By Khadeeja Safdar and Angus Loten
Thousands of small-business owners have paid marketing firms to
get their products and services in front of potential customers on
Google, Yahoo and other Internet search engines.
But a growing number of these advertisers complain about the
online marketing firms' sales tactics and say they made promises
that didn't pan out.
Many of the small businesses' complaints single out two of the
industry's biggest players: ReachLocal Inc., a publicly traded
Woodland Hills, Calif., firm with annual sales of more than $514
million last year, and Yodle Inc. of New York, which generates more
than $160 million in annual revenue, according to its website, and
is planning an initial public offering.
Some small-business owners rely on Yodle and ReachLocal to
manage their Google AdWords accounts. AdWords, the search giant's
largest revenue generator, is effectively an auction for keywords,
where advertisers bid to show up near the top of search results for
particular terms.
Both Yodle and ReachLocal promise to provide hands-on,
personalized support, small-business owners say. ReachLocal relies
heavily on software to manage its advertising campaigns, according
to four former employees, including two former executives,
interviewed by The Wall Street Journal. Yodle also uses automation
to make "changes across thousands of accounts at once," says Jared
Slosberg, Yodle's former chief retention officer.
ReachLocal has about 924 salespeople and manages
online-marketing campaigns for nearly 24,000 small and midsize
businesses world-wide, according to its filings with the Securities
and Exchange Commission. Four former employees say its
salespeople--who are typically the only point of contact for
small-business clients--often aren't properly trained in the
technical skills to troubleshoot or optimize results. The
salespeople often don't check the progress of online-marketing
campaigns for smaller clients, the former ReachLocal employees
add.
"You can't scale a business when you have employees constantly
monitoring thousands of accounts," says Benjamin Poch, a former
vice president and sales director at ReachLocal. "Even Google uses
algorithms."
ReachLocal President Josh Claman says the company restructured
its sales force about four months ago--in part based on feedback
from clients--and as a result roughly half of its salespeople are
now charged with acquiring new clients and the other half focuses
on retaining existing clients, with commissions tied to renewed
contracts.
Mr. Claman says ReachLocal provides a valuable and affordable
service to many small-business owners who lack both the know-how
and time to advertise their firms on search engines and other
online platforms. Customer complaints come from a small percentage
of the company's clients, he says, adding that the company does
check the progress of clients' advertising campaigns and has
trained staff to oversee the campaigns.
Radley Moss, a Yodle spokesman, says: "We have thousands of
customers who have been with us for multiple years, which we
believe validates the quality of our products and services."
Google declined to comment.
The Federal Trade Commission has received about 60 complaints
involving ReachLocal since 2009--roughly half of them filed within
the past two years--and more than 180 complaints about Yodle over
the same period, including more than 100 filed since 2012,
according to data reviewed by the Journal following a Freedom of
Information Act request.
The complaints, which were mostly from small-business owners,
ranged from unfulfilled promises of new clients and better
search-engine results to unwanted sales calls, exaggerated online
traffic reports and overbilling. Some owners say the firms posted
errors on their business websites--including faulty contact
information--while others complained that the companies' newly
refurbished sites promoted services they didn't provide. An FTC
spokesman says the agency doesn't comment on specific cases.
ReachLocal and Yodle declined to comment on specific
complaints.
Dave Bennett says he signed up for a four-month contract with
ReachLocal last year to promote Wasatch Chill Zone, his athletic
recovery business in Bountiful, Utah. For $900 a month, a salesman
promised to create listings for his business in online directories
and advertise his services on search-engine-results pages.
But Mr. Bennett says he was shocked when he came across some of
the automated content that ReachLocal had entered into Web
directories, such as Citysearch, an online city guide that provides
data about businesses.
Spotting spelling errors, an incorrect address listing and even
the wrong phone number, he says he complained to his ReachLocal
sales rep. When that person didn't address the problem, Mr. Bennett
says, he dropped the service--after paying a total of $1,800. "I
didn't get a single customer from the campaign," he says.
Marcos Quinones, a psychotherapist based in New York, says he
received a phone call late last year from a Yodle cold caller who
guaranteed him a specific number of clients. He signed up, paying
$2,200 for three months.
A few weeks later, he started receiving phone calls--but not
from potential clients. "I paid for three months, and I didn't even
get one customer," he says. "I got calls from people who didn't
even know that you have to pay for psychotherapy."
Mr. Quinones says the website created by Yodle after he agreed
to the service didn't properly highlight his specialties. And after
he gave his credit-card number, he added, he had trouble reaching
anyone at Yodle on the phone. "They were supposed to contact me
monthly to tweak the website and never did," he says.
Yodle and ReachLocal declined to discuss individual clients, but
both say they have multitudes of happy small-business customers.
"We have a lot of long-standing clients, and if we weren't
delivering leads, and quality leads, we wouldn't be retaining those
businesses," says ReachLocal Chief Executive Sharon Rowlands.
Lorenzo Sandoval of Ageless Karate in Las Vegas says he pays
Yodle over $1,000 a month and about 15 students came to him in
March thanks to online ads. He started using Yodle after hearing a
sales pitch from a cold caller in 2012, he says, and briefly
interrupted the service to try cheaper methods of marketing. But
those tactics didn't yield the same results, he says, prompting him
to return to Yodle this year. "You have to spend maximum dollar to
get results quickly," he adds. "It's the difference between a
Bugatti and a Nissan."
Michael Westhead, who was referred to the Journal by ReachLocal,
says he began using the service six months ago to promote Home
Court Hoops, his Morristown, N.J., firm, which installs basketball
nets. ReachLocal brings "everything under the same umbrella," he
says. For $299 monthly, plus $1,800 in pay-per-click and
pay-per-chat fees, he can engage with potential customers on his
website as well as social-media platforms.
Mr. Slosberg, the former Yodle employee, says a level of
"churn"--or turnover in the company's clientele--is a "struggle
anyone in the industry deals with." He attributes the problem to a
combination of factors, including many that are out of a company's
control, such as the financial constraints of small-business
owners. The success of an online campaign, Mr. Slosberg says, also
depends on a business owner's ability to convert a phone call into
business.
According to risk factors cited in ReachLocal's SEC filings,
many clients "cancel soon after completing their initial contract
terms and some cancel early. We must continually add new clients
both to replace clients who choose to cancel or not to renew their
advertising campaigns and to grow our business beyond our current
client base."
The company declined to specify its churn rate, or the rate at
which customers cancel, saying only that it was under the industry
average.
ReachLocal shares have languished since last spring, and they
have dropped an additional 20% since February, when the company
issued financial forecasts below analyst expectations.
Rolfe Winkler contributed to this article.
Write to Angus Loten at angus.loten@wsj.com
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