a critique of the approach.

In his post, Jarvis wrote:

The Times is working in two neighborhoods in Brooklyn — Fort Greene and Clinton Hill — and three towns in New Jersey — Maplewood, Millburn, and South Orange. In each of these two pilots, they’ll have one journalist reporting but also working with the community in new ways. The Times’ goal, like ours, is to create a scalable platform (not just in terms of technology but in terms of support) to help communities organize their own news and knowledge. The Times needs this to be scalable; it can’t afford to – no metro paper can or has ever been able to afford to – pay for staff in every neighborhood and town. (emphasis added)

In response to my comments, I received a private e-mail from somebody quite familiar with the "hyperlocal" space and funding such projects and he too raised the issue of scale. A couple of days ago, I had a phone conversation with another expert in the field, and he expressed concern that no venture capitalist would fund a "hyperlocal" play that didn’t "scale."

Now, granted, I have an apparent conflict of interest on this topic because I now run a local news project that from the beginning has faced criticism that it will never scale.

Still, I’m convinced The Batavian approach is the only option if you want to build strong positive-margin local online news businesses.

It may be a bitch to "scale," but it’s the best approach to the problem.

The "hyperlocal" approaches that supposedly "scale" don’t scale in one very important aspect: building new audience for community news.

Sure, they might appeal to a segment of the population that is already involved in a community, but they’re not tackling the "Bowling Alone" problem.

In order to build a high-margin business with local online news, a sad fact must be addressed: that local community news is currently only a niche product.  Entrepreneurs need to think about not only "how am I going to appeal to the people who care now, but how am I going to get more people to care about their community so I can grow my audience?"

It’s an exceptionally hard question, but I’m convinced we’re making progress with The Batavian. Increasingly, we’re seeing people involved with the site who were not previously activists in the community, and I’ve heard from some who were not previously regular newspaper readers.

There’s no way around it: Local news is a high-touch proposition.  You need professionals in the community who champion the community and act as evangelists for the Web site. The job involves more than just covering stories or even asking civic leaders to post their own items (and that in itself is significantly hard, continuous work).

The "it’s got to scale" approach is merely repeating the mistakes of local newspapers from the past half-century or more. It’s creating a sterile and disengaged product that does nothing to solve the problems chipping at the foundation of the newspaper business.

The mistake newspapers have made — and Jarvis hits on it in his own post when he says newspapers never had a correspondent in every neighborhood — is that newspapers have becoming increasingly detached from their communities.

As newspapers became more cookie-cutter (and this isn’t just a chain newspaper problem, but it has befallen family-owned papers as well) and the craft of journalism was transformed into a profession, newspapers have simply become less interesting to many of the people they purport to serve. Editors and reporters are often just passing through a newsroom, stepping along their career paths, blwoing into town with attitudes that maginalize real local news in favor of "hard news" and a "take it or leave it" attitude when readers don’t like what they do.

There’s no involvement, no conversation, no agenda for nourishing the community.

(Caveat: I’ve met some publishers, editors and reporters who very much care about and are involved in their communities, but these are exceptional people.)

Meanwhile, increasingly, we’re getting what we’re after in Batavia — people who know our site LOVE our site. It’s a thrill to walk around town, meet people and have them excited to meet me because of what we’ve done with The Batavian.  I had a little fan base when I was a young reporter, but it was nothing like the response I sometimes get in Batavia.

And that’s the excitement and engagement you want (and I’ll say, I think we’re only half way to where we need to be in Batavia) if you plan to grow your audience beyond a niche concern.

A cookie-cutter "hyperlocal" play, with no paid staff in the commmunity and some regional or national brand, just isn’t to get you that level of engagement.

The Web is all about people. Because the Net is based on technology, many people tend to think that technology alone can solve any problem.  But besides Google, what pure technology company has really been successful? Every other success I can think of has been about people, from the personal voice of blog writing, to the real people who power YouTube, to the stunning success of social networks such as Facebook.  People come to the Web to make connections with real people. A faceless technological approach leaves them cold.

The VCs who are funding these supposedly scalable "hyperlocal" solutions are chasing fools gold. They would be better off pouring their money into today’s stock market, or maybe buying a bank. They are investing in products that will never be better than low-margin businesses, even on a national basis — in part because "scale" also means their easily replicatable, which means low-barrier to entry, which means lots of competition and even low margins and more likely no profits at all.

If you want profits, invest in people, not technology.

9 thoughts on “VCs chasing fool’s gold in funding ‘hyperlocal’ projects that ‘scale’

  1. Howard,

    Why couldn’t you franchise out these platforms? So the people running it – the franchisees – are local, the main people (editors, reporters, etc.) are locals.

    Make the platform flexible enough that the local operators can add their own sections, handle their own local data. Cookie-cutter doesn’t have to mean identical.

    Avoid branding the platform itself. Like you say, people don’t care about the local news, or another instance of the platform, in some other far-away town.

    There would still be advantages to the central platform. The centre would have lots of data from across the country and could do interesting things with it: a big aggregation site (that you could do extra things with), trend analysis.

    You could have network ads on the story pages and local ads on home page and section fronts.

    Let people take ownership in their local platform. Wouldn’t that solve the issues above?


    P.S. Why do I have to CAPTCHA when I’m already logged in?

  2. Tim, good thoughts.

    As for captcha … that’s how the module works.  I think, though once you do captcha for a comment, you won’t have to again.  Let me know if it doesn’t work that way.

  3. Why would anyone build a site targeted toward a small group of people and then worry about whether it can "scale" to serve a large group? That smacks of a confused business strategy. A hyperlocal business must first be able to make money by standing on its own — even if it never becomes a franchise.

    That’s real scalability. Quite frankly, it’s dumb to start any business that can’t break a profit unless it rapidly expands.  I’d be leery of anyone pitching such an idea, which isn’t much sounder in strategy than a Ponzi scheme.

    Believing the if-they-build-it-the-audience-will-come pontificators who have long peddled these ideas to newspapers requires buying into the same sort of get-rich-quick thinking that has crippled newspaper Web solutions.

    There is no shortcut to online success. Media companies look at their competitors from the technology world and see only what exists now, overlooking the immense effort and sacrifice it took the founders of Facebook or MySpace to attain. They see the traffic successes of Huffington Post or DailyBeast and overlook the quality of the content — at least for their audiences — and dismiss it as "user generated" or "freelance" when in fact it took a lot of effort to cultivate.

    I’d recommend that the Times hire a few people who are willing to put in the sort of effort that doesn’t easily "scale."

  4. A Web-based news organization can afford to have one, even two people full time in a community. (See and Baristanet.) I agree, it can’t really work any other way. I also agree that those people have to KNOW and live in the community. Throwing a clueless college student — or reporter — into a Web-savvy community or an issue may have its problems. Check out what Jonathan Butler, who runs, says about the NYTimes coming into Brooklyn, and, further, what some of the 100,000 unique monthly visitors to his Web site say:

    I’ve been mucking around with what kind of system might replace the metros that are shrinking and collapsing. Check out:

    A modest proposal for the Seattle Times:

    A modest proposal for jurnos left standing on the sidewalk:

    Cheers, J.

  5. Neighborlogs hasn’t benefitted from any of this VC fool’s gold yet! We had better hurry up!

    The first comment nails some of what we are doing. We’re not building a franchise situation but we are centralizing and scaling the tools and services end of things for local news sites. The best models we see are indedendently owned and operated sites driven by small one and two person operations. Local news efforts need a light and flexible content management system, multiple contributor management tools, self-serve advertising, and geolocation features. Many are cobbling together great sites with free and open source tools. Our goal is to create a package — also free, ie, advertising supported — that connects all the pieces together. We’re up to about 20 active sites with varying levels of quality. The best will thrive.

    Thanks for the challenging post. Interested to read more reactions.

    Justin Carder

  6. The technology of community news scales nicely, but it has already been scaled — by  WordPress, Typepad, and countless blogging tools and content management systems.  OpenX has done it for ad serving. 

    The only real value is created by the publisher/editors, and they would be crazy to share it with some national or regional franchisor. You may be able to find a handful who will participate in such a scheme, but not enough to pay for the cost of creating and operating your scaled-up "solution".

    You’re also not going to be able to solve this with self-serve advertising. Advertising with the kind of cpm’s needed to support community news has to be *sold*. You might be able to snatch a little low-hanging fruit, but you can’t build a business on it. As soon as you reach any kind of economies of scale in advertising, the cpm’s drop off a cliff. That’s why Google ads don’t work for community-scale sites.


    Es increíble, Sr. Owens, que perteneciendo a una comunidad tan alejada de la suya (en la distancia, el lenguaje, la cultura, supongo que menos en la ideología vital), podamos coincidir tanto en nuestra contemplación de lo social.
    Bien, tan sólo me gustaría poder enviarle la traducción al español que he realizado de su trabajo sobre “lo hiperlocal” (permítame latinizar su “y”). Necesitaría una dirección de correo “electrógeno” con la que establecer un puente de virtualidad para conectar a ésos efectos. Porque, una vez establecido que la vida está en lo físico, que es hiperlocal, podemos empezar a hablar de la conexión de los hiperlocales que conduce a lo “inter-hiper-local”.
    Espero que de este asunto puedan hablar nuestros respectivos presidentes Ob. and Zap. aunque ellos lo refieran como “alianza de civilizaciones”.
    Salud, Mr. Howard
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