Local Small Business Interactive Ad Market Shows Promise

By the end of 2013, local advertising expenditures by small-to-medium U.S. businesses will grow by almost 34 percent from 2008 levels. Those companies will spend nearly 70 percent of their interactive ad budgets on paid search and video, according to a new Borrell Associates report. Given numbers like that, many local media companies are looking at SMBs as a way to stop the bleeding they’re now suffering due to ad-spending cutbacks among larger advertisers.

The “Main Street Goes Interactive” report says there will be a nearly 275 percent increase in SMB spending on streaming audio and video, almost 140 percent increase on e-mail and direct ad formats, nearly 35 percent increase in paid search spending, and an 8 percent increase in standard display ads. According to the report, there are more than 14.6 million SMBs in the U.S.

Even though the research firm cautions smaller advertiser accounts can be labor-intensive, Borrell stresses that when approached systematically and thoughtfully, the local SMB market has potential. “First you have to define what these things are,” said Borrell VP of Research Kip Cassino. “One size doesn’t fit all. The definition of SMB changes according to the kind of industry it’s in.” For example, a department store with 200 employees is considered small, but a law firm with the same number of staffers is “a damn big law firm,” Cassino noted.

Some SMBs, particularly real estate firms and computer-service stores, are spending between 30 percent and 45 percent of their advertising budgets on Web advertising, according to Borrell Associates CEO Gordon Borrell. However, the typical SMB is spending only about 11 percent. “Still, this 11 percent was just 4 percent a few years ago, so they’re adjusting the dials,” Borrell said.

Between now and 2013, spending on standard format local ads is going to drop by over 78 percent, according to the report. The money will instead be channeled by SMBs to paid search and e-mail, interactive direct marketing and, especially, streaming audio and video.

Borrell’s report classifies SMBs in Stage 1 — with annual average sales of about $212,000 — or Stage 2 — with average sales of about $1.1 million. Most SMBs are in Stage 2, while Stage 1 companies tend to fail, according to the report.

“Stage 1 businesses, for the most part, are less sophisticated and knowledgeable about how to spend their ad budgets,” the report says. “Many tend to advertise more like their neighbors than their competitors.” The researchers found these bottom-rung companies “get little attention from local media companies.”

That could be explained by the fact that Stage 1 companies spent only about $235 each on local interactive advertising in 2008. The figure for Stage 2 companies was $684 in ’08; the total U.S. business unit average last year was $800, according to Borrell.

Many SMBs don’t differentiate between advertising and money spent on improving their Web sites. “Smaller businesses are viewing their own Web sites as advertising and diverting money from traditional media [towards their sites],” said Borrell. “This leaves traditional media, hell-bent on selling banners and online listings, at a loss because they’re generally not selling Web design, hosting, SEO, etc.”

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