Classifieds Still King but Paid Search Looms Locally

Local advertising online is experiencing a boom this year, as the amount of money committed to the practice increased dramatically. That’s the conclusion of two separate studies released this week, one from JupiterResearch and the other from Borrell Associates.

According to JupiterResearch, online local advertising will reach $3.2 billion this year, a 26 percent increase from 2004. In the next five years, the local market will continue double-digit growth, with 11 percent gains, compounded annually, to take the market to $5.3 billion in 2010. Classified ads will continue to command most of those dollars — 70 percent, according to JupiterResearch.

“Outside of classifieds, local ad spending online remains relatively immature,” said David Card, VP and senior analyst at JupiterResearch. “For now, online publishers and networks will find better opportunities servicing national advertisers that are aiming at local audiences than they will servicing true local businesses.”

Local businesses may not know how to utilize online advertising, according to Card. “They’re going to have to go through the whole education process that multinational advertisers went through,” said Card. “It’s many years behind where current online advertising is.”

Card sees national players with local presences as the likely biggest spenders in local. “The low hanging fruit is for the [publisher” to call on corporate headquarters in Detroit rather than an individual car dealer,” said Card.

A second report from Borrell Associates places this year’s local online dollars at $4.1 billion. The figure includes projections for 211 cities and includes local paid search. In the next five years, Borrell Associates expects the market to swell to $8.6 billion, and account for just less than six percent of local ad spending.

But growth will not be realized across the board, the Borrell report says. “Not all markets will fare that well: We expect a dozen small markets to see declines, while many of the larger markets will see above-average growth,” the researchers write.

About one issue, Jupiter and Borrell disagree markedly. Borrell VP Colby Atwood estimates that classifieds comprise about 15 percent — not 70 percent, as Jupiter says — of all local advertising. “Newspapers are getting a big slice of a smaller slice of the [local” online pie,” Atwood told ClickZ News.

While traditional newspapers are still doing well in the local market, Borrell cautions that current sales practices may not serve them well as competition for local dollars heats up. Specifically, the report criticized the practice of bundling online ads as part of a package with offline units.

The hottest area in local is paid search, according to Borrell, though the report notes that most local site operators can’t offer the product.

“It’s going to be an uphill struggle for local sites to be very effective with local search,” said Atwood. “Part of the problem is that national sites can throw so much more money into features.”

Next year, search on a local level is expected to reach $906 million, a 161 percent increase, Borrell says. By 2010, spending in that category is forecast to account for almost half of all local advertising.

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