Report: Local Online Ad Spend to Rise 46 Percent in '05

Spending on local online advertising will total approximately $3.9 billion in 2005, a 46 percent increase over the $2.7 billion 2004 total, according to research conducted by Borrell Associates on 210 U.S. media markets.

Those growth figures are roughly double what researchers expected to measure for online local in 2005, said Gordon Borrell, president and chief executive of the Portsmouth, Virginia-based company. (The company measured a 28.7 percent increase in local ad spending online in 2004.)

“We’ve always viewed local advertisers as fairly conservative in that they don’t have that much to spend,” Borrell said. “Typically you expect them to funnel most of their ad spend into direct mail and yellow pages, with only a small percentage for online, but that is not the case at all this year. Local advertisers have started rushing toward this. Here they come.”

Daily newspapers remained the largest beneficiary of local Internet advertising, accounting for approximately 39 percent of the local total in 2004. Internet Yellow Pages, however, appears to have grown more sluggishly, perhaps as a result of paid search cannibalizing the market, the report speculated.

Leading spending categories included general merchandise stores, which accounted for 30.6 percent of all local ad spending online; credit and mortgage services; and healthcare.

The report also found that growth rates for local interactive spending varied widely market to market with little discernible pattern. Among the slowest growing markets in the country is the San Francisco-Oakland-San Jose area, which Borrell projects will increase 21 percent to $90 million in 2005. The fastest growing market in the country is Washington, D.C., which will increase its total local online ad spend by almost 70 percent, to reach $92 million in 2005, the report said.

Borrell cited three major factors behind the sudden upswing he expects in online local in 2005. First, he explained the boom as a natural result of Internet connectivity hitting “critical mass,” or upwards of 50 percent, in the U.S. at the end of 2003. Second, the modest 28.7 percent increase in local online ad spend in 2004 yielded better than expected lead generations and conversions last year. Finally, online media sellers have unleashed a deluge of campaigns targeting local businesses as the great untapped reserve for online advertising, Borrell said.

“With Monster rolling out its business model to target the small to medium-sized businesses in local markets, Google trying to roll its AdSense product out to local retailers, and everyone else competing with them, the phones of local advertisers are ringing off the hook with potential local marketing opportunities online,” Borrell said.

Borrell expects online local ad spend growth to increase at double the pace of overall interactive ad spend for 2005. Other recent projections for overall online ad spending in 2005 include Universal McCann’s prediction of 25 percent year-over-year interactive growth, and 30 percent growth predicted by Jack Myers.

The findings are based on sophisticated modeling that incorporates ad spend data from a variety of sources, including the Internal Revenue Service, Dun & Bradstreet, the Interactive Advertising Bureau, the Yellow Pages Association, the Radio Advertising Bureau, the Television Bureau of Advertising, the Newspaper Association of America, the Direct Marketing Association, as well as local online ad spend figures Borrell obtains directly from a pool of companies.