2008 Outlook: No Sign of a Cooldown in Local Online Ads

Bolstered by the popularity of search, directory and inexpensive video, local online advertising should grow by about 50 percent and become a nearly $13 billion industry by the end of next year, according to a new study.

In its “2008 Outlook: Local Online Advertising” report, Portsmouth, Va.-based Borrell Associates said the level of local businesses online advertising will far outpace earlier expectations that assumed local companies would, by now, have retreated a bit from the wholehearted embrace they gave online ads in recent years.

“About a year ago, we were thinking 2008 would see 20 to 25 percent growth,” said Borrell Associates CEO Gordon Borrell. “Now we are saying this thing is not slowing down. It’s erupting again. Something very dramatic is happening that has gone beyond anything anybody expected in terms of Internet advertising.”

Meanwhile, traditional media companies will continue to find themselves less capable of attracting local advertisers to their online efforts as Internet savvy companies, such as Google, prosper, said Borrell. Gannett’s Internet ad revenue, for instance, grew a slim 7.5 percent during the first nine months of 2007, a period when the local online ad market grew at more than five times that rate, according to the report.

“The big thing is this whole idea of convergence, to which a lot of media companies, traditional media companies, have glommed onto in the past couple of years — the seductive belief that they can make more money by saddling their existing content and sales reps with this multi-platform task — unfortunately, there’s no history that it works,” said Borrell. “The numbers now show that a print representative can’t be effective selling online advertising.”

Their reliance on established brands, some built over many decades, has done little for traditional media companies hoping to attract local business advertising, according to Borrell. A neighborhood company, he said, is more likely to buy ads to run on Google or Yellowpages.com than on a newspaper’s Web page.

The study found the local media companies most successful at drawing revenue from ad sales are the ones that hire salespersons trained specifically for Internet advertising. And companies are catching on, if Borrell’s numbers are accurate.

“We estimate that the online-only sales force for local media Web sites grew by nearly 50 percent in 2007,” says the report. Budgets for 2008 reveal this online-specific sales force will grow another 30 percent to 40 percent “as Web operators try to drive sales with people they can actually fire for not producing results,” it adds.

Borrell Associates forecasts that large pure-play Internet entities, such as Yahoo and Time Warner’s AOL, will turn to local ad sales to bolster flattening sales of national ads. This trend began earlier this year with affiliations hammered out between Web players, including Google and Yahoo, and traditional media companies.

“Formerly sworn enemies are seeing the wisdom of combining their strengths to increase revenues for both sides,” says the Borrell report. Nevertheless, the report also warns that “the jury remains out” regarding the success of Yahoo’s ad deal with nearly 400 newspapers.

It cites as an “interesting phenomenon” the fact that Internet companies with no local presence “pulled ahead” of local, traditional media in 2007 in terms of capturing local online advertising. Newspapers and print yellow page publishers lost 19.6 percent of the local ad share since 2004, according to the report.

Based on the amount of money spent on local advertising, per location, job recruitment remains on top of the list, says the report. It is followed by hospitals, dot-com businesses, auto marketing, and credit/mortgage services.

However, the researchers believe recruitment — the first category of local advertising to make a widespread move from offline to online advertising — is the category “facing the greatest potential for saturation.”

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