If hyper-local citizen journalism were a sandbox, there would be no king. All of the kids would be purposefully small and scattered. There is nothing to run except the castle you build yourself.

But Backfence was always beefier than most of the children. In May 2005, when it launched, it was surrounded by substantial buzz partly in virtue of its two highly-respected co-founders, Susan DeFife and Mark Potts. Then it raised $3 million in October 2005 from Omidyar Network, SAS Investors, and other investors in the Washington area. Fast-forward to 2006 and there are 13 Backfence communities centered around three metropolitan areas (Chicago, Washington D.C. and San Francisco) and organized into a network.

On Jan. 5, the big kid took a big hit… and everyone in the sandbox took notice. It’s reported that about two-thirds of the Backfence managment staff has left, along with Defife.* DeFife sent this note to Greg Sterling at Screenwerk:

“I wanted to let you know that the management team (Amanda Graham, Bob Kelly) and I have left Backfence. […] Ultimately, we did not share the same strategic vision for the company as the Board of Directors.”

Potts has returned as the interim head of the site. (He had left the management team in late 2006.) “I was still on the board, so it wasn’t as if I had left,” Potts says. “It was an honor to be asked to come back. I am excited by the support of the investors and the board. Hopefully I’ll stay indefinitely. But it’s all happened in the last couple of days, so I don’t really know.”

There’s a lot of uncertainty in the Backfence downsizing story, but those who are watching—i.e. everyone in the citizen journalism community—have been drawing lessons from this past week already. Amy Gahran, co-founder of I, Reporter, a citizen journalism training site, believes the early success of Backfence—especially in fundraising—may have inevitably led to this downsizing.

“Backfence is unusual for a hyper-local citizen journalism site because they got all of that venture capital money up front,” she said, referring to the $3 million investors gave in 2005. “The vast majority of hyper-local sites are not going VC, and it’s a matter of scale. Venture capitalists need a large scale for their investment and they expect big returns. So it’s exciting Backfence got all of that money, but you’ve got to pay the piper. And citizen journalism is hard to build when you’re trying to make a living from it too. It could take years.”

Gahran also thinks that moving into so many areas may have hurt them. Hyper-local citizen journalism thrives on a much smaller scale (an idea Gahran got from Susan Mertin’s blog post about Backfence).

“Basically, getting all of that funding upfront really screwed up [Backfence’s] priorities,” Gahran said. “But now, they’re artificially back where they started, so I hope they can build it better.”

Still, Potts remains optimistic about the future: “We’re looking to expand, probably more where we are and then in other places.”

The Backfence developments have also spurred a larger discussion in the blogoshpere about whether hyper-local citizen journalism sites can sustain themselves with the traditional advertising model. Tish Grier, the editor of Corante Media Hub, wrote on her blog, The Constant Observer: “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.”

Yet in her e-mail to Sterling, Fife said advertising was going well and that Backfence had “successfully proved the model of selling high CPM advertising by selling over 550 ads to local merchants and businesses since April of this year.” Added Potts in our interview, “Advertising has started happening to support it. [Naysaying is] coming from people who haven’t tried it yet. We’re having a lot of success getting ads.”

Gahran’s take: “With Backfence they put a lot of their money and time into design, and it looks really nice. So I can see how conventional advertisers were drawn to it,” Gahran said. But they might not be getting the return they expected.

A solution, writes Gahran, might come from hyper-local sites moving to a “pay-per-call” ad system using mobile phones.

“It would be great for local advertisers, like pizza parlors, plumbers, and electricians, people who it wouldn’t make sense for to buy an ad in the newspaper […] But it would make sense for them to advertise in a venue where you can call right away. The mainstream still has no clue about this.”

But what about the content? Many bloggers remain unimpressed by what you read on the Backfence sites. MarketWatch blogger Frank Barnako wrote, “Even though I live 10 minutes from two communities Backfence “covers” I never looked at them. They are just too bland. Virtually nothing I’ve seen on them could not have run in the local weekly newspapers. So, why bother if it’s just more blah-blah-blah about why my group deserves these funds, whether we should have a stop light there, or what’s new at the library. Who cares? Better they should call it Blandfence.” Added Gahran, in our interview, “I haven’t been impressed with Backfence’s content and approach to community. Several bloggers—including Matthew Ingram, a technology writer for The Globe and Mail—have referred to the site as a “ghost town.”

But back at the fence, Potts maintains that the most important thing is that “the site is still up and running,” and he has already labeled the immediate future of the site “Backfence 2.0.” He explained the use of the term as best he could, considering how fast everything has been happening. “I don’t know yet. What I do know is that this site was built two years ago, and back then MySpace barely existed, there was no Flickr, and no YouTube. This change gives us the chance to build a lot of that stuff in. Some of it is already in place, but we’ll also partner up and build some of it ourselves,” Potts said. “We want to find more ways for users and advertisers to reach out and talk to one another.”

“That’s what we’ve always done and that’s what we’ll continue to do.”

Matt Weir is a student at Northwestern University’s Medill School of Journalism. He writes a media criticism blog for Medill and edits the news at Tinymixtapes.com, an online music magazine.

* Potts disputes this number, saying less than half the management staff have left. This note will be updated to reflect any new information NewAssignment.Net receives.