While there is much kvetching and hand-wringing of late regarding impending demise of the dead-tree business (sic) that is the newspaper industry, there is another dead-tree business that is descending quickly toward irrelevance:  The Yellow Pages.

Every year, beginning around this time, trucks shunt around cities and visit every household in North America, and indeed most of the world, depositing these 6-7lb. volumes in stacks as an edifice to a pre-internet era.  Small businesses waste thousands of dollars each in perfecting their ads and emplacing them in a book that, nowadays, most of us will never demean ourselves to open.

There is substantial waste in this business:  whether it’s the energy expended in physically delivering these books to your doorstep every year, or whether it’s the paper (usually recycled — but that still uses energy) that could go to other uses it’s hard to ignore this big yellow hunk of tree when you trip over it while fumbling for your keys — twice a year in some cities as there’s now competition.

Us New Media types like to portray the Yellow Pages business as an anachronism — an embattled dinosaur searching for relevance in an era when we can Google ’til we puke to find the things we need.  Since this is 2009, a Facebook group has emerged, rather unambiguously called “The Yellow Pages Must Be Stopped“, to demand that the industry adopt an “Opt-In” practise.  I personally have not used a Yellow Pages for anything other than as a monitor stand since the last millennium — except when I was once desperate for a Pizza in a Long Island hotel room.

But unfortunately, the Yellow Pages business is not yet the death march that the Web 2.0 kids have hoped it would become.  … This may say a lot more about the new media of web, telephony, and mobile and their capabilities than it does about the old medium of schlepping giant books door-to-door for punters to thumb through.

For one thing, the Yellow Pages is still the number one tool used by consumers to find local business; the industry continues to forecast growth in the bellwether US marketplace from $10.3 billion in 1996 to a projected $18 billion by 2010 — yes, some of their revenue comes from online, but that number is pegged at between 25% and one-third.

Oh.  And people still (gasp!) turn to their Yellow Pages more frequently than anything else for finding products and services that are local to them.  According to research released a couple of months ago from Knowledge Networks, nearly half (48%) of consumers report print Yellow Pages as the resource they turn to most often for information on a business or service, and more than three-quarters (77%) use the print Yellow Pages overall.

As you would expect, age represents the greatest cutoff point.  The print books are for the olds:  54 percent of respondents over 35 years old said they prefer the Yellow Pages, compared to 29 percent of 18- to 34-year-olds.  I would also hazard a guess that the dividing line dissects social class and educational background as well.

So it might be a little bit early to plan the funeral for the dusty old Yellow Pages, though the companies that produce them are clearly being forced to diversify their product offerings and revenues.  They’re also adapting new standards, such as the shift to recycled paper and soy-based inks.

The Kelsey Group, a Research firm which services the Yellow Pages industry, does forecast turbulent waters ahead for the Print business.  This cut comes from their core base of advertisers, small businesses:

Print Yellow Pages is now in a challenging situation … overall, the accumulated data show small and medium-sized businesses’ spending on advertising has dropped, and the distribution of ad spending by bracket appears to have deteriorated. The assessments of the effectiveness and return on investment performance of print Yellow Pages are also weak. There is strong sentiment to reduce print Yellow Pages spending, and advertisers no longer view category position as a sufficient reason to maintain their current spending levels. In broad terms, SMBs that advertise in print Yellow Pages tend to be more consumer-oriented, established businesses. As a relatively expensive medium, Yellow Pages has lower uptake among younger, growing firms. These findings suggest directory publishers have work ahead of them in reestablishing their value proposition to small-business advertisers, particularly as these advertisers seek partners to help them find customers through nontraditional channels like the Internet, voice and mobile.

Google is not yet good at selling or positioning truly local advertising in scale.  In fact, there is not a single substantial advertising network pursuing this opportunity at the moment:  the problem isn’t in building the technologies that match advertising to your locale — the problem is in having a customer acquisition and sales engagement model that cost-effectively pulls in the mom & pop businesses that are the bread and butter for such an advertising network.

What the Yellow Pages is learning is that perception is their greatest enemy.  While surprising numbers of people still use their dead trees to find services and businesses, their advertisers are pulling out.  Other forms of advertising (even local newspapers) are more trackable and accountable than a static ad in the Yellow Pages that changes, at best, once per year and so there exists a greater perception of value in these.  Ironically, even though it’s still reaching customers, people are starting to realize that for most businesses the Yellow Pages isn’t cost-effective.

The real problem is the lack of a viable alternative.  This is actually where the Yellow Pages businesses stand to benefit.  They practically have a first-right-of-refusal in the small business advertising game already.  They have a scaled-out sales force and a revenue model that supports them — and, if it wasn’t already patently clear, a mandate to protect that structure — therefore they can cost-effectively engage with these small-scale advertisers.

What the Yellow Pages industry needs to do is sell more SKUs.  Today they sell advertising in the printed publication, as well as a range of services within their freestanding online directories.  In fact those Online Directories are #3 behind Search and the Printed Directory for how people find local businesses.  But that ain’t enough.  They need to become advertising networks.  They need to engage with the market of local bloggers, like Vancouver’s own Miss604, and give them advertising inventory that is relevant and can be targeted to their local audiences.

In other words the Yellow Pages businesses need to turn themselves inside-out and, instead of attempting to divert everyone into their silos and cathedrals, free their advertising to integrate with the wealth and breadth of the bazaar.  Locally-focused content sites, which today are starving because the best they can hope for is directly-retained advertising revenue or Google Adwords, could use the help — and in return they stand to generate substantially greater advertising exposure at far less cost than the online yellow pages businesses are attracting today.

It’s a simple shift but one which, I suspect, will have difficulty gaining traction within businesses that emerged from the Incumbent Local Exchange Carriers (Ma Bells) and which have inherited much of their managerial culture.

But there is a breakaway business opportunity here.  If they can make the shift then I believe the Yellow Pages can experience their third renaissance — and avoid the death by a thousand cuts that awaits them from environmentalists, web 2.0 kiddies, the expiration of their primary demographic, and online media empires alike.