Local Internet Advertising Continues to Grow

David H. Martin
September 1, 2008
COLUMN : Integrated Marketing | Sales & Marketing

It's no secret that small and large businesses are shifting marketing resources from print to online activities that can add value beyond lead generation. Local search marketing, including pay-per-click advertising on search engines, is the leading interactive medium for retailers and dealers. Growth in revenues at newspaper and local television station Web sites indicates many companies are finding some success there also.

Local internet advertising is expected to increase 50 percent in 2008 to $13.1 billion as small and medium businesses facing a faltering economy turn to less expensive options for reaching consumers, according to a new study. Rather than buying media packages that bundle online with traditional outlets such as print and broadcast, the 2008 Borrell Associates report on local Web site revenue found that local advertisers are increasingly shifting dollars to the internet only.

"What happens in a recession is advertisers are forced to make more economical decisions about how to spend marketing dollars," says Gordon Borrell, the firm's CEO. Pay-per-click local advertising is cheaper than other media and seems to work, he adds.

While Borrell forecasts local online ad spending will grow another 40 percent to $18.2 billion in 2009, he says the category will gradually slow down and level off at about $23 billion by 2012. That current boom has especially benefited Internet-focused players such as Google, Yahoo, and Local.com, with much of the growth driven by search campaigns and other direct marketing efforts online.

Overall, stand-alone internet companies accounted for 57.3 percent of local online ad dollars, followed by newspapers (24.6 percent), directories (7.8 percent) and TV stations (6.9 percent). The online versions of local Yellow Pages directories have also made gains even as advertisers continue to abandon print listings.

Pricing helps explain the exodus to online. The Borrell study estimates internet costs per thousand at $3.65--lowest of all media--compared to $9.29 for Yellow Pages print ads. Unfortunately for local directory publishers, the online gains won't be enough to offset the nearly 40 percent drop projected for Yellow Pages print revenue in the next four years.

Newspapers continue to target the Web even as their share of local online ad spending has dwindled to 24.6 percent from 44.1 percent in the last four years. For the first time, large newspaper sites drew more than half their revenue from non-print advertisers, suggesting the online operations are building a broader base of customers from which to generate new income streams.

The Borrell report also found almost all newspaper sites are also operating at a profit. One company surveyed, for example--with $400 million in total revenue--was generating $11 million in online sales at a 65 percent profit.

With local TV stations doubling their Internet-only sales forces in 2007, the firm expects stations' online ad sales to exceed $1 billion this year. TV Web revenues increased 72 percent in 2007 to $772 million, with the average for large market stations passing the $1 million mark for the first time.

The growth in local internet advertising reflects the fact that marketers see more and more people abandon the phone book and seek information online. Mobile devices, like cell phones and PDAs, can now display ads. Yellowbook.com has just launched video ads. Continuous innovations will make local search results even more powerful. Ads on blogs found through social search sites will enrich the mix. To make certain that your business is found when relevant local searches are made, you must keep up with what's going on. Then, as local search evolves, your online promotion efforts can evolve with it. 

David H. Martin is president of Lenzi Martin Marketing of Oak Park, Ill., an integrated marketing services firm, blending old media with new. He was previously director of marketing for two window manufacturers and can be reached at 708/848-8404 or www.lenzimartin.com.