Operator
(Operator instructions) Looks like our first question will come from the line of Richard Fetyko from Merriman Capital [ph]. Please proceed.
Richard Fetyko – Merriman Capital
Good evening guys. Curious with respect to the 2011 revenue guidance of 85 million, what level of visibility you have, what sources of growth from the first quarter levels do you assume in that guidance between the three segments that you have?
Heath Clarke
So, you know, we think that we have pretty decent visibility at this point. We have if you look at SAS that as we mentioned that subscription revenue is very predictable revenue in terms of what it is going to do. It will decline over the next couple of quarters, but we do anticipate that our network business will grow from this point onwards, as well as going out [ph]. And so, when we entered the quarter, we really were in a tough situation in terms of visibility because we had Q4 and all the dynamics and variables going on there, so we really couldn’t baseline our revenues, but we spent basically the last four or five weeks doing just that.
So I am talking with Yahoo as a partner, a valued partner, and trying to figure out what is going to happen, and how this will trend. So we feel pretty confident about the numbers. We do have some revenue baked in there from the social buying in the second half, but not a lot. So we have taken a very conservative view with that. I don’t know if you want to add anything.
Ken Cragun
Yes. Our two growth platforms will be the channel sales on the OCTANE360, our own internal sales of the Exact Match product, and then couple that with some upside of the social buying business.
Richard Fetyko – Merriman Capital
Got you, and on the O&O side what do you expect to drive that business in terms of revenues, I guess assuming that monetization remains stable from these lower levels, I assume it is just more traffic.
Heath Clarke
Yes. There will be more traffic. The majority of that – I mean certainly there will be – we think there are opportunities with what has happened with Yahoo/Bing, we think there is actually opportunity. There is definitely some silver linings with it. We think there is opportunity to expand traffic traveling, but as I mentioned on the call organic traffic is really what we’re focusing on growing most strategically, and we do forecast that that will continue to grow as well. So, a combination of kind of refinement of SCM [ph] and growth in organic traffic I think drives those.
Richard Fetyko – Merriman Capital
And then lastly if I may, the profitability on the 85 million, you didn’t mention that in the press release or in the prepared remarks, just curious what factors may influence that and any other sort of color you may give us as to why you weren’t ready to provide any margin guidance?
Heath Clarke
Yes, we actually haven’t ever provided margin guidance. We only started doing annual guidance last year, and we felt it was more than ever we would need to do that this year. But we didn’t really have plans to do any bottom-line guidance anyway. But certainly color from a color standpoint, as Ken noted we do anticipate an expansion of our bottom line. So we are basically saying this is kind of the new normal, this is our baseline here in Q1, and it is breakeven. But we do anticipate an increase in margin.
I won’t say like last year – don’t take the trend lines has being the same, but last year we were able to increase margins significantly and quarter-over-quarter. So, we do anticipate that we will be able to grow our margins quarter-over-quarter this year, and offset in part by investments in the new businesses. And directionally the fourth quarter this year would be our largest margin is how I would think about that. So, increases per quarter is what we are targeting.
Richard Fetyko – Merriman Capital
Got you. Actually one more on the OCTANE360 channel sales, just curious what sort of if you can give us, review again what the product is and how do sort of the economics in the channel sales would work for you?
Heath Clarke
So, the core product is called Exact Match, and it is basically a combination of SEO, or search engine optimization, and Web hosting. It is a combination of those two, and it is a five site package, where a small business will get 5 websites that help them get ranked in Google, Yahoo/Bing.
And we felt that – on a package basis, we saw that was $1800 down, and $500 per month. And so – it is a very high margin product for us because the OCTANE automates virtually all of the production. There is some manual process, but that is handled through the OCTANE experts’ marketplace, and that is where custom content is written for the advertiser, for each one of the sites.
But ultimately – it is a very differentiated product in the market place. Ultimately we want to reach large numbers of small business advertisers through channel sales. So, we would look to provide this product on a private label basis to regional media publishers, such as our existing network partners, Yellow Page publishers, in particular. And so, when we talk about the development of our channel sales strategy, what we mean by that is building wholesales relationships, which is to say partnering with a Yellow Page publisher, providing us wholesale pricing, where we provision this product on a private-label basis to them, and then they resell that into their customer base, whether it is part of an existing bundle, and as a standalone or however they really want to do it.
And they get to price it however they want. So as we think about how we recognize revenue off of that, in a wholesale scenario, we simply recognize our portion of that what we are going to be wholesaling that to them for. Obviously that represents very high margin for us.
Richard Fetyko – Merriman Capital
Okay. Thanks, guys.
Heath Clarke
Thanks, Richard.
Ken Cragun
Thank you.
Operator
Your next question comes from the line of David Delleo from Canaccord. You may proceed.
David Delleo – Canaccord Adams
Hi guys. Thanks for taking my questions. So, just kind of want to be clear here, obviously, you are stating a reset here, a one-time event. So, you look at Q1, just to be clear, this is just a monetization driven shortfall in Q1? There is nothing else going on with the business, is that a fair statement?
Heath Clarke
Yes, that is. If you kind of step back a quarter, and if you look at historically over the last four years, it’s a 50% compound annual growth that we've delivered. So, this is certainly a reset in monetization, but it doesn’t change all the other growth initiatives that we had. It doesn’t mean that there weren’t appropriate. So, if we take that reset and its full impact which is Q1, we are still looking to deliver 50% organic growth, and so, all those other strategies that we had and that we were implementing are still moving forward in full force and effect.
David Delleo – Canaccord Adams
Okay. Switching to the SAS business, you talked about that business a little bit, a predictable decline in that business, and the shift in focus really there to OCTANE360, you're getting away the bugs [ph] of acquisitions. It seems by the Q1 guidance and the full year revenue guidance, it's going to be a really second half, back half loaded model here. So, is there any shift away there from how you spoke about OCTANE360 before? It seems like now those products will be hitting more back half of the year. Is that consistent with how it's been messaged before, or are expectations for that to hit a little bit sooner?
Heath Clarke
No, we've always – even from July when we closed the deal and we began talking about it, we've always said it's a second half 2011 story. The reason for that is we have relationships with all the publishers already in some context, and we've got experience in dealing with some of them for years, so we know how long it takes. So, we certainly made progress. We have some channel sales that we've already announced. These are smaller ones in our view of the universe, but certainly important because they are first out of the gate. There will be some medium size ones and there will be some large ones, and we certainly have a full pipe of those. But, if you look at the larger ones, and the other ones that are most able to move the needle or even a combination of medium sized ones, it takes time.
You've got – the primary sales channel will likely be Yellow Page publishers, and it just takes time to get them through the pipe there. So, nothing has actually changed with respect to our view that, for OCTANE, the biggest impact is in the second half 2011. I think we've been very consistent about that and we're certainly not backing off on that view.
David Delleo – Canaccord Adams
Okay. That is helpful. Just a couple more if I might. So, you talked previously about, I think you termed it soccer mom focused websites. Remind me was that a first half '11 launch event there, what’s the latest status with those?
Heath Clarke
No, we relaunched the site in November, November 2nd I believe it was last year. This is the Local.com site, and so that represented phase I. We're working on phase II, and that will launch in the first half. So, we basically will continue to evolve the Local.com site towards a local lifestyle site. Historically, it's been primarily a directory, but we want it to be more than that for our target segment, which is the soccer mom. So, everything that we're doing on that site is oriented towards attracting that user base more frequently, and so nothing has changed there either. It’s an ongoing – it’s kind of an evergreen process in terms of refinement.
David Delleo – Canaccord Adams
Okay, and then just lastly any color on the recent iTwango acquisition just as far as where you are with integration or any analysis that you have done so far?
Heath Clarke
Yes. So iTwango, and we will be rebranding that particular name, but iTwango think about it as more of a technology platform. So we acquired that platform late last year. I think, it closed on…
Bruce Crair
January 1.
Heath Clarke
Is it January 1? So yeah, around that timeframe, so we've basically been working on, it’s not so much integrating it, it’s a standalone platform, but really planning to plan around it. We brought Malcolm Lewis aboard, and just as a reminder to the audience Malcolm Lewis – we purchased the company from him back in 2007, and that’s actually our Network business today or what's the basis for our Network business. So that’s a business that was doing about $1 million a year in expenditure, that’s a $30 million a year business for us.
So we've got a high degree of confidence that Malcolm is the right guy to put the pieces together and get this business rolling for us. We are really excited about what social group buying is, and as I said it’s a new ad product that exists in the small business market outside of search. So we believe that that strategically for us is a business and for the search – the non-major search players it’s strategically valuable to all of us, which is why I see so much interest in this space. So we think that it can be a big business for us. We are not giving any specific numbers around that, but as we plan that plan and build the models and so on it's all very encouraging, and we believe this will be a big driver of organic growth for us later this year and certainly into 2012 and beyond.
David Delleo – Canaccord Adams
Okay. Thank you.
Heath Clarke
Thank you.
Operator
Your next question comes from the line of Jon Hickman from MDB Capital. You may proceed.
Jon Hickman – MDB Capital
Hello, can you hear me?
Heath Clarke
Yes. Hi, Jon.
Jon Hickman – MDB Capital
Hi, can you talk more about this, when you turned on the switch, the new website and made it more of a destination site for your soccer moms, you said something about you noticed a dip in traffic, but now it's rebounded. Can you be more specific there?
Heath Clarke
Yeah. So, we’ve been working very hard from an SEO [ph] standpoint, and I will ask Bruce to provide some color here too. But from an SEO standpoint we've worked really hard on building up SEO traffic. It’s been shocking in terms of the result. So, the idea here was – it’s a combination of a new user experience, which would basically drive up pages per visitor, as well as more content on the site, and the content being oriented toward the target audience. So, when we launched the site, we launched it with certainly a lot more articles than we had previously, but we’ve been adding to the site, we’ve been continually optimizing for SEO, and while we didn’t see any significant impact in Q4, in fact we took a step back, we have seen much more positive results in Q1, maybe I’ll turn it over to Bruce to talk a little about that.
Bruce Crair
Just to be clear, this is Bruce, we completely rewrote the entire Local.com site. All new back-end, all new front-end, new data base. Almost everything in there was brand new. During that process, we did everything we could to try to maintain everything we need with to maintain our SEO, search engine optimization, for Google, Yahoo!, Bing, and the other search engines. We did take a small step back in traffic after we launched the site. It was a pretty small blip and now we’re seeing the traffic come back pretty strongly, and although one month's worth of data doesn’t a trend make, we’re pretty excited about the numbers we’re seeing so far, and hopefully in the next few quarters, we'll be able to show you – share with you some of that data.
Jon Hickman – MDB Capital
Okay. And then I know you were already asked about the channel partners, but I was kind of under the expectation that by now you’d had a significant major channel partners signed and up and going, and now I think that there was some talk about that. Can you like tell us some more where you are in those discussions?
Heath Clarke
Well, I can’t talk to any specific partnerships. Again to kind of give you some context on the timing, wherever we signed up a channel partner in the first quarter, they wouldn’t begin selling the product until the second quarter anyway, and then because it’s a subscription product, we really don’t get any – even if there was 2,000 people selling the product, there is no materiality in those numbers until we hit the third quarter. So, we’ve been fairly consistent with that in terms of our expectation in the second half.
We continue to work with some major Yellow Page publishers, some minor, or I call Tier 3 Yellow Page publishers, and a lot of those, and agencies and verticals. So we've actually got a fat pipe full of channel sales – potential channel sales partners, and it's just a matter of working your way through that pipe, or having the relationships, excuse me, the conversations and the partnerships having them work through their internal processes. So, they're just ongoing. That’s pretty much all the color I can probably give at this point.
Jon Hickman – MDB Capital
And then can you tell us more about what you're doing in this new side of the business, like, how are you reacting to the Bing thing? I mean, besides the obvious is, maybe go look at Google, but how are you, I mean, can you talk about how you're reacting to this?
Heath Clarke
Yes. So, part of our challenge was, this occurred during the fourth quarter and during the fourth quarter we had four variables. We had seasonality in our traffic, we had seasonality in the bid prices, we had a new website in the way of Yahoo/Bing. So, between those four things, it was very hard for us to benchmark what the new normal was. We had to wait till January 3 till people kind of got back from holidays and got back to the office and resumed their normal internet browsing.
From our standpoint, that's very predictable in terms of what happens there. And so, over the last four weeks, five weeks, what we've been doing is looking at our search engine marketing and optimizing for that off this new baseline of traffic working with Yahoo! and understanding what these tweaks are, what they are expected to be going forward, and perhaps things that they could do to mitigate the impact of this to the extent that it made sense historically.
So, in that process of optimizing mostly our SCM, we feel that we've gotten much better visibility, much more comfort about what this whole thing was, and we we'll continue to optimize going forward.
As I said, we don’t kind – to kind of back-up and say, hey, for a Yahoo/Bing perspective, why did they do all of this. Remember, what they are trying to do is create an alternative marketplace for Google advertisers in small businesses and large businesses to spend online on a pay per click basis. We think that that promise is very real, and we do anticipate that we’ll be able to benefit in that as that occurs, probably in the second half. Maybe, it’ll be a little bit sooner, but we are not factoring any increases, but we do think those increases will occur. It’s natural that as more advertisers switch their ads on Yahoo/Bing and then begin to experience the traffic and the quality of that traffic that they will shift spend, and that will directly help us monetize it, to the extent that we get any kind of increase in revenues per click, that hits our top line, and it drops straight to our bottom line.
So, we think it makes sense. We understand why they tweaked some of the way in which they implement their quality scoring. We think the silver lining there is a lot of smaller, pure arbitrage businesses tend to go away. That will reduce our cost of acquiring traffic in the marketplace and ultimately yield higher monetization for us. So, those are – to give you some sense of (inaudible) we are talking with other search providers, or at least ad providers. I won’t name names but we are talking to them all, and we’ll continue to do that because it’s just prudent for us to continue that dialogue.
Ken Cragun
And Jon, this is Ken. Another thing that we looked at as we were putting together our 2011 plan is that a year ago, Q4 of ’09, we were also at about $16 million in revenue and were profitable. So, we need to get our costs, our staffing, level of contractors, some discretionary marketing spend, some other costs, a little bit more in line with the lower revenue, but still have adequate team here for the growth that we do expect during 2011.
Jon Hickman – MDB Capital
So, Heath, what happened to the 20% to 30% that you used to get that you are not getting now, is Bing getting that?
Heath Clarke
The 20% to 30% higher revenue per clicks, no. As we understand it, to give you an example, if an advertiser is paying $1 per click, if that listing would come through to Local.com and a click through occurs, we would receive our revenue share of that dollar per click, whether our quality score is 8, 9 or 10, and assume for the moment our quality score is eight for the sake of this example, we are not stating that our quality score is eight.
Assume for a moment that it was eight though, that $1 dollar click bid when that comes through to Local.com, if we are scoring an eight that represents $0.80. In other words, that advertiser would only be charged $0.80 for that click. So, again, as we understand it, Bing and Yahoo! are not getting the other $0.20. It's actually not materializing at all. So, net-net, the advertiser is actually getting more traffic for the same price.
Jon Hickman – MDB Capital
So, they have made their traffic cheaper?
Heath Clarke
They have effectively, yes. The average revenue per click in that scenario would be $0.80 instead of a dollar. So, yes, they suppressed the bid prices, but again, if you look at that and take a long-term outlook, even a short-term outlook, you’d say, well, if an advertiser is happy with that, he's going to increase his spend and shift more dollars across that marketplace. So, let me give you another scenario. Let’s say that $1 bid, although they are only paying at $0.80 to a site that scores eight in their quality scoring system, that bid goes to $1.20 and suddenly you are generating $0.96 again, which is almost on par with what you were generating before this.
So, it doesn’t take a lot of bid increase to kind of get back to the old normal, and we think that those things will happen over time. If you recall, when we launched Local.com through to the fourth quarter – which is in fourth quarter – third quarter 2005, through to the fourth quarter of 2008, average revenue per click increased every month except for one month. So, it's actually more unusual for RPCs to stay flat, certainly they've stayed flat or have been choppy throughout the recession, but as we come out of that number one, and as this marketplace delivers on its promise of an alternative market for advertisers online, there is nothing but margin expansion available to us, and we feel very optimistic that that will be the case, we are just not forecasting it for now.
Jon Hickman – MDB Capital
Okay, thanks.
Heath Clarke
All right. Thanks, Jon.
Operator
At this time, I am showing no further questions in queue. I would like to turn the call back to Mr. Ken Cragun for any closing remarks.
Ken Cragun
Thank you for being on the call today, and I’d now like to turn the call back over to David for our final disclosures.
David Castle
This conference call contains certain forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933, and Section 21-E of the Securities Act of 1934. Words or expressions such as 'anticipate,' 'believe,' 'estimate,' 'plans,' 'expect,' 'intends,' 'projects,' 'forecast,' 'potential,' 'feel,' and similar expressions and phrases, are intended to identify such forward-looking statements.
Any forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including but not limited to, Yahoo/Bing paying less RPC and revenues to us for our search results, our ability to adapt our business following the Yahoo/Bing integration or to improve our RPCs and revenues following that integration, our ability to monetize the Local.com domain, including at a profit, our ability to retain a monetization partner for the Local.com domain and other web properties under our management that allows us to operate profitably, our ability to incorporate our local-search technologies, our ability to market the Local.com domain as a destination for consumers seeking local-search results, our ability to grow our business by enhancing our local-search services, including through businesses we acquire, the future performance of our OCTANE360 business, the integration and future performance of the iTwango social buying business, the possibility that the information and estimates used to predict anticipated revenues and expenses associated with the businesses we acquire are not accurate, difficulties executing integration strategies or achieving planned synergies, the possibility that integration costs and go-forward costs associated with the business we acquire will be higher than anticipated, our ability to successfully expand our sales channels for new and existing products and services, our ability to increase the number of businesses that purchase our subscription advertising and other business products, our ability to expand our advertising and distribution networks, our ability to integrate and effectively utilize our acquisitions' technology, our ability to develop our products and sales, marketing, finance and administrative functions, successfully integrate our expanded infrastructure, as well as our dependence on major advertisers, competitive factors, and pricing pressures, changes in legal and regulatory requirements, and general economic conditions.
Any forward-looking statements reflect our current views with respect to future events and are subject to these and other risks, uncertainties, and assumptions related to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this paragraph. Unless otherwise stated, all site traffic and usage statistics are from third-party service providers engaged by the company.
Our Annual Report on Form 10-K/A, subsequent quarterly reports on Form 10-Q and Form10-Q/A, recent current reports on Form 8-K and Form8-K/A, and other Securities and Exchange Commission filings discuss the foregoing risks, as well as other important risk factors that could contribute to such differences or otherwise affect our business, results of operations, and financial condition. The forward-looking statements made in this conference call speak only as of the date they are made. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. This concludes our call for today. Thank you for your interest in Local.com.
Operator
Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.
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