As a longtime consultant, I get nervous around research firms that are especially bullish on a market segment. The incentive to cheat is just too great, since clients use the bullish projections for all kinds of things: raising capital, forming partnerships, puttting out press releases; even recruiting staff. But there’s no denying that there has been an upswing in projections for local online ad spending, and online spending in general. TNS Media, for instance, just said that online is going to grow by 13 percent, up from its prior guess of 9.1 percent growth.
The LocalOnliner discussed the upswing with Gordon Borrell, who runs Borrell Associates, among the most bullish of local online analysts. I’m a former partner with Borrell Associates, and proud of it – although I’ve never been as bullish as Gordon.
Agree or disagree with him, Gordon has been the only one who actually goes in and surveys the marketplace. Borrell’s last survey included 2,600 web sites run by newspapers, TV stations, radio stations and local independents. Trust me — It takes a lot of shoe leather to get that done.
Over-Allocation to Traditional Media
In Gordon’s view, the biggest reason that local revenues are underestimated is that revenues are still being overly allocated to the traditional side. “The problem is that newspapers, TV, Radio and even Yellow Pages companies report Internet revenues as part of their traditional revenues and do not break it out separately, so from a national level everybody thinks that, for instance, newspapers did $41 billion last year in local print ad revenues, when in fact $2 billion of that was online.”
“The haughty argument is, ‘Well, they’re just upselling print, so it’s not ‘real’ online advertising, it’s just newspaper advertising with a free add-on,” he continues. “ Our point is this: If an auto dealer pays $5,000 for a banner ad, he is buying online advertising, correct? If that ad is on LATimes.com and the bill is from The Los Angeles Times, does that change what the advertiser just bought? Of course not.”
Ultimately, Gordon feels “it is very, very difficult to estimate ‘local’ from a national perspective. It’s hard to see the thousands of Indians out there hiding in the woods, and very easy to underestimate their numbers. Everybody is under-estimating local, and while local online advertising appears to already be huge, it’s going to get bigger still. It’s only about 5 percent of local advertising budgets right now, and all the tracking we’ve done says that it will head toward a 20 percent share or more. That would put it on par with broadcast TV’s share. There’s strong evidence that local online advertising will take an even larger share out of the market than newspapers within 10 to 12 years.
“I think it’s likely, for instance, that SignOnSandiego.com will gross more money than its print counterpart, The San Diego Union-Tribune.,” he adds. “It isn’t balderdash. If newspapers’ local ad revenue grows at a one percent CAGR over the next 10 years (they’ve grown -0.6 percent CAGR over the past 5) and local online advertising grows at a 20 percent CAGR (it has grown at 32% CAGR in the past 5 years), local online advertising becomes larger than local newspaper advertising in 11 years.”