Reports: Local Online Ads to Rise

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By: Mike Shields

(Mediaweek) Two new research reports predict robust growth in the nascent area of local online advertising over the next five years, though each offers a different take on what will drive this growth.

In a report released on Wednesday, JupiterResearch forecasts that online local advertising will surge by 26% to $3.2 billion in 2005, hitting $5.3 billion in 2010.

Meanwhile, a second report from local media research firm Borrell Associates is far more bullish, anticipating 51% growth for the segment in 2005 to $4.1 billion, with spending expected to swell to $8.6 billion in 2010, representing 6% of total local ad spending.

It’s the source of growth where these studies diverge. Jupiter says that classified ads will still account for the vast majority of local online ads at the end of the decade, some 70% of dollars. “Outside of classifieds, local ad spending online remains relatively immature,” said JupiterResearch David Card senior analyst.

But Borrell’s report is predicting that paid search advertising, so crucial to the national online ad landscape (see Google), will experience a major leap in local advertiser acceptance as well as inventory options. “Spending by local businesses on paid search is expected to rise 161% next year, to $906 million, and to account for nearly half of all local online advertising by 2010,” said the report.

While Borrell is crediting local businesses with being able to adapt quickly, Jupiter’s report says that most local online advertising over the next few years will be driven by national advertisers, rather than all those doctors, lawyers and car dealers that tend to advertiser local businesses.

“For now, online publishers and networks will find better opportunities servicing national advertisers that are aiming at local audiences than they will servicing true local businesses,” said Jupiter’s Card. The Jupiter report found that in 2004, local spending drove only 5% of online display advertising and 16% of paid search listings.

When it comes to local sites which are affiliated with traditional media outlets, like TV stations and newspapers, Borrell credits site operators with making huge leaps in the quality of their sites and content over the last few years. However, the report warns that traditional sale practices that rely on media bundling may prove detrimental in the long term. “The practice of up-selling print or broadcast advertisers — especially with an ?assumed? or forced online ad that is packaged with a newspaper ad or TV commercial — could collapse under the competitive pressure of more measurable and effective forms of online advertising,” says the report.

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