Local online advertising comes of age

It's now where the big growth in media is

By Heidi Dawley
Oct 17, 2006

When the ad economy began recovering several years ago, it was the surge in spending on the internet that most captured people's attention, as major national brands suddenly began flocking to the web, shedding their loyalties to traditional media.

Far less talked about was local online advertising, which had for so long lagged national as to be an afterthought.

Now, going forward, the big online story is local, and it will be told in big numbers. Growth in spending began accelerating near the end of 2004 as local advertisers, generally a cautious lot, began to test the medium and found it far more cost effective than traditional local media options.

That growth continues apace.

Borrell Associates, which tracks online ad spending, forecasts 21.8 percent local growth this year to $5.9 billion. It is forecasting 31.6 percent growth in 2007, to $7.7 billion in local online ad spending. And even then it will only be just past the halfway point, accounting for roughly 30 percent all online advertising. It will still have another 20 percent to grow to reach its proper share of the 50/50 local/national ratio of offline media.

“There is an inequity that they are playing catch up with,” says Gordon Borrell, CEO of Borrell Associates. “We are definitely in the early boom years of local online.”

Borrell believes that as things boom, the local online advertising world will subtly change in many ways as the internet begins to more closely resemble TV and as big category killers begin to thrive in the local markets.

The draw of the local online is two-fold: the opportunity to target far more effectively and the ability to track how one's ads are performing. And they come atop lower costs.

Media planners and buyers, responding to a recent poll by Media Life, echoed this thinking. When asked what the most appealing thing is about local online advertising, the largest share--some 48 percent--agreed with this statement: “Tight targeting. It allows me to find the audience I’m after.” The second-largest share, 17.4 percent, agreed with the statement: “Accountability. I like to see what I’m getting for my money, and local web advertising delivers.”

That ability to target online will become even more attractive as the quality of performance tracking continues to improve, says Matt Booth, vice president and program director of interactive local media at the Kelsey Group, a local media and analysis firm in Princeton, N.J.

“A long time ago, companies threw money at advertising and there was a saying: ‘I know that 50 percent of my advertising money is wasted, but I don’t know which half.'” As tracking technology improves, that wasted half will be trimmed and trimmed, making online even more attractive.

Another big boost in local online advertising will come with the rise of video ads. If the first internet decade was text and databases, the next will be truly multimedia, with the internet more closely resembling TV.

This will be especially so locally, where many advertisers have largely been priced out of television. Says Borrell: “On a local level there are loads and loads of local advertisers that would love to have video to sell their products."

No one medium will dominate video, either. Newspapers will certainly rush in--many already offer video news snippets--but it will also mean opportunities for local TV, which was generally late to the internet. Says David Hallerman, senior analyst for eMarketer: “Local TV will get more traffic and will gain some share back from newspapers.”

Another trend Borrell foresees arising is the category killer. On the national level, Amazon is a classic category killer, as is eBay.

“We think that there will be one category killer in any given market. It will be the go-to site,” which everyone visits for whatever, news, local events, classifieds. It could be a newspaper site or a TV station site, or an independent, online-only site. It's already happening in Boston and San Diego.

Another area that Borrell expects to change is local search. Till now national search companies have been able to make inroads into the local search markets. But there will come a point, Borrell believes, after which time these companies will need local sales forces to get further traction in the market. At this time, he expects to see national search engines teaming up with local companies, like the yellow pages or local TV companies, which have sales forces in place.

Meanwhile, however, newspapers are buying or teaming up with local search companies and jumping into search themselves, using their own sales forces, says Borrell. “So the national guys are trying to figure out how to get local, and the local guys are creating their own search engines. A big fight is brewing,” Borrell says.

Meanwhile, in online ratings for the week ended Oct. 8, the top five parent companies remained the same: Microsoft, Yahoo, Time Warner, Google and News Corp. The top five brands were once again Yahoo, Google, MSN/Windows Live, Microsoft and AOL.

Gus Plc was the top advertiser with 9.97 million impressions. NexTag Inc. came in a distant second 4.12 with million impressions, followed by United Online with 2.36 million, Time Warner with 2.06 million and Netflix with 1.95 million impressions

Sessions per person were steady at 16 a week, while domains visited dropped 2.7 percent to 36 and PC time per person dropped 3.36 percent to 15 hours, 50 minutes and 52 seconds.