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Outlook: Local online’s about to take off

August 27, 2010


Ad spending will shoot up 18 percent in 2011

By Diego Vasquez
Aug 27, 2010

Local online advertising’s steep growth curve seemed to straighten out a bit during the recession, with spending this year expected to grow a sluggish 3 percent over last year. But in 2011, local web ads will take off again as the recovery continues and local advertisers begin to adopt strategies that have delivered big dividends for national advertisers the past couple years. That’s according to a report from Borrell Associates, the Williamsburg, Va., research firm, which predicts that local web revenue will jump by 18 percent next year, from $13.7 billion this year to $16.1 billion in 2011. Overall online advertising will grow at a slightly slower pace, 14 percent, to $51.9 billion. Targeted display advertising, mobile and online promotions will drive much of local advertising’s growth, while run-of-site ads start to lose popularity. Gordon Borrell, CEO of Borrell Associates, talks to Media Life about the forecast, why local recovery lags national, and why certain forms of web ads are excelling.

How has your forecast changed since your last one about local online spending? What factors influenced those changes?

We’ve revised our forecast for 2010 down somewhat, based on a slower-than-expected recovery to the economy. That has fueled higher growth in later years.

We have seen local advertising slower to come back than national for many media. Will that be different for online, and if so, why?

Online has become more mature, so it is less insulated from major advertising trends.  There’s certainly some growth ahead, but it’s now evaluated alongside things like TV, radio and newspaper budgets and thus has begun to feel the effects of economic cycles in ad buying. Local is always slower to respond to upward trends, principally because smaller businesses are more cautious.  

Why do local advertising trends tend to lag national by two years? Is that true across all forms of media?

Yes, that type of ebb and flow is true across all forms of media, not just online. Small businesses are far more cautious about responding to any new upward trend. So we’ve seen very slow growth in local advertising this year, while national marketers have shown far more confidence that media advertising will bring marketing lift. Smaller businesses tend to see advertising as an expense, while national marketers know it’s an investment.

What is targeted display advertising and why will it see such strong growth among local advertisers? Will future growth continue apace, or will it flatten out in a few years?

Targeted display advertising is nothing more than a banner ad that actually means something to the person visiting the web site. The growth we’re seeing now is directly related to the maturity of ad-serving technology. Many sites know where you are by your IP address, so they have your geography. Others know what type of sites you’ve visited, so they have your behavior. And those that require you to register typically know your age, gender and income.

So we now have the ability to serve a banner ad for diaper coupons on the Washington Post’s baseball site because we know that person is a young female who has spent a lot of time on a web site for young mothers. The value of delivering that ad to an exact target is very high.

I don’t think you’ll see growth flatten for targeted display advertising for quite some time. It’s really just in its infancy and will likely become even more sophisticated over time, unless the federal government is successful in instituting strong privacy mandates that might artificially retard market demand.

What is run-of-site display and why is it losing its luster? Why more among national than local advertisers?

In a nutshell, nobody really sees it. All the site research I’ve seen – and conducted on my own – indicate that people almost completely tune-out banner advertising that isn’t related to what they’re specifically looking for at the moment.

The internet is a lean-forward medium, and in that type of hunt people tend to have blinders on. The higher decline for national advertisers is merely the “first-in, first-out” phenomenon. National advertisers tend to be more savvy and have learned quicker that run-of-site banners don’t produce good results. The locals will catch on soon enough.

What do the next few years hold for search, nationally and locally, and why?

Search (as we know it) doesn’t have much growth left. We’ve seen a lot of small advertisers rush in and try to spend a few hundred dollars a month buying keywords, only to be disappointed and then abandon the program.

Meanwhile, the larger brand marketers spending anywhere from $5,000 to $5 million per month are seeing good results and will probably stick with the program. A lot of the excitement about traffic generated by Google has migrated to paying technologists and consultants rather than purchasing traffic from Google via the AdWords program.  

Marketers have come to learn that activity on Twitter, Facebook, LinkedIn and blogs can drive a significant amount of network traffic. So I think a lot of the shine is off the search engine advertising juggernaut.

In reality, search advertising works great. But only if it’s approached scientifically and managed by a very smart marketer.

Why is online promotion starting to gain such momentum? What will drive it and do you think the momentum will last?

If you look closely at how people are using the internet, you realize that it’s far more of a utility than it is a “medium” like television or newspapers. People still learn a vast amount of information from television, newspapers and radio, then they go to the web to learn more or do something related.

They lean forward.

It makes perfect sense, then, that the internet becomes a fulfillment mechanism for promotions. That’s why we’re seeing contests advertised on billboards or on radio, and all the fulfillment is online. Advertisers want people to come to them to learn more, and the perfect place for that to happen is the company’s web site.

Promotions are fun, exciting, and often provide immediately measurable results. I think we’re only at the beginning of a very long trend where traditional advertising flattens or even declines, while marketers ramp up their expenditures on promotions. And like I said, online is a great fulfillment mechanism for promotions and thus will be at the center of that upward trend.

What’s been the biggest change in local online advertising over the past two years?

I’d say that it’s the continued upward trend. I would have certainly expected local online advertising to flatten out by now. It currently accounts for 14.5 percent of local ad budgets, which is actually pretty high given the fact that there are a dozen different types of media that local businesses can rely on to get their messages out.

But it appears to be getting its second wind, primarily because of the opportunities that mobile advertising presents.

I think mobile advertising is merely a magnifier or extension of the web.  HTML5 will render web sites very usable on tablets and small mobile devices and provide broader audiences than just a PC-based web site can offer.

Diego Vasquez is a staff writer for Media Life. © 2010 Media Life Magazine

One Comment leave one →
  1. September 8, 2010 6:20 am

    You have the point on that matter. Using search has a risk because many products are related unlike in a newspaper, television or radio they can see it specifically and they can know more about the product. I think in advertising there are a lot of strategies that are suited to a product that you are going to promote.

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