Happiness is Local Online Video, Says Kelsey Group

  |  June 26, 2008   |  Comments

Researcher predicts local online video ad revenue will grow at a compound annual growth rate of 168 percent through 2012.

After years of struggling to find a method of Internet advertising that not only works for advertisers but also is profitable for those selling the ads, it appears small-to-medium sized companies are finding the answer: online video.

That's the opinion of Matt Booth, SVP and program director for The Kelsey Group's Interactive Local Media practice. His analysis is based on the findings Kelsey's new U.S. Local Video Forecast, which predicts local online video ad revenue will grow at a compound annual growth rate of 168 percent through 2012.

The Kelsey Group, based in Princeton, N.J., believes local online video ad revenue will reach $1.5 billion in four years. It was at about $10.9 million last year, according to Kelsey, which also expects video ads to account for 11.6 percent of the online advertising budgets of small and medium-sized business by 2012.

"What's really interesting about this particular report is... finally there's an Internet ad product that some deployed sales forces can actually sell and make money on," said Booth. He noted that, while many businesses have been selling digital advertising for a long time, the margins have been ultra-slim for those doing the selling.

But with local online video, successful and relatively professional-looking ads can now be made and distributed at a fairly low cost.

"On the local end, some businesses are charging a couple thousand dollars a year for local video and their fulfillment costs are $500 or less," said Booth. "If a company with a deployed sales force that sends reps out to sell a product for $2,000 can make the product for $500, margins of that nature are really rare [in the online ad world].

The local video ads are selling because they are turning out to be effective, Booth noted. The Kelsey Group said its "User View" study conducted in March found that 62 percent of surveyed consumers said they saw an online video ad, up from 59 percent last year.

More importantly, the ads were resulting in action.

Of those who said they saw a local online video ad, 47.3 percent said they subsequently visited the advertiser's Web site, 19.1 percent asked for more information about the advertiser's product or services, 18.2 percent visited the advertiser's store to see the product and 16.9 percent made a purchase, according to Kelsey.

Booth said there's something special about local online video ads when it comes to viewer acceptance. "A lot of the national video ads are basically fairly intrusive to the user experience," he said. "But on the local end, the user experience is a little different. A lot of local videos are really like infomercials so the users are expecting to watch a video about the business."

Rather than be annoyed by an online video, prospective customers appreciate the clips. "They are kind of already set up to understand that they are getting an advertising message," said Booth. "The interests are aligned: The merchant wants someone to watch its commercial and the user wants to know more about the business."

The Kelsey Group cited "the general appeal of video and its simplicity compared with other forms of online advertising." Even small companies that shun Yellow Pages advertising are embracing online video, it noted.

The researchers believe "considerable opportunity" exists for Yellow Pages publishers that offer video and for video production companies that target SMBs.

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