Behind the Numbers: The Inevitable Growth of Local

Consumers find Main Street shops by going online

When the back door gets stuck and you need to change the locks, chances are that you'll go online to find a locksmith - a local locksmith.

Indeed, as the Web grows more dominant as a daily information source, consumers are clicking their browsers to find local businesses. As a result, local online advertising is poised to grow to $7.7 billion in 2007, up nearly 32 percent over this year, according to a recent report from Borrell Associates.

As the market expands, those dollars will flow into targeted ad formats, such as e-mail and local paid search rather than banner ads. "The biggest forms of advertising by 2010 on a local level will not be banner ads and listings," says Gordon Borrell, president of Borrell Associates. "They will be e-mail and paid search."

Local news sources, including TV stations and newspapers, need to develop targeting capabilities on their Web sites or they'll be left behind, experts say. Local paid search will grow by 86 percent next year, local e-mail by 54 percent, and local banners and listings by only 18 percent.

Despite this growth, marketers and Web site publishers should remember that the online sector commands only a small sliver of local ad budgets, according to Borrell. Local online dollars should rise this year to just 2.1 percent of all local ad spending, up from 1.8 percent last year.

Categories driving the trend are real estate, automobiles, recruitment ads, general merchandise, and health care. Real estate and automotive remain the biggest sectors, corralling more than one-third of local online ad spending. Still, most plumbers, dry cleaners, and, yes, locksmiths have yet to mine the online opportunity. That's where the increase will come from - local businesses that have until now thrived on word-of-mouth, direct mail, and yellow pages ads. "The wheels have been set in motion," Borrell says.

There will also be new opportunities to place video ads. Today, only a tiny portion of online ad dollars goes to video ads from local advertisers (between $75 million and $100 million). Look for that category to grow with the help of big advertisers. Also, research firm eMarketer found that online video is the fastest-growing segment of the $16.7 billion Internet advertising market; it will have increased more than 70 percent this year over 2005.

Even tiny local markets have seen businesses dabble in Internet ads. In Glendive, Mont., for instance, businesses spend nearly $500,000 on online ads, with about $380,000 going to banners and listings, $90,000 to search, and $10,000 to e-mail. On the flip side, Borrell says that 17 large markets will generate more than $100 million next year in local online ad spending.

Of course, advertisers should keep in mind that even online, only half of all ads work. But at least with Internet marketing, advertisers can determine exactly how many people clicked on an ad and whether that corresponds to traffic increases on their Web sites.

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