Local Online Ad Sector Filled with Challenges, Promise in 2008

The local Web ad terrain is nowhere near smooth. Yet 2007 brought new ad offerings for local businesses, recognition of the Web’s viability among more small advertisers, and a realization that partnering with old enemies might be the only way to survive the road ahead.

“It remains a very hard market,” said Greg Sterling, principal analyst of Sterling Market Intelligence. Both advertisers and consumers have a paralyzing array of local online media to choose from.

In June, Borrell Associates estimated local advertisers will spend $7.5 billion on the Web in 2007, up over 31 percent from 2006. Next year’s outlook is even brighter. The local media research firm projects a 48 percent increase in local online ad spending in 2008 to $12.6 billion. Local search and video ads will be major drivers of that spending, according to Borrell.

Not only have online directories firms and city guide publishers offered search engine marketing services to ad clients, they began exploring local online video ad models this year. Both IAC/InterActiveCorp’s local business review site Citysearch and Idearc Media’s Internet yellow pages (IYP) provider Superpages.com introduced custom video for local advertisers in ’07.

However, publishers have yet to determine which video offerings will appeal to local advertisers, and how best to sell them. Selling Web video ads is also a struggle for some traditional media outlets, according to Peter Krasilovsky, principal of local media consulting firm Krasilovsky Consulting and program director, Marketplaces for The Kelsey Group. He told ClickZ News he’s heard mixed reports suggesting some local sales teams aren’t doing a good job of selling video advertising.

To be sure, traditional media outfits like newspapers and TV sites still need help selling online display ads to local advertisers. That could simply be because online ad novices like small local advertisers tend to gravitate first towards search text ads, online classifieds, IYP ads, or other performance-based advertising, said Shawn Riegsecker, president of Centro, a media services and technology company that facilitates ad buys on local sites.

“Out of the gates, the first spending people do on the Web is pay-for-performance and search marketing,” said Riegsecker. “Local display is still probably four years away,” he continued, adding that small local businesses “have to invest in a Web site in order to really do display advertising.”

Riegsecker expected local ad revenues from regional businesses such as supermarkets, banks, hospitals and tire dealer chains to “really take off in 2008.” And, while realtors and auto dealers have been big online local advertisers for years, he predicts a boost in local Web ad spending by retailers next year.

“They’ve been testing for the last five years, and this is the first year retail will be big,” said Riegsecker, who believes new metrics and measurements for proving return on investment and offline conversions to retailers have contributed to their increased interest in online advertising.

Krasilovsky agreed enhanced reporting offerings have helped local advertisers recognize the value of the Web, but IYPs and pure-plays like Google are the ones offering them. “In 2008, if local ad channels are not providing these comprehensive reports, they’re going to be out of the picture by the end of the year,” he predicted.

This year, media outlets continued forging partnerships in the hopes of harvesting more national ad dollars for their local sites. Yahoo’s expanding alignments with newspapers grabbed attention throughout the year; although while some believe the relationships could help the struggling paper publishers collect more national online ad dollars, complete implementation and integration is a ways off. “There’s a lot of work to be done,” said Riegsecker.

Despite their woes, newspaper sites this past year exhibited a willingness to innovate. Some enabled social features to build ad inventory, and others began reeducating sales forces to better navigate the digital media map.

Just as newspaper sites have aligned with longtime competitor Yahoo, local Web radio and TV networks MediaSpan and Broadcast Interactive Media also partnered this year in the hopes of garnering more national ad dollars.

Regardless of the challenges even well-branded media firms face, startups flock to the local media space hoping to cash in on the inevitable flow of marketing dollars from millions of small and medium businesses that have yet to hit the Web.

“What most of these local sites are really angling for is some sort of acquisition,” said Sterling. Local search and reviews network Insider Pages managed to do just that this year, getting scooped up by Citysearch this year.

However, while consumer demand and venture capitalist interest is high, “There seems to be insufficient patience among investors to allow local sites to grow,” he added, noting long-term foresight is crucial for success in the local media market.

Local shopping deals site Judy’s Book suffered just such a fate this year, announcing in October its decision to cut its full-time workforce and seek a buyer. Local community site network Backfence also locked its gates this year.

There will be more failures in the coming year in local, Sterling prognosticated. “As the Web becomes a noisier and noisier place, the value of brand becomes more and more significant,” he said. “It’s hard for little startups unless they offer something really unique to build audiences.”

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