Will Hyper-Local Movement Help Internet Properties Reap Profits?

Business targeted to ZIP codes seems to be the latest strategy for online. Groupon’s (NASDAQ:GRPN) acquisition of Ditto.me, a newly launched localization app, became public on Tuesday, just one day after Pandora (NYSE:P) announced plans to recruit local businesses for advertisement revenue as the online radio tries to convert a growing user base into tangible profits.

Ditto.me is an Apple (NASDAQ:AAPL) iPhone app that lets users check into places or activities they intend to do in the future, turning the concept of Foursquare on its head. So instead of announcing what they’re currently doing, users can get recommendations on what they plan to do later. Ditto.me founder Jyri Engestrom earlier co-founded Jaiku, a micro-messaging service bought by Google (NASDAQ:GOOG) in 2007.

Groupon will not use the app in its current avatar — in fact, Ditto.me announced it will close its service come April 30 — but will instead collaborate with the app team on developing something entirely new. The new product will utilize Groupon and Ditto.me’s common principle of providing localized services.

Meanwhile, Pandora has been working on building a new corporate strategy that involves tapping into local businesses with advertising budgets under $20,000 a month. The Internet radio, in its attempts to compete with terrestrial broadcasters for a share of radio’s $17 billion ad market, has been pitching to advertisers its technology that locates consumers by age, sex, and ZIP codes.

“A dollar spent on Pandora is better than a dollar spent on terrestrial radio,” Pandora founder Tim Westergren told local advertisers at a recent event in New York.

Pandora now has 125 million registered users and earns almost $275 million in revenue, largely through advertising. However, it spends more than 54 percent of that on music licensing fees, and is desperately looking to finally turn an annual profit and rescue its declining shares. So it has decided to go local, and has already run 400 local advertising campaigns across the country this year. Among the businesses it is targeting are car dealerships and political campaigns.

And it seems Pandora may have finally found the right approach to monetizing its popular service. According to research firm eMarketer, ad revenue for online radio is expected to rise from $900 million this year to $1.5 billion in 2016, but the share of over-the-air radio such as Clear Channel and CBS Radio (NYSE:CBS) will grow only by around 4 percent, to $16.5 billion, over the same time.