Saturday, November 18, 2006

Got digital ads?

The explosive growth of local online advertising represents a significant opportunity for revenue-challenged newspapers and broadcasters – if they develop the products and sales strategies to capitalize on the opportunity.

Local online ad sales are projected to grow 21.7% this year to more than $5.8 billion, according to Borrell Associates. Although the party won’t last forever (see graph below), the independent market research firm believes online ad sales will climb 31.6% to $7.7 billion in 2007.

In a gift from folks who usually get paid for this sort of thing, Borrell is providing for free a detailed, market-by-market analysis that will enable local media executives to measure their production against the total estimated digital sales in their market. Get your copy here; it requires registration but it’s well worth it.

Representing collectively a third of local online ad volume, real estate and automotive are the largest categories, according to Borrell. Media companies hoping to hedge against the softening of traditional advertising in the housing and auto categories should focus on digital alternatives that deliver cost-effective leads for Realtors and car dealers.

“In the near term, online ad spending will continue to migrate toward more targeted forms of advertising, such as e-mail and paid search,” says Borrell. “We also expect to see local video advertising become a trackable category in 2007.”

Although search accounts for 40% of all the dollars spent on online advertising, most media companies to date inexplicably have failed to add to their sites such local search capabilities as those available from Eurekster.Com. Similarly, they have conceded the direct-email initiative to start-ups like the edgy Flavorpill. (Disclosure: I am an investor and adviser at Eurekster.)

“The online advertising stampede in local markets has website operators scrambling to add hunters,” says Borrell. “About half the local web sites were adding to their sales forces this year…increasing the small but growing army of online-only sales people by about 37%.”

With this high-stakes land grab under way, the question is whether the spending-constrained legacy media companies are focusing the proper level of attention and resources on the best – and probably last – opportunity they will have to migrate their businesses safely into the digital age.

As Borrell notes, “the recent growth rates can’t continue forever.”