Thursday, November 20, 2014

Digital nabs 77% of classified sales, says study

More than three-quarters of the global classified marketplace formerly dominated by print has moved to the digital media, according to an ambitious new study from a consulting firm. 

In the first known effort to produce a bottoms-up estimate of the scope of the global classified business, the Advanced Interactive Media Group said the digital media are capturing $56.8 billion of the $92.1 billion in classified revenues being generated this year. That means 77% of the dollars generated in the classified marketplace have forsaken print for web and mobile platforms. 

Classified revenues include not only the fees traditionally charged to place want-ads but also banner advertising sold on free classified sites and revenue shares collected by sites like AirBNB.Com. 

The shift from print to digital remarkably similar across the world, according to the study. As illustrated in the table below, the digital media this year are capturing 77% of the $31.6 billion in classified revenues in the United States. The percentages are nearly identical in three of the next four largest classified markets: China, the United Kingdom and Germany. The only outlier is Brazil, where the AIM Group says 90% of classified sales are digital.  (The study is available here for $1,795.)

The migration of classified advertising away from print is a major reason why the revenues of the U.S. newspaper industry plunged from $57.4 billion in 2003 to $37.6 billion in 2013 (further details here). With nearly all publicly held newspaper publishers reporting revenue declines throughout this year, the industry’s sales are headed even lower in 2014. 

To put the significance of classified advertising at newspapers in perspective, consider this: As recently as 2000, want-ads for cars, apartments, jobs, sofas and puppies produced $19.6 billion in sales for newspapers, representing 40% of their advertising revenues, according to the Newspaper Association of America. In 2013, the industry collectively sold $4.1 billion in classifieds, which came to less than 18% of its diminished ad base. 

The 78.8% drop in this key revenue category for newspapers occurred because consumers and advertisers alike have embraced the convenience, targetability and efficiency of digital classified environments, which offer comprehensive, easily searchable and low- or no-price listings. 

Digital publishing has enabled whole new categories of classified verticals that were unthinkable in the age of print, said Peter Zollman, the founder of AIM Group (formerly known as Classified Intelligence). In addition to specialized sites where you can hunt for homes, cars and jobs, the digital media offer marketplaces ranging from free stuff at Craigslist.Com to vacation rentals at AirBNB to a job site for anesthesiologists called GasWorks.Com. 

Advertisers are particularly jazzed about the low cost of digital classified advertising, as compared with the hundreds of dollars newspapers used to charge for three lines of agate type to fill a secretarial position or hire a car salesman. 

“Digital classifieds are priced much lower than the equivalent before digital,” said Zollman in an email. “And many millions of ads are posted every day for free, with sites making their money on upsells, adjacent banner ads, sales of Big Data and lots of other revenue streams.”

Thanks to the economies of do-it-yourself ad creation and the scale enabled by digital publishing, even free sites can produce eye-popping profits.  

In a research report earlier this year, Zollman estimated that Craigslist, which most people think of as being free, will generate some $335 million in revenue this year with pre-tax profits north of 80%.  The site, which employs only about 40 individuals, charges for recruitment and real estate in certain markets (though they are free in others) and also requires auto dealers to pay $5 for every vehicle that they list. 

By turning classifieds into an attractive form of user-generated content, digital sites have created a win-win proposition for consumers and advertisers. The only losers are the newspapers, which concentrated on preserving the high-price ads that once produced such rich, reliable and profitable revenue streams for them. 

As but one example of publishers failing to wise up the ways of the web, the Boston Globe in the 1990s turned down an opportunity to invest in the nascent Monster.Com because its managers didn't want low-priced web advertising to cannibalize their lucrative print recruitment business.  


Blogger Chris Eddings said...

As a 40+ year publishing veteran who started in Classified, I've watched this pattern repeat itself beyond Classified, too. With online publishing pressure, the newspaper's pricing power is effectively gone across the board. Where once rate increases were the norm in most publications in every advertising category, often unjustified, today price is a huge issue. Think about it. The start of my career coincided with the beginning of the preprinted insert era. Before then, big retailers bought multiple pages of ROP from the newspaper; afterwards they only paid the paper a small per-thousand insert charge.

5:41 AM  

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