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The first rule of Valleywag: Never pitch Valleywag. But sometimes the temptation just proves too great. In response to a post about Google and Yelp's rivalry in local search, a MerchantCircle employee contacted us to tout the company's supposed leadership in the market, pitching the site for some Valleywag love. Well, here's some tough love. We've looked into MerchantCircle's business model .. and found nothing but self-love.

Here's the pitch:

Recently, you guys ran a piece comparing Google versus Yelp, and while Yelp gets a lot of 'cool' buzz, they only reach a few big cities and have not captured the practical, business side of the puzzle. MerchantCircle (one word) is about to announce tomorrow that we've passed 200,000 local small business owners signed-up. That number makes us the leader in a space that everyone is trying to get a piece of right now.

We have more merchants than Google, Yahoo Local, CitySearch, Insider Pages and any other local directory site you can think of.

Well, that's nice. Suspect, but nice. But then we started digging.

  • MerchantCircle might have businesses listed, but it has practically no users. Site traffic, according to, is a fraction of the nearest competitor's.
  • No wonder: It's theoretically possible to browse the directory of listings, but the MerchantCircle site itself is designed as a roach motel for merchants.
  • The boasted merchant listings are questionable. Many appear to be prepopulated from databases, or possibly "scraped" — copied wholesale — from other sites. Take this listing of San Francisco restaurants, for example: Most have little more than addresses.
  • MerchantCircle appears to be using automated systems to cold-call local merchants. Like Yelp, MerchantCircle touts user ratings as a reason for businesses to sign up for the site. But unlike Yelp, MerchantCircle isn't waiting for there to be any actual user reviews. For some time, MerchantCircle has been autodialing businesses in an effort to convince them that users may have left bad ratings about them on the site. Never mind that the reviews — and the users — may not exist in every case. For local businesses, which rely on the phone to attract customers and make sales, autodialing is a thousand times worse than email spam; wasting time with an automated system is the same, in their minds, as taking money from their pockets. Lying is just the icing on the cake.
  • MerchantCircle CEO Ben Smith promised to stop the autodialing — but it's continued. John Battelle, founder of the Federated Media online-ad network, contacted Smith about the practice in September 2006. Smith claimed "that he's on it." According to the comments businesses are still leaving on blog posts about MerchantCircle, the practice continues to this day.
  • The company is counting on search-engine optimization, or SEO — the art of tweaking websites to make them rank highly in search results — for traffic. So far, it's failed. But even if MerchantCircle's attempts at SEO worked, Google and the other search engines would rapidly catch on and banish MerchantCircle's pages from their indexes.

MerchantCircle's business model has evolved into a circle jerk: Rather than persuading actual users to visit its listings, MerchantCircle is styling itself as a social network for local businesses which link to each other's profiles on the site. But if you ran a local shop, would you rather raise your profile with the Chamber of Commerce, or get actual customers in the door? As with any such arrangement, this circle is likely to leave local businesses exhausted and unsatisfied.

Which raises the question, why are Valley notables giving this company a hand? Among the company's investors and advisors are Scale Venture Partners, Disney's Steamboat Ventures, Ron Conway of Angel Investors, Auren Hoffman of Rapleaf, and — ironically enough — Chas Edwards, a vice president at Federated Media. His boss, Battelle, must be so proud.