• by Shankar Gupta , February 16, 2006

Growth in traditional local advertising--including classifieds and print Yellow Pages--will be flat or negative in the coming five years, but advertising in the online version of the same media will grow significantly, according to a new forecast by the Kelsey Group.

The group is predicting that local search, including online Yellow Pages, will grow 30.5 percent, to $13 billion in 2010. Interactive classifieds are projected to grow 7.9 percent per year to reach $21.1 billion in that same time, from $14.4 billion in 2005. Print Yellow Pages revenues will grow by just 1.5 percent to $28.4 billion, while global offline classifieds will drop by .2 percent to $78.5 billion, by 2010.

"The traditional products, the newspaper classifieds, and print Yellow Pages are going to see flat or negative growth, and negative growth in the case of classifieds," said Kelsey Group Analyst Greg Sterling. "We're going to see a trend towards more performance media, where value is proven and self-evident to the advertiser, and that's the influence of Internet on traditional marketing."

Kelsey also predicted very high annual growth for pay-per-call: 130 percent annually, reaching $3.7 billion in 2010, from $57 million in 2005. Sterling said that the product would likely begin to appear in print publications as well as online--such as the recently announced deal between pay-per-call firm Jambo and LA Weekly. "It's interesting to a broad cross-section of advertisers," he said. "I think that we're going to see pay-per-call in the newspapers. I think we'll see it as a way to retain advertisers."

According to Sterling, traditional publishers can protect their revenue streams by embracing the trend toward online and performance-based advertising. "There's some sort of defensive and offensive measures that newspapers can take, to retain advertisers: Bundling their products online and off, adding free listings with some kind of up-sells, performance-based products as opposed to the flat-fee products," he said.

Sterling also noted that the growth in online classifieds may not be fully represented by growth in revenues, since many online classifieds services are available free of charge. "The big trends are continued robust online growth, although that doesn't always translate into revenues, like in the case of classifieds," he said.