Last week, Chicago’s Loyola University hosted Block by Block 2010; an invitation-only gathering of indie website owners, bloggers and online news hounds. They came to talk hyper-local, how to save community news and possibly make a buck doing it. Following along via video stream and tweets, I had to double check the date on my calendar.

Unless I’m imagining things, the topics and concerns being discussed seemed to be essentially the same as they were in 2007. Geez. Anybody wonder why the hyper-local revenue needle has barely moved over the past 3 years? This uncomfortable issue is the 800 lb gorilla in the room and is why every local, online news site is vulnerable to getting steamrolled.

The summit was hosted by a bevy of smart editorial & academic folk. Yet, if cracking the business model code is challenge #1, we wondered why a new biz-dev exec with local sales chops wasn’t on the steering committee. Maybe a sales pro to moderate the sales-focused panel? A critical error of many online news conferences is assuming this problem can be solved from the newsroom. It can’t. This begs the question: is the phrase entrepreneurial journalism an oxymoron?

Early during the panel session devoted to sales, attendees enjoyed a pop quiz. “Who are your customers?” Many squirmed hearing the correct answer of ‘advertisers, not readers’. Funny how some of those audience members forget how Newspapers are actually run, and how their journalism has always been subsidized by advertising and other non-news monetization.

Pegasus News pioneer Mike Orren was a wise choice as a sales session panelist, and has the scars to prove it. The Dallas based hyper-local platform & strategy he developed then sold, is always one to watch.

Unfortunately we had to witness business savvy publishers like Sacramento Press‘ Ben Ilfeld, and Howard Owens of TheBatavian being relegated to audience status during the ‘sales’ session. That little oversight did make me throw up in my mouth a little. Those two could have shared reams of real world examples & and sales case-studies all day long.

Special shout-out to those who graciously shared: “advertising is evil” and my personal favorite: “I’d rather chew on broken glass than sell an ad”. What nice, encouraging words to say in front of financially strapped bloggers. Not like they need more, but this kind of public airing of blogosphere dirty laundry only provides additional confidence to the new local competitors of Patch, Reach Local, DataSphere and Groupon.

Pure-plays like Patch love to see paralysis and the regular pissing and moaning from local news orgs. Intellectual theorizing and to-do list creation from the incumbents only provides Patch more time to marshal small armies of sellers to get in front of every mom and pop business in sight. Since small business owners are the financial life-blood of local news orgs, close relationships with them should be viewed as the ultimate end game for all for-profit news efforts.

It did occur to me, that if Patch execs were watching, they could be thinking: ‘sweet, these poor souls have no idea we could steamroll them if we wanted’. Surprisingly, Patch was rarely brought up and when it was, summarily dismissed. Instead of trying to understanding the Patch business strategy and how to compete, they were immediately described as a drive-thru experience with little chance of being a dominant news org.

Dismissing Patch is death defying puffery from those who can’t imagine losing control of local info & advertiser streams. Imagine a professional business not wanting to understand a fast moving, well funded competitor? Indeed, it speaks volumes to the ‘smarter than thou’ and academic ‘class project’ vibe of some hyper-local efforts.

Love em or hate em, Patch is one of the more potent threats to local media to date. Will they succeed? Who knows? But the one thing they will certainly do is inflict pain on the local media incumbents, forcing some to eventually throw in the towel. Patch could easily play a waiting game similar to when a Wal-Mart sells items at a loss in order to vaporize the small shop owner.

AOL /Patch’s; Tim Armstrong, recently made a TV appearance on CNBC. Tim touched on his general strategy with Patch. On the Business Insider site, reader comments slammed Tim. “Armstrong has no clue” on Aug 17, 1:24 PM said:  “do you really think local media outlets are going to let you come to their town where they employ professional journalists and let your rag tag bloggers take-over?”

We think that answer is yes if revenue doesn’t become job #1 with local website operators. As the ancient warrior; Sun Szu, explains in the ‘Art of War’: know thy enemy…

…and as I say: Your cool site sucks cuz it can’t make money, and it scales like shit. Now take control of that steamroller before you get flattened.