Digital Services Hyper-Competitive, Worth It
As digital media companies of all sorts stampede into the youthful marketing services space, three major questions are front and center: who will prevail, how lucrative are the revenues and how do these companies access those revenues.
But, experts still see plenty of opportunity in the hyper-competitive space.
“How big the digital revenue pie is overall that they’re creating to replace print — that’s the key question,” says Jed Williams, VP of strategic consulting and a senior analyst at BIA/Kelsey. “But of that pie and however big that pie is, there’s some major bets that digital marketing services are going to be a gigantic piece.”
In conversations with key players in the space, Hearst’s white-labeled solutions suite, LocalEdge, is the most commonly mentioned services play, with media partners outside the company’s umbrella of newspapers and TV stations. (David Lewis, LocalEdge’s VP of marketing, did not respond to requests for comment.)
Among the frequently cited SMB agency plays are Gannett’s G/O Digital, Cox Media Group’s Local Solutions, Gatehouse’s Propel Marketing, McClatchy’s impressLOCAL and Morris Communications’ Main Street Digital, among others.
Add radio companies Hubbard, Emmis and Entercom, plus YP, Yodle, ReachLocal and pureplays who may specialize by product category or vertical. Williams says many digital point solutions, such as Constant Contact, known for email marketing, or GoDaddy, a leader in the Web domains/hosting space, have shifted toward more integrated plays.
“They’re all in this SMB universe,” Williams says, “and they’re all generally going after a similar set of dollars.”
“The way we see it is either you get in the game or you don’t get in the game,” says Mark Lane, VP of sales at Morris Publishing Group. “Not being in the game is not an option for us. We’re in the game.”
“There’s so much opportunity out there,” adds Rich Reis, VP of digital operations at Cox Media Group. “We see all the same reports that everyone else does.”
According to a 2012 report by Borrell Associates, the average U.S. small business spends $17,000, or 72% of its online marketing budget, on services. The total online services pie, according to the Borrell report: $390 billion.
Or, as Kip Cassino, the report’s principal author and Borrell executive VP, labels the prize in play for the savvy sellers, a “gargantuan digital gold mine.”
Among traditional media companies, digital agency players say, newspapers have mostly made the most ambitious investments, as their main revenue stream has collapsed faster than those of radio or TV stations in most cases.
The Newspaper Association of America reported a 91% increase in revenue from digital agency consulting for local businesses in its 2012 revenue profile. In its 2013 revenue profile that was released April 18, NAA reported new/other revenues amounted to $3.15 billion in 2013, 5% growth year over year and a little over 8% of the total $37.59 billion newspaper 2013 revenue pie.
“[Marketing services revenues] are significant enough in scale that NAA has begun to collect detailed data about these revenue categories and track their trajectory year-to-year for the first time,” the NAA report concludes.
In its 2013 revenue profile, the NAA noted a 43% growth in digital services.
The two reports echo the bullish agency projections of the Nieman Lab’s Ken Doctor, who predicted last February that marketing services, or “the new initiative [newspaper publishers] are most heavily investing in,” could equal up to 10%, or nearly $2 billion, of total newspaper ad revenue by 2016.
Cox Media Group, Morris Publishing Group and several other marketing services players declined to discuss agency revenues, often commenting only that their digital business was growing at a faster rate than their legacy business.
“Everybody sees the overall size of the market opportunity,” BIA/Kelsey’s Williams says. “Now, it’s about figuring out how to win your share, and then after winning your share, winning a disproportionate share.”
The key is to pursue some variation of Deseret News CEO Clark Gilbert’s “dual-transformation” approach, where media companies continue to invest in the core product but also create a separate digital model to pursue new revenues.