Local Ad Report: Growth in Search and Directories as Display Declines

Following in the footsteps of the national online ad market, local online ad market growth is expected to slow, and eventually flatten in the next few years. Local media research outfit Borrell Associates projects that local online ad revenues will grow 12 percent this year over last, and just 5 percent next year. Spending on local display will continue its decline, as digital offerings such as search, directories, and promotions increase.

Local interactive ad revenue is poised to reach $14.2 billion this year and $14.9 billion in 2010. The sector will perk up a bit to $15.9 billion, a growth rate of 7 percent, by 2011, says Borrell in its new “2010 Outlook: Local Interactive Advertising” report, published yesterday. The firm chalks up the impending slowdown to the poor economy and market saturation. It should “peak at $16.4 billion” in 2013, according to the firm.

Next year, as local banner ad sales fall 10 percent, the research company expects offerings like directory ads, paid search, e-mail, and streaming video to do well. Firms selling directory listings and search marketing services, such as Yodle, Yellowbook.com, and Local.com, have continued growing this year. Borrell pegs first half 2009 local online growth rates for the companies at 210 percent, 92 percent, and 34 percent, respectively.

In addition, Borrell finds the largest local ad sellers — AT&T Yellowpages.com, Autotrader.com, CitySearch, CareerBuilder.com, and Monster.com — deal primarily in products like directory ads.

While display advertising is falling out of favor on national and local levels, Borrell Associates CEO Gordon Borrell worries newspaper firms could be clinging to display advertising misguidedly. Because some paper publishers have reported high revenues derived through display ad relationships with Yahoo, they may be missing out on high growth areas of directories, search, e-mail, and video.

If online-only sales reps are not selling search, directory ads and the like, he said, “They may just find themselves treading water.”

Overall online ad spending is also in decline. A new report from Interactive Advertising Bureau and PricewaterhouseCoopers finds all interactive ad expenditures fell around 5 percent during the first half of the year. In that time, advertisers spent $10.9 billion on online ads. Online advertisers spent about $12 billion in the final two quarters of 2008, according to the IAB.

Borrell states in its new report that local advertisers account for around 14 percent of online media revenues. The researchers expect the local share of online ad spending to rise to 16 percent by 2013.

Alongside search and directories, the company predicts promotional marketing products like coupons and contests will grow. Borrell forecasts spending on local online promotions to double from $2.4 billion in 2010 to $5 billion in 2014. The company does not include promotions expenditures in its local online ad revenue tally.

Because most local media firms and services do not offer promotions-related products, Borrell suggested, “Promotions and the amount that advertisers are putting into things like [coupons, contests, etc.] seems to be sucking at least the growth out of local advertising.”

As for local mobile advertising, its time has yet to come, according to the report, which predicts in 2010 only around $500 million, or 20 percent of all mobile advertising, will be spent by local advertisers.

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