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These days, the advertising community is focusing its attention on how to create ads for online media -- including video, rich media, Flash, etc. -- and the revenue potential associated with these channels. However, a less-often-asked but vitally important question in terms of industry shift, as well as dollars and cents, is this: Where will these ads be placed?
Industry estimates suggest that mobile advertising will reach nearly $10 billion in the next few years, with online video reaching nearly $3 billion. However, advertising at the local market level -- although not as frequently discussed -- has the potential for even bigger numbers and greater growth. What's more, local advertising isn't at odds with mobile and online video, as many assume. Rather, rich media and geotargeted place-based mobile advertising are likely to be big components of that local online ad spend. Within the context of the changing media landscape, local online advertising represents a massive opportunity that is coming into its own -- and bears more attention from the advertising community.
Tip O'Neill once said, "All politics is local." And while that's not quite true of advertising, it does resonate when assessing this new shift into hyper-local marketing and advertising. According to eMarketer, $97 billion of the $157 billion -- more than 60 percent -- of the advertising market in the U.S. is focused on local. The online portion of that has thus far lagged behind the other advertising channels, with only about $2.1 billion -- 2 percent -- of local advertising being online at the end of 2007. However, that number is expected to more than triple over the next four years to more than $7.8 billion. That's a huge movement of dollars shifting toward reaching local audiences online.
But where are these dollars going to end up?
Although traditional local media -- Yellow Pages, newspapers, radio and broadcast television -- all have an online presence, none of them enjoys the dominance on the web that they do in their "home markets." Yet their audiences are moving online at faster and faster rates, resulting in major drop-offs in print subscriptions to newspapers, broadcast TV audiences, terrestrial radio listenership and Yellow Pages customers.
For example, the Kelsey Group recently found the erosion of print Yellow Pages is going to increase from 2-3 percent to more than 10 percent this year. That's a pretty massive decrease year over year. And even the Yellow Pages Marketing Association concedes that although online usage of Yellow Pages is growing, a 10 percent drop in print usage dwarfs the increase in online searches. Newspapers are in a similar boat with their advertising; online ad sales are climbing, but offline usage declines are taking a larger chunk of ad sales away from the industry as a whole.
And yet, projections show online ad sales more than tripling -- and there has to be a place for all that advertising to land, outside of the traditional media's online presences mentioned above.
With Google, Yahoo and online Yellow Pages growing their audiences, there is certainly going to be growth in local business searches. But what about brand advertising and trying to reach people who are migrating away from traditional television, radio and newspaper outlets for their news?
The numbers are a little grim. There are about 1,400 daily newspapers and 7,000 television and radio stations in the U.S., and back-of-the-envelope math shows that they each produce about three to six stories per day, or about 22,000 local stories for the entire U.S. This for an audience of roughly 20,000 individual cities and towns. All these players used to be able to back up their locally produced content with national stories, thereby providing a full news experience for their viewers or readers. But, the internet has changed all that; people get their national news from national sources. Instead of competing with other local newspapers, papers are competing with every news site that has a web page. Given this fragmentation, local news sites are not maintaining their market share.
So what's going to take up the slack?
Well, nature abhors a vacuum. Thus, amateur, user-generated content and commentaries are taking off in local markets. The internet's solution to the dearth of local news coverage is the same as it has been with other problems of scale: let the people build it themselves. Similar to Wikipedia, the Open Directory and Usenet, truly local content is going to be provided by the people who live there.
In looking at sites like MetroBlogs, Gothamist publications, Outside.in, NowPublic, Baristanet and Topix (the site that I run), it becomes apparent that a massive amount of attention and investment has been paid to giving people a platform for engagement with the places they live. And while social networks (based on who you know) like Facebook, LinkedIn and MySpace have generated a lot of usage, and even more buzz, none of them has really provided a locally contextual venue. You are unlikely to meet the neighbors who live two blocks away via Facebook or LinkedIn. However, when that same family starts blogging about your neighborhood or commenting on something another neighbor wrote, it's a compelling discussion -- one that you're likely to read and possibly even join.
Given the aforementioned advertising growth and the decline of the traditional places for it to go, user-generated content is where the action is going to be. The local online outlets that make the most sense for a given campaign will vary greatly depending on where you live and who you're trying to reach with your advertising. But the potential audience size available through these channels is impressive. Speaking for Topix, we've seen comment rates go from around 30,000 comments a day in the middle of 2007 to more than 140,000 comments a day -- or more than 3.5 million comments a month -- across more than 20,000 cities and towns within the U.S.
Media consumption and local audiences' preferences are shifting. Advertising is going to shift as well. So along with that cool viral video and mobile campaign, consider how you can make the most of region-specific opportunities as the $97 billion gorilla of locally targeted ad dollars spent in the U.S. starts to move online.
Chris Tolles is CEO of Topix
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