• by Mark Walsh  @markfwal, September 7, 2006

Local online advertising will enjoy another year of strong growth in 2007, increasing by 32 percent to $7.7 billion, according to a new report by research firm Borrell Associates Inc.

Paid local search is expected to remain the fastest-growing ad category, nearly doubling to $1.8 billion and accounting for almost a quarter of local online ad spending. Local e-mail will climb by 54 percent to $233 million, while local banners and listings will increase 18.4 percent to $5.6 billion.

By 2010, local search and e-mail are forecast to comprise half the local online ad market. But the report predicts an overall flattening or decline in local online ads in four years as the category approaches $10 billion.

"Things can't go on this well forever," said Borrell Associates President Gordon Borrell. "We've had double-digit growth for the last eight years, so it has to slow down at some point."

For now, the growth in local Web advertising is spurring more hiring. The study estimates a 37 percent increase in online-only salespeople this year and expects the hiring boom to continue into next year. Already, the largest local sites now have three to four dozen online reps.

Real estate and automotive are easily the top local ad categories, making up one-third of all local online advertising. Real estate ads in particular have surged to 22 percent of the market, partly as a response to the slowdown in home sales during the last year. Ads increase and run for longer periods as home sales stagnate.

The Web sites of daily newspapers are benefiting from local ad gains. The largest sites in about one-third of the local markets--all newspaper-owned--are grossing more ad revenue than the highest-grossing radio station in those markets, according to the study. Borrell projects that online operations will make up more than 6 percent of newspaper company revenues in 2007.

Newspapers and TV stations are also driving the growth of online video ads at the local level. Although too small to be measured accurately, Web video ads are expected to become a trackable category next year as they surpass more than $100 million. "Now that newspapers have determined that the Internet is not a threat, they're going to be out there driving a lot of those video ad sales," said Borrell.