Backfence was a well-funded, well-led attempt to create a network of local websites with a novel approach to delivering news — by the neighbors for the neighbors, rather than by professional journalists. Over the last two years Backfence used $3 million in venture capital to create a network of 13 local sites in affluent communities. In the San Francisco Bay Area, it took over the failed Bayosphere site started by citizen journalism evangelist Dan Gillmor.

On July 5 Backfence shut down all 13 sites sites, according to Paid Content, which pointed to an article in American Journalism Review that shed some light on the reasons for the local site’s downfall.

According to that AJR article (freelanced by Washington Post media reporter Paul Farhi) Backfence “had two basic structural problems: getting the word out and getting the money in.”

Getting the word out meant attracting viewers & contributors. Apparently word of mouth was insufficient to grow traffic. Farhi tells of the company’s principals “handing out flyers at civic events and speaking to community groups.” Farhi makes Backfence’s audience-building efforts sound like a failed political campaign.

Getting the money in was a problem despite having as many as 400 advertisers on some of its 13 sites. But “some of the ads sold for as little as $15,” Farhi reports.

So what lessons can be learned other than this is hard. Very hard. And, as Farhi reports, only 10 of 141 local sites in a survey last year said they were breaking even or showing a profit.

Backfence cofounder Mark Potts, a former Washington Post online guru whose cachet had attracted the attention and cash a couple of years back said, keep costs rock-bottom (Backfence spent about $225,000 per site) and keep the sites clustered in a metropolitan or natural market area, so as to aspire to create the sort of local coverage that could create enough mass to attract regional and/or national advertisers.

Let me add one other idea that I gleaned out of the AJR piece: reverse publishing. That is, taking content from the web site and then printing and distributing the material. Price out say 1,000 copies of an 11×14 flyer, printed front and back. Maybe sell one or two coupon adds to pay for the piece, or foot the bill yourself and reward your best sponsor with the extra exposure. Find some good dropoffs — at coffee shops or well-trafficked local stores. If it works it could become a habitual thing. Of course that could mean bumping into any local weeklies but the point is to get attention to a web site — and unless some viral campaign gets your neighbors to flock to the site, you are going to have to go to them one way or another. Why not sticking stuff under their nose or hanging it on doorknobs.

Finally, I came across a blog posting written in January 2007 by Greg Sterling a search consultant familiar with Backfence. In that posting, we learn how well Backfence was able to do editorially — and yet still fail economically. Sterling reprinted portions of an email from the business cofounder of Backfence, Susan DeFife in which she said Backfence:

• built 13 sites in three metropolitan areas
• engaged more than 10% of the people living in those communities on a monthly basis
• acquired registered users topping 2% of the total population in our mature communities,
• successfully proved the model of selling high CPM advertising by selling over 550 ads to local merchants and businesses since April of this year.

But that wasn’t enough. Sobering.

Postscript: The AJR article also surveyed newspaper-led hyperlocal sites, such as the Chicago Tribune offshoot called Chicagoland Publishing led by Ted Biedron; and it mentioned Baristanet, a s0-far successful New Jersey site started by a novelist and a newspaper editor, who grossed $60,000 at the time of writing — not enough for anyone to quit a day job. Mark this article for future reading.

Sterling’s post included this note about the local site Judy’s Books. He wrote:

“Judy’s Book is a related case. CEO Andy Sack (who’s still there) and his team themselves decided that it was too challenging to continue to try and sell ads to local businesses. Judy’s Book still has local content but monetization is now built around deals and coupons . . . it’s much harder to monetize local consumer destinations with direct sales than people think when they start out. That’s not to say building a great consumer destination is easy, but in many respects that’s the easier part.”