AdStar Inc., the publicly traded software maker in Marina del Rey, hopes that the growing field of reverse publishing can, in fact, reverse the company’s fortunes.
In traditional publishing, material appears first on the printed page and later migrates to the Internet. Reverse publishing refers to operations that take Web content and move it onto paper.
AdStar’s software helps newspaper publishers sell classified ads and place them in both their print editions and their Web sites. Technically, since the ads are created in the computer first, the ads are reverse published.
But two weeks ago, AdStar announced a strategic agreement to go one step further. A new arrangement with LiveDeal.com, a free local classified Web site, will allow customers to create an ad for the LiveDeal site and also purchase a classified ad in a local newspaper.
More than 70 newspapers in the U.S. use AdStar software, while the LiveDeal online classified system works by ZIP code. Advertisers who go to the LiveDeal site can post a basic text ad for free, or they can pay for enhancements such as a photo or top placement on searches. If the advertiser’s ZIP code falls into the market of a participating newspaper, the advertiser also can choose to post the ad in the paper.
Local AdStar clients include the Los Angeles Times, Los Angeles Daily News, Long Beach Press-Telegram, Pasadena Star News, San Gabriel Valley Tribune, Whittier Daily News, Torrance Daily Breeze and the Orange County Register. However, each paper must choose to participate in the program, and with the ink barely dry on the deal, none have committed; currently AdStar and LiveDeal sales teams are signing them up.
For classified customers, the new system allows one-stop ad creation and payment for both online and print coverage. “We’re hoping that it will bring a lot of small businesses that are not using newspapers, that are doing their recruiting completely online, back into print,” said Steve Brown, vice-president of business development at AdStar.
Rajesh Navar, chief executive of Santa Clara-based LiveDeal Inc., expects the service to open for business in about one month. “The reality is that online is the most cost-effective form of advertising, even locally. But to be successful, you should market your message on different local classified platforms,” he said.
LiveDeal attracts about 1.4 million unique visitors monthly with 250,000 ads posted at any given time, according to Navar. He estimated about 20 percent of the ads are sold with paid enhancement and 80 percent are listed free.
Under the AdStar deal, revenues will split three ways. LiveDeal will take payment for its online enhancements, the newspaper will receive its standard classified ad rate, and AdStar will get a transaction fee. According to William Gregozeski, a senior analyst at Capstone Investments Inc. who covers AdStar, its fees typically run about $2.50 for each classified ad.
Converging future
While newspapers will receive additional revenue, and LiveDeal hopes to provide customers with a convenient service, AdStar thinks the arrangement points toward a future of increased convergence between online and off line advertising.
“For a long time, the online world has moved forward and taken market share from the print world. In response, print has become very territorial and defensive,” said Leslie Bernhard, AdStar’s chief executive. “AdStar is jumping into the middle of the situation and accelerating the convergence.”
“Online and off-line are coming together, and that’s all good for the consumers,” added Brown. “If they want to sell their car or advertise a job opening, it’s becoming easier and more efficient than ever.”
Although Gregozeski sees AdStar as a leader in reverse publishing and classified ad processing, the company’s stock has lost more than half its value in the last seven months. At the start of 2006, shares of the stock, which trade on Nasdaq, sold for $2.22. They currently trade in the $1 range. Gregozeski has a long-term buy recommendation for the stock with a target price of $3 per share.
In part, the problem stems from the decline in AdStar’s client industry newspaper classified ad departments at the same time online classifieds have prospered. According to Internet research firm comScore, the online classifieds category as a whole grew 35 percent year-over-year (March 2005 to March 2006). The Kelsey Group consultancy expects the market for local online classifieds to grow from $3.3 billion in 2005 to more than $9.8 billion in 2010.
LiveDeal’s Navar, who was one of the first employees at eBay, takes a long view of the convergence trend.
“When people saw eBay and Amazon doing great, they said Wal-Mart was dead. Then when they saw NetFlix, they said Blockbuster was dead. So I’ve seen this cycle a couple of times,” he said. “I’ve come to the conclusion that there will be synergy between online and off line. Therefore, we want to partner with traditional media, especially print.”
