Why Directory Sites Are Doing Well As A Business Model

In: Business Ideas By: Brian Armstrong

10 Nov 2009

I met up with a few entrepreneurs from Dublin, Ireland this week in Buenos Aires. They have a web business based around the voiceover industry. If you don’t know, the voiceover industry is a bit like acting or modeling in that people typically have agents – except they get hired to record their voice for commercials and things like this.

You can see a sample of one of their pages here.

By the way, their logo looks a bit strange, but apparently that is the tonsils on the back of someone’s mouth (their piehole).

Really, it’s a similar business model to UniversityTutor.com or Haystack.com which I’ve talked about recently. Simply put, you get a bunch of listings from some sort of service provider, try to get traffic from people who need to find them, and then you charge the service provider a subscription to get work through your site.

The challenge is establishing your site as the dominant one in that niche by getting lots of traffic and good search engine rankings, but once you do it’s difficult for a new comer to overtake you. There are high barriers to entry in that sense.

These types of sites aren’t very complex technologically, but I think they do serve an important purpose: they are making markets more efficient by eliminating agents.

Seth Godin talked about this idea recently. Travel agents have largely disappeared because people can buy plane tickets online now. Stock brokers are disappearing because people can do their own trades online. Sure, they will continue to exist for a long time in niche businesses where they still provide a valuable service, but they will be nowhere near as common as they used to be.

What other types of agents are going to disappear next? Real estate agents quite possibly. Voice over agents. Tutoring “agents” (also known as tutoring companies – but it’s really the same thing). The web will be disruptive (in a good way) to a large number of industries. The service agents provide (helping you find quality among a large number of choices) can increasingly be done with websites.

Is this a bad thing? Well, if you are one of these agents then from your perspective yes. But for society as a whole this is absolutely a good thing to “eliminate the middle man” and make markets more efficient. When a 20% commission isn’t being paid to an agent, the service provider can earn more and the buyer can pay less (a double win). And eventually the agent is redistributed to a more productive part of the labor market. It sounds cold to talk about people’s jobs like that, but it’s absolutely a net win for society. Change is inevitable.

What do you think of directory sites as a business model? What will be the next “middleman” to go the way of the travel agent?

Until next time, keep breaking free!
Brian Armstrong

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22 Responses

Dan Pickett

November 10th, 2009 at 2:44 pm

I definitely feel like Real Estate Agents are the next ones to go – or to become more irrelevant. I think it’s pretty hard to justify such high commissions when much of the work can be done online. In my opinion, you’re pretty much paying for access to MLS and distribution of your property to interested buyers. This can all be done online, and it should be way cheaper than the 5% most agents require.

Brian Armstrong

November 11th, 2009 at 2:54 am

Yep I tend to agree Dan. There are some complexities they can certainly help you with, but in my view the old fashioned idea of a realtor driving you around to “show properties” is not very useful. I’d much rather look on my own. But in terms of having someone with you at closing to negotiate and make sure you don’t get screwed, this is still valuable. In that sense, their role may become more like a lawyer than a traditional real estate agent.

James Kennedy

November 10th, 2009 at 6:13 pm

Hey Brian

It was good to meet up this week. We got a lot out of it. I wouldn’t say that agents are on the way out altogether but rather their market share is shrinking. Hunting around for a decent air fair actually takes a bit of time and many people don’t have that time.

Similarly with houses, selling a house actually takes a lot of time. Advertising your house is the easy part. You then have to be available at all times of the day to show the property.

Even in the voiceover market, many producers prefer to deal with an agent who can ferret out someone decent. Many actors like having an actor take care of all the messy billing and invoicing. Even as an IT contractor I handed over 15% – 20% of my income fairly happily in return for a predictable stream of work which I knew I’d get paid for.

All that said, I think directories provides probably the easiest and most proven way to generate a decent income online. It is not particularly sexy but it works.

Keep up the great work and I’ll see you in Mendoza.

James

Brian Armstrong

November 11th, 2009 at 2:56 am

Hi James,

Yep I agree, it’s probably more of a long term trend…agents won’t be going anywhere soon and will still have value in niche indefinitely. Talk to you soon!
Brian

Matt

November 10th, 2009 at 10:21 pm

Uvula, not tonsils. :)

Brian Armstrong

November 11th, 2009 at 2:58 am

Haha, wow I never knew that! I went through my whole life thinking that was the tonsils. You learn something every day.
http://en.wikipedia.org/wiki/Tonsil

Daniel

November 10th, 2009 at 10:28 pm

Hi Brian,

Thanks for the article. I thought of going into this type of business model just last week and to be honest with you I’ve actually started and the website is currently been developed. Mine is not a directory per se but a kind of classified website which will be free but will charge if anyone wants to be listed in the spotlight position on the home page.

Check it out here… http://www.newhamlocal.com (this is the first classified site in the city I live where the 2012 Olympic is going to be held)

Will keep you updated how it goes.

All the best.
Daniel.

Brian Armstrong

November 11th, 2009 at 3:00 am

Nice work! So Newham is a suburb of London?

There must be some sort of classified site that people use? Craigslist? If not you have a great opportunity. If there is already an established player have you though of targeting a more focused niche? Just curious…
Brian

Daniel

November 11th, 2009 at 5:38 am

Yes, Newham is a suburb of London, UK. Craiglist covers the whole of London and what I’m trying to achieve is to let people know that there is a local classified site that caters only for Newham.

This way businesses in newham will be eager to try the site out. This all depends on how I market the site to local people.

Daniel.

Brian Armstrong

November 12th, 2009 at 9:37 pm

It’s a good idea! Nice work Daniel.

Ash. Davis

November 12th, 2009 at 2:20 am

I like the idea of directory sites and I’m happy to see that some are doing so well so fast. In essence, my project, shirtjax.com is similar. Shirtjax provides a “directory” marketplace btw indie tshirt designers and the market of streetwear and t-shirt geeks, like me.

I’ve been chewing on an idea that would create a Yelp-like site geared toward dog-owners, offering reviews and comments about local dog parks, vets, dog daycares, etc, but I’m not sure how to monetize. Yelp is the largest of that type of site but is still not profitable

Brian Armstrong

November 12th, 2009 at 9:38 pm

Shirtjax looks really well designed Ash. Curisous, how does you business model work?

Ash. Davis

November 13th, 2009 at 2:43 am

Hi Brian,
It works like Etsy, Ebay, or any similar marketplace site. I receive a small listing fee for each design that is posted on shirtjax, and I get a tiny percentage of each sale through the site.

I started with $.50 listing & 4.5% “commission” (for lack of a better word)- which amounts to only $1.40 for a $20 t-shirt. I liked the split testing you did with UT.com, so I will continue to make adjustments and see what works.

& thanks!

Brian Armstrong

November 13th, 2009 at 3:10 am

Yep I think that might be perfect model for your site, even though it didn’t work as well on mine. Different businesses, and you’re dealing in physical goods. Did you get direct deposit setup or how’d you structure the billing system?

Brian Smith

November 13th, 2009 at 12:25 pm

The alternative is to create markets by establishing yourself as a middle man. The internet allows for this because you can utilize vast amounts of information – in amounts that were previously unavailable to any one firm – and capitalize upon it at much lower margins. A great example of this is OpenTable. OpenTable created a market for reserving a table. They make a small margin, but scale, allowed by the internet, has allowed for them to turn a profit. In their case, as in the case of Google and many other prolific internet companies, they give away the majority of their services (i.e. they are free to use), but a small amount of users pay to use their services. Only a handful of restaurants pay to be a featured listing, but it is enough to make a profit for OpenTable. Likewise, only a small amount of the companies that appear on a Google search have paid for a spot on Google (through Adwords or the like), but they do it on such a scale that they make more money than nearly any other company in the world.

Great article – I just wanted to point out you don’t need to simply replace an existing service. The internet allows you to create a previously inexistent market.

Brian Armstrong

November 13th, 2009 at 10:44 pm

That’s really a great point Brian, thanks for bringing it up! hadn’t thought about that.

Ash. Davis

November 13th, 2009 at 11:34 pm

Brian-
Here’s the thing (and a sore spot), the developer that I worked with wasn’t able to code a direct deposit feature, so I will have to do all the transactions by hand. Not a problem now, but will become impossible as the site grows.

It’s not an ideal situation (ok, it sucks), but I plan on upgrading the site anyway once I have established a steady cash flow and have more $ to invest. I followed your advice of just throwing an imperfect product out there just to see if it could work

Brian Armstrong

November 13th, 2009 at 11:38 pm

Yep they are quite difficult and hard to find. I think you’re right….just get it out there for now. You can always throw more money on it when it takes off.

Just FYI, BrainTree Payment Solutions seems to be the biggest guys out there doing direct deposit APIs. But they want to work with companies doing $1m plus in revenue so denied my app. I went with ACHDirect.com after that who kinda sucked but I did eventually get it working. Just some options. Good luck!

Brad Durkin

November 17th, 2009 at 9:47 pm

My brother’s company CampusLIVE.com is exactly this type of business model. Very cool article, it helped me write an essay at Umass… Thanks for the help.

Brian Armstrong

November 18th, 2009 at 9:39 pm

Most def! Thanks Brad, send us a link to the essay if you get it posted. Wouldn’t mind checking it out…

Homebased Business

January 2nd, 2010 at 4:48 pm

Hi Brad, i am too looking forward to read the essay that you have written.
Brian you are really awesome, this post is very interesting from start till end and good for the people like me looking to start own business.

Great Work…

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Why Directory Sites Are Doing Well As A Business Model

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