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Local initiatives by the national portals and a greater online push from local media are accelerating the growth.
A survey of what local websites earn not only illustrates that local online ad spending surged in 2005, but that the implications for advertisers are significant.
Issued by Portsmouth, VA-based Borrell Associates, a research and consulting firm that tracks local internet advertising, the benchmarking report of almost 2,500 sites (up nine percent from last year's survey) revealed that local online ad sales increased 78 percent in 2005 to $4.8 billion-- experimentation by local advertisers on search engines accounted for 20 percent of that growth.
Although the national portals "don't have their feet on the street," says Borrell Associates Senior Partner Colby Atwood, nonetheless they have created numerous local initiatives and have begun pursuing local media affiliations to attract new business.
An interesting phenomenon the survey reported is that a physical local presence isn't required to serve local advertisers; in fact, about a third of locally spent online advertising aimed at local consumers is going out of town to companies like Google, Realtor.com, Craigslist, Yahoo!, Monster and others that focus on niche markets (e.g., 1800Dentist.com, BedandBreakfast.com, et cetera).
Some brief examples:
"The big sites are getting bigger and more profitable," says Gordon Borrell, the firm's president. "The largest local website in many markets will generate more in ad sales this year than the largest grossing radio station in that market."
Borrell says there are a few key reasons why local online advertising is burgeoning. In addition to the national portals developing local programs to attract advertisers, traditional local media companies (newspapers, TV stations, radio stations, yellow page directories) accelerated internet initiatives to improve lackluster growth of their core products. Thousands of locally based entrepreneurs are also launching competitive sites.
"They're one-upping traditional media websites with content and creativity that attracts advertisers in lucrative segments such as entertainment, travel and real estate," says Borrell.
Borrell adds that local advertisers are also actively seeking or are more receptive to banners, listings and paid search ads to help increase revenues.
"Many local sites generated six-figure revenue streams last year from self-entry online ad placement paid by credit card," he notes. "What appears to be working is targeted advertising tied to a performance metric like paid search, lead-generation programs and directory or 'classified' listings."
The survey also revealed a few surprising snippets. Unlike newspapers, Borrell said radio stations seem to have little interest in tapping the 'classified' categories of real estate, automotive and recruitment advertising.
"This is because online competitors in these categories are fiercely competitive (newspapers and the 'pure-plays' like Realtor.com, Monster.com and Autotrade.com to name a few) and the radio stations have no clear assets or relationships in these categories from which they can build online advertising relationships," Borrell says.
While TV sites are now set up to push on-air commercials to the website with streaming-video players, the survey said they have not had much luck in convincing auto dealer groups to participate, mainly because these sites have been set up to stream video only in the past 12 to 18 months, and explaining and selling to these dealers takes time.
"Individual dealers also don't do a lot of TV advertising-- it's the dealer groups," Borrell says. "The placement of advertising by these dealer groups tends to be controlled by an ad agency and controlled by the manufacturer's wishes."
Borrell adds that local ad agencies are not placing a lot of internet advertising, and manufacturers have only been doing national testing on streaming video-- not local. But this will change as manufacturers put together more streaming video and interactive campaigns and push the creative down to the local associations for placement.
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