State of Local

Online advertising revenues exceeded $21.1 billion for the first time in 2007, according to a report based on research conducted by PricewaterhouseCoopers (PwC) and sponsored by the Interactive Advertising Bureau (IAB).

In the latest of their Internet Advertising Revenue reports, the two companies estimated that 2007’s figure will dwarf the $16.9 billion in online advertising revenue reported in 2006. That $5.2 billion increase of 25% percent year-to-year, which is both a record-setting dollar figure and a decline in growth rate compared to prior years.

Which is one of the things to keep in mind as you take a look at the news coverage of these numbers. There are a couple of ways to write the takeaway headline for the report. And while they’re both correct, it’s the perspective that really matters.

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The American Press Institute’s Newspaper Next project has released a report on the state of newspapers and how their role is changing.

One key finding is that readers are increasingly searching for information that is pertinent to them rather than what just would traditionally be thought of as “news.” The report advises newspapers to become “a local information and connection utility.”

As you read the 100-plus page report, it becomes clear that many of the problems and possible solutions are also applicable to Internet Broadcasting’s broadcast TV clients. Like newspapers, they’ve struggled to grow or even retain their local online audiences, with mixed results.

The study observes that the most common solution among newspapers is to offer up ideas which offer added value to current readers, instead of developing ways to bring in new eyeballs. Things like video are mentioned in this category, and we suspect that if our industry had the metrics to prove it, the same would be the case with visitors to our sites, and those of our competitors.
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The launch of QuadrantOne is perhaps the clearest signal to date that the local online advertising has come into its own in the past year. QuadrantOne follows Cox Cross Media and, to a lesser extent, the Yahoo - newspaper consortium as publisher efforts to mine the national market for local advertising.

How do these plays affect IB? Well, in one sense, they are direct competitors - they, like us, sell across a national network of branded online local content, and they bring inventory to market for the advertiser interested in targeting local. Most of these organizations, however, are closely aligned with if not directly part of a traditional media, allowing them to also sell cross-media advertising. How much these initiatives focus on cross media bundles vs. selling online only packages will tell part of the story regarding how much of a true competitors we will end up becoming. IB has and will continue to focus its efforts squarely in the online only world.

Another way that these players affect IB is by bringing more attention to the local market - and specifically to the value of professionally produced local content. While online local advertising has been growing quickly, the true competition has been geo-targeted impressions on portals and ad networks. Often, this inventory was easier to access for the media buyer, and was cheaper to purchase. One phone call, a couple of targeting parameters, and the buy was done. However, what is becoming clear is the value of advertising around professionally produced local content. Desire to capture the pricing power derived from high quality content and high quality local media brands is driving these new entrants into the market. We believe that the attention these new entrants will bring to our market will cause more advertisers to seek out professional local content. We believe the market opportunity for IB will expand even further.

The last thing that we must realize, however, is the true challenge that these new entrants will pose. One of the issues with buying local in the past has been that it is hard. It’s hard for the media buyer to assemble all the right inventory. Its hard for the advertiser to measure results. Its hard for the publisher to optimize the campaign. Its hard for everyone involved to know if they extracted the necessary value from the transaction. By entering the local market at scale, quadrantOne is saying that they want to make it easier for advertisers and media buyers alike to purchase local inventory. Making local inventory easy to buy is perhaps the number one prerequisite for local online advertising to continue to grow. We must recognize that today’s state is not good enough. Things are not easy enough. There are not enough metrics. We need to do more. Unless we in the industry meet the needs of the media buyers and the advertisers, local online advertising will migrate to portals, networks and other places that will solve those needs.

Dan Finnegan, the former head of Yahoo’s HotJobs property, is quoted in the NY Times today saying this:

Businesses like travel, shopping, music and even HotJobs were all great products, but none were going to make a huge difference in the fight with Google unless we used them to drive the main search business.

HotJobs has been the main focus of the Yahoo / Newspaper consortium to date. While, in the short-run, HotJobs did get Yahoo the ability to distribute search onto all their newspaper partner sites, is that how Dan meant the quote? My experience has been that Dan’s sentiment generally = vertical search (or, more accurately, Universal Search). It’s about driving query volume for the core search property. If that’s actually the case - and Yahoo is starting to focus on driving core search volume at the expense of their “local” verticals - how much will that hurt help their newspaper partners?

Ken Doctor and Terry Heaton have been providing good insight into the Yahoo - Newspaper consortium for some time now.