Why taking on Google on search is no joke for BT

Posted by Rob Gallagher Friday, October 24th, 2008

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Earlier this month, influential blogger James Enck made a light-hearted observation about why telecoms operators shouldn’t build search engines. But once upon a time, BT was a dominant player in search, thanks to its phone book and directory enquiries businesses. Now the former state-owned monopoly is investing heavily to re-invent these services for a Web 2.0 world.

BT aims to challenge Google and Yell to become a leading provider of local search in the UK within two years, a goal which by its own admission is “audacious”. I’d say it’s more than audacious, even allowing for any advantage the company’s heritage might confer.

It already has a presence in local search through its ownership of The Phone Book, a directory of UK personal phone numbers that also carries classified advertising. It also has newer Internet interests – the online directories Exchanges, Tradespace and the recently acquired Ufindus. Online search represents the fastest-growing segment of the local-search market, but the bulk of revenue from BT’s Directories unit comes from The Phone Book and directory enquires.

And in terms of revenues, BT Directories is a minnow compared to Google and Yell. BT Group does not generally release financial figures for the unit, but in a one-off presentation in December 2006, it did reveal that the business was expected to generate £175 million in revenues in the 2006/7 financial year. Two-thirds of the revenue would come advertising in The Phone Book, with the remainder from phone calls to directory enquiries, BT said. The online services had not started generating revenue at that time.

Assuming some organic growth of its new and existing businesses puts BT Directories’ 2007/8 revenue in the range of £200 million to £250 million. That calculation includes the contribution of Ufindus, which generated £14 million in revenues in 2007 and was acquired by BT for £20 million in July.

Yell, in contrast, posted UK revenues of £732 million in the financial year to end-March 2008. Google had total revenues in the UK of US$2.5 billion in 2007, but this figure is for all its search-based advertising, rather than for the segment of the market that Yell.com and BT Directories operate in.

The advantage that BT has over Google is a huge database of addresses and postcodes for businesses. Google has to rely on businesses posting their addresses on their websites or uploading them to Google Maps.

BT certainly is committed to the cause. Last year, David Benjamin was brought in to head up BT Directories. He was previously with the Guardian Media Group, the UK newspaper business that has made one of the world’s most successful transitions from being a print-based operation to an integrated media group.

Exchanges and Tradespace also represent a test ground for BT’s Web 2.0 aspirations. Both feature an array of trendy features no doubt inspired by social networks, such as blogs, podcasts, and video-sharing. They were also built using a key component of the operator’s multi-billion pound 21CN next-generation network, the Web21C service delivery platform.

Which leaves me wondering: does BT know something that its counterparts don’t? Over the past five years, Deutsche Telekom, France Telecom, Telefonica and TDC have all sold their directory-enquiry units because they were considered non-core assets. The success of Internet firms such as Google also convinced the operators that revenues were shifting away from directories to search engines.

Tradespace and Exchanges are impressive, but I suspect it will take more than bells and whistles for BT to distract consumers and advertisers from Google. The Internet giant’s proposition is so simple that in many minds it is the way to search and advertise online.

BT can at least take comfort from the fact that The Phone Book tops Google’s rankings when you search for “directory enquiries” – should anyone be using that term rather than the type of business they ultimately hope to find. Furthermore, it’s not obvious how or why someone would ‘Google’ for Exchanges and Tradespace.