Local online advertisement market growth changes key players of the industry

By January 25, 2008 1 comment

In 2007, local online advertising was an $8.5 billion market. Analysts are announcing a 48 percent increase in 2008, bringing it to $12.6 billion. Internet companies understood what significant adjustments it takes to lead the loc

al online advertising market. Newspapers are going down and losing market share. Pure-play Web companies now have the largest share of the local online-ad market. A pretty significant turn over for newspaper companies who were enjoying a 44.1 percent share of the $8.5 billion local ad-market, and are now down of 10.7 points which let them today a 33.4 percent share. Internet companies have now 43.7 percent of market share, according to Borrell Associates, a consulting firm that tracks local advertisings. (Directories such as the Yellow Pages have 10.1% and local television outlets 9.3%) Newspapers are feeling the biggest effects of this competition. Online-ad revenue at newspapers made up no more than 7.1% of total revenue in the third quarter of last year, according to the Newspaper Association of America. “Newspapers are tied too closely to defending their print products and have not seen the Internet as an innovative and competitive tool to go out and compete,” explains Gordon Borrell, chief executive of Borrell Associates. Web companies now rule the market for local ads online, forcing newspaper publishers to rush to change the way they sell ads. The majority of the radio stations and TV stations, newspapers, cable companies, are still pinning their hopes on their traditional sales teams being able to specialize in the digital market, and create and sell new online ad packages. An explanation coming from the Wall Street Journal could be the following: Local media companies, because they are based in the communities they serve, would seem to have an edge over Internet sellers when it comes to persuading the diner or corner hardware store to take out an ad. But they have largely failed to convert that advantage into sales. Instead of tailoring their sales to local businesses, many newspaper companies initially focused on selling ads to bigger advertisers who were already buying space in their print products. While this strategy allowed them to quickly and cheaply create a customer base for their online ventures, it also limited their growth, because they weren’t expanding their customer base.” “Many newspapers also hurt themselves by simply plopping their papers online instead of creating new Web sites that offered advertisers something they couldn’t get in print. Meanwhile, Web companies such as Google and Local.com are growing rapidly because they have made it cheap and easy for local companies to take out ads,” says Journalist Emily Steel. What will become of the local online-ads market in 2008? The popularity of local search and online video advertising will drive most of the growth, confirmed by a recent study from Borrell Associates. “Key advertising segments for 2008 will continue to be the “Big 3” classified categories of automotive, recruitment and real estate, with online political marketing holding promise for local sites as state and presidential campaigns heat up,” says the report. More than a year ago, Yahoo! came up with a plan with about six newspapers to establish a nationwide online-ad sales network. Since then, other newspapers have joined the alliance. This year, papers in the alliance aim to sell more-sophisticated ad offerings, such as behaviorally targeted ads, thanks to Yahoo! Technology that they will take advantage of and use on their Web sites. Meanwhile, 300 newspapers, recently represented by a group of 11 newspaper companies, formed a partnership with real-estate site Zillow.com to strike into more real-estate classified ads. So what we expect for this coming year are papers making the decision to form and join more profound alliances with their major competition in order to survive. And even thought giant Internet companies are starving for the growth they observe in the local market, they are also finding benefits to partnering with local media businesses to reinforce their own efforts. But with a spending for local online ads expected to grow 48% next year to $12.6 billion, the opportunity is still there for newspapers. And what could be necessary is a greater investment in an independent online sales force that would continue the growth these properties have enjoyed for the past few years. Mathieu Ramage Media and Editorial Manager of Atelier   FEEDBACK For comments on this article, email us at editorial@atelier-us.com

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