Study: Mostly National Advertisers Will Buy Local Ads

JupiterResearch reports that despite heavy investments in online classifieds and local search, online advertising will remain a national ad medium for the foreseeable future.

While yellow pages, newspapers and radio each receive more than three-quarters of ad revenue from local advertising, online advertising generates less than a third if its revenue from local ads, the JupiterResearch report states. (JupiterResearch shares a parent company with this publication.)

“The challenge of local search isn’t new. Verizon has about 100,000 online advertisers, which is on par with the U.S. advertisers of Overture and Google,” said Niki Scevak, an analyst at JupiterResearch. “What’s new is the product innovation in the area, which is quite exciting. As these new products are released, and as consumer usage builds, then it will become interesting from an advertiser’s point of view.”

The local advertising market is still in a stage of product innovation, the first stage of market development, Scevak said. The next stage is consumer uptake, followed by advertiser uptake after that. “There are certainly some exciting things being developed, but in terms of advertising dollars that the medium will attract, that’s 3 to 5 years out,” he said.

That does not mean that advertisers should avoid local advertising, since much of the inventory can be had at very affordable prices, he said. While a common belief is that local advertising will be led by small service-based businesses, that’s not the case yet, according to Scevak.

“In the next 18 to 24 months, we see national advertisers targeting locally rather than local pizza shops advertising online. Companies like Google and Yahoo are launching new options to attract them, but the shorter-term growth will be driven by national advertisers targeting locally,” he said.

JupiterResearch also found that local online advertising will grow 28 percent in 2004, from $1.9 billion in 2003 to $2.4 billion this year. It is expected to reach $4.9 billion in 2009. Local advertising’s share of total online ad spend is not expected to rise much beyond its current 29 percent mark.

Classifieds dominate local online advertising, followed by local search and display advertising. While local search has been getting attention from search giants like Google, Yahoo and Ask Jeeves, JupiterResearch predicts that it will fail to keep pace with overall online ad spending. Locally-targeted display ads, which currently have a negligible impact on local ad spending, will grow in importance, according to the report.

The researchers found, not surprisingly, that the most accurate way to determine a user’s location is to ask. Targeting by content — such as assuming that local users read local news — is less accurate, but still a popular method. It also determined that while the technology for Internet Protocol (IP) mapping, which determines where a user’s IP address is based, has improved dramatically, it is rarely used by advertisers. The technology will improve once advertisers begin to increase the demand for local advertising, according to Scevak.

“The scale of targeted online advertising campaigns has been small to date. As the scale increases, so does the incentive to spend more on targeting technology,” Scevak said.