Backfence.com Last week, Backfence's bubble deflated. So how DO you make a business out of local content?

Last week, Backfence (which runs a high-profile family of hyperlocal citizen-media sites) underwent a substantial retrenchment. Paid Content reported that CEO and co-founder Susan DeFife resigned, citing differences with the company's board of directors -- and also that 12 of 18 employees were laid off.

UPDATE JAN. 12: Mark Potts, an original co-founder of Backfence who recently returned to head the downsized company, strongly disputes the layoff figures reported by Paid Content and others. He declined to quantify the layoffs.

Ouch! This news has spawned much thoughtful discussion and interpretation. For instance, see the comment thread from this Local Onliner post.

Search Engine Watch noted: "This is an unfortunate setback, given the company's growth over the last 18 months from its original D.C. area community sites, to its west coast expansion and many Bay Area site launches (it now totals 13 sites in D.C., Chicago and Bay Area). ...Its apparent cash flow problems and layoffs could be telling, and a more sustainable hyperlocal strategy could be in an aggregation model like that of the newly launched Placeblogger. Time will tell if this is the case."

Yes indeed -- finding a sustainable way to financially support local news content is a thorny issue. Personally, I don't think conventional advertising can continue to shoulder most of that burden, in any media.

On that front, I agree with what fellow Tidbits contributor Tish Grier wrote on Jan. 7: "Perhaps some of Backfence's revenue trouble could be attributed to the reliance on a single, spotty advertising revenue stream rather than developing multiple revenue streams. ...One small bit of Internet hubris that I'm learning much about is [the assumption] that sufficient income for a project can be generated simply from advertising."

In my experience, community-based online media thrives when there's strong participation and collaboration. It's not enough just to read the news there, or even to publish your own stories there. And Backfence never really got the participation/engagement part down, as far as I could tell. Matthew Ingram's recent headline nailed the experience of most Backfence community sites: A back fence around a ghost town.

Engagement and participation opportunities are fundamental and crucial to community sites, whether the community is defined geographically or otherwise. I think this applies to any local news organization, as well as to independent gate-crashers to the news biz. Pramit Singh noted that to increase revenue, "...you will need more participation. Topix has built a great Forum service. Perhaps, local news sites may also try serving as an aggregator of local news and a host for topic forums. Even a Link aggregator such as Digg has great comment section."

Need some specific how-to steps for supporting and growing local news operations, especially online? Tidbits contributor Steve Outing recently published in Editor & Publisher a great list of 10 action steps for publishers and editors of small newspapers.

...And I've got one tip to add to Steve's list: Offer mobile-friendly content with pay-per-call advertising. That's a sleeping giant for the local news/content market, I think. Give it a try. (If your news venue runs pay-per-call ads with mobile content, I'd love it if you could comment below or e-mail me with your experience.)

UPDATE 2: For more on Backfence, see Behind the Backfence Breakup, Jan. 11, by Matt Weir on NewAssignment.net