Disruption can move fast. When Chris Silver Smith joined one of the largest publishers of yellow pages in 1997, he became part of an extremely profitable enterprise. While newspapers and television stations create expensive content like articles and sitcoms—and pay the bills by placing ads next to articles and playing them during commercial breaks—the publishers of yellow pages simply send every single household a thick book of pure advertising.
“The industry seemed so virtually indestructible,” Smith later reflected, that “veteran employees commonly told me that [yellow pages] company stock was a rock-solid ‘sure bet’ and local businesses would ‘always need the yellow pages.’”
The yellow pages veterans were wrong. Today, for many Americans, a yellow pages directory is a fossil from our pre-Internet past, a relic of the days before Google told us everything we needed to know. In 2007, a decade after he joined the “indestructible” yellow pages industry, Smith was the president of a search engine marketing company and wrote an article titled “Yellow Pages Will Be Toast in Four Years.” Within two years, three major yellow pages companies declared bankruptcy.
The yellow pages, however, are far from extinct—even though the Internet lets you find plumbers, DJs, and yoga instructors from a variety of sources, including Thumbtack. Publishers of the yellow pages remain billion-dollar companies, and 68% of Americans still have a yellow pages directory in their home. This is partly due to the relative success of some publishers at launching digital versions of the yellow pages. It’s also because the physical yellow pages are enjoying a long, drawn out, and profitable death.
The Golden Age of the Yellow Pages
Since its advent in the late 1800s, publishers of the yellow pages have operated a simple business model: A sales force charges local businesses for advertising, and the publisher ships a booklet of these advertisements—alongside a directory of businesses’ phone numbers—to customers’ doorsteps.
This was wildly profitable for most of the 20th century. Americans walk to the kitchen during commercial breaks and throw out coupon booklets, but customers treated the yellow pages as a resource rather than spam. It was the go-to and sometimes only way to find a doctor accepting new patients, a 24/7 plumber, or a pizzeria that delivered. In the 1980s, the average American used the yellow pages 1.86 times per week, and over 50% of Americans used a directory every day. For businesses, staying out of the yellow pages was the 20th century version of not having a website. Companies changing their name to gain a more favorable position in the directory was the 20th century version of search engine optimization.
Advertising in the yellow pages today costs from hundreds of dollars (to place a small ad in a rural area) to tens of thousands of dollars (to place a large ad in New York City) per year. In the age of Google, many small businesses now balk at the prices. But for a long time, business owners paid relatively higher prices. According to Chris Silver Smith, local businesses often felt “at the mercy of the [yellow pages] companies.”
Yellow pages publishers enjoyed a century of great profits because the industry favored monopolies.
The first yellow pages were published exclusively by telephone companies. They date to 1886, when a publishing firm producing directories for the Chicago Telephone Company decided to include a classifieds section. According to a popular story, the color choice came from a printer who ran out of white paper but decided to keep printing on yellow pages.
Only a few telephone companies operated in the United States, and AT&T dominated with as much as 85% market share. When AT&T invented the famous “walking fingers” logo for the yellow pages, it feared competition so little that executives did not trademark the design, which is why multiple American companies use the walking fingers logo and the term “yellow pages.” AT&T dominated the telephone market—and therefore the directory business—until a federal judge ordered its breakup in the 1980s.
The breakup led to increased competition in the yellow pages industry. The baby AT&T companies fought each other for market share, and independent publishers created their own directories. But the nature of the business supported the triumph of individual companies in each market.
Yellow pages were a fairly all-or-nothing business: customers wanted to use the most comprehensive and up-to-date directory. Since telephone companies had decades of experience publishing yellow pages and the resources of a large monopoly, they employed large sales staffs that kept advertisers’ dollars flowing and the listings accurate.
Competitors made in-roads in atypical markets or by publishing specialized offerings like Chinese- or Spanish-language yellow pages. In most regions, however, only a single or a few yellow pages directories served as the primary source of referrals for local businesses. If you wanted people to find your business, you had to be in the yellow pages that dominated your area.
It was an amazing business model. The content yellow pages provided—telephone listings—was cheap or even a monetized asset, with businesses paying to have their number listed. Yet businesses paid large sums just for the right to use bolded text in their ads. Yellow pages companies were regional Googles, monopolizing advertising for local businesses. In 1986, adjusted for inflation, the industry was worth over $14 billion. Publishers had profit margins of over 30% or even 50%.
Then, in the mid 1990s, as Yahoo IPO’d and the media described Amazon.com as a promising “upstart,” the industry faced an important question: Was the Internet a threat? Or was it an opportunity?
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