The Local Online Advertising Landscape

Despite what seems to be furious activity, the amount spent by local advertisers on online media (including mobile) has grown only mildly in the past three years. It experienced a burst of activity five years ago as marketers turned to less expensive ways to advertise themselves, but then slowed down a bit as the market contracted.

What happened wasn't a loss of luster but more of a shakeout of websites that just couldn't survive the intense competition. One example was Business.com, which yellow pages company Dex One (formerly Donnelly) bought for $347 million four years ago. Dex decided last year to phase out the standalone site and incorporate it with its directory sites. There were scores of other examples, from the shuttering of hyperlocal sites by big local companies like The New York Times (TheLocal.com) and The Washington Post (Loudonextra.com), to smaller local endeavors like the San Diego News Network and little local dreams like entertainment site BendNights.com in Oregon. Craigslist decided to stop taking "adult services" ads in 19 cities late last year, foregoing an estimated $25 million annually in local prostitution advertising.* (*source: AIM Group, Oct. 2010)

Overall, local advertising tallied up to $90.4 billion in 2010. Online media accounted for $13.5 billion, or 14.9% of all local ad spending. We are forecasting that to grow this year by 17% as the economy rebounds and mobile media fuels greater excitement at the local level. Without mobile advertising, "local online" (basically banners and search advertising served up on Web pages) would likely be flat for the foreseeable future, signaling the maturation of what is now a 15 - year - old medium and the emergence of a new one to steal the attention. By 2015, most forecasters agree, the majority of all "online" advertising will become untethered from desktops and delivered to mobile devices such as iPads, smart phones and GPS-enabled laptops.

That scenario underpins the belief that we are in for another stair-step incline in local businesses spending on interactive media. Most of it, we believe, will be peeled away from legacy media - primarily yellow page directories and direct mail.

As far as online advertising, projected expenditures continue to grow at record rates. Please note how automotive and real estate devote the biggest share of their budget to online advertising.

Top Online Advertising Categories

Leading advertising categories on the web continue to fall in line with the leading advertisers overall - general merchandise stores, auto dealers, banks, etc. All have turned to the web with some sort of internet presence complimentary to their overall marketing. Stations tend to rely heavily on automotive advertising, as might be expected, with auto accounting for 25% on TV web revenues.

Wide differences exist in the percentage of ad budgets devoted to online advertising. While TV sites rely on one of the heaviest online advertising categories - auto dealers - they are missing a big one, real estate. Like auto dealers, real estate agents spend more of their ad budgets online than in any other medium. That's because they are buying larger amounts of searchable space to list individual items of inventory rather than just buying branding messages. TV sites on average derive less than 1% of their total revenues from real estate.

Top U.S. Local Online Categories: Real Estate and Auto Devote Biggest Share of Budget

Moving to formats, two of the highest-growth local advertising categories are video and email. Although TV stations received 18% of their online revenues, or $255 million, from video streaming last year, local competition is breathing down their necks. Newspaper websites received roughly the same amount of online video advertising as TV stations last year and are poised to continue competing heavily. Many newspaper reporters and photographers are now equipped with video cameras and are providing video footage online. In fact, research by Brightcove and TubeMogul last year showed that newspapers actually surpassed broadcasters in the total number of minutes streamed in the third quarter of 2010, with 313 million minutes, compared to 290 million for broadcasters.

One of the most plausible explanations involves sports. Newspapers in large markets offer a great deal of statistics and other written content around local professional and college sports teams - more than the typical TV station - and fans have naturally made the transition from the printed newspaper to the newspaper's website to get those statistics. It's been easy for newspapers to ad a video component.

To see an example of how newspapers have eased into the video sports category, see The Philadelphia Inquirer's sports videos at http://www.philly.com/philly/sports/82985662.html . The provider, CineSport, backs up the newspaper's sports writers with professional videographers,  graphics, audio and editing and allows them to share videos across more than 75 networked sites, including 30 newspaper sites in major cities (the rest are radio and TV affiliates).

Another reason newspapers appear to be competing handily in video advertising is tied to help-wanted or "recruitment" advertising. Long a mainstay of the newspaper industry, recruitment advertising has shifted to the web. Newspapers are supplementing their online help-wanted advertisements with brief video ads describing employers. A typical online posting for a nursing position, for instance, offers a video message describing a professional environment, competitive pay, accreditation, and benefits offered by the hospital. Such videos are typically low-cost flash animations with voiceovers that cost the advertiser from $125 to $500 per week. An example can be seen at http://www.reelcentric.com/myadstream/?m=orl    .

The largest local spending categories for video advertising in 2010 were general merchandise stores, recruitment and automotive advertising. Of the $126 million spent in online video advertising by recruiters, 88% of it was a "local" buy. Two other categories where the local portion of the online video buy is high are government and political, both of which may be well suited for TV sites to capitalize on.

 (courtesy Borrell Associates Inc)