All Eyes On Local: Battle For Digital Dollars

A funny thing happened on the way the Information Superhighway. All the traffic got diverted into your backyard, and mine.

A decade ago, one of the rallying cries of Internet startups was "there is no local," as instant electronic distribution erased the boundaries of local publishing, and let people with common interests connect across the nation and the world.

Today, it seems that all Internet eyes are focused on local advertising.

The biggest new-media startups have joined the biggest old-media stalwarts in targeting the smallest businesses (and large ones too, of course) to help them connect with consumers just around the corner. The coming wave of mobile growth, with its instant geo-location, will only intensify this focus on hyperlocal and hyper-personal services.

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Google and Facebook are easily the top two Internet companies in terms of audience with global reach – and yet local advertising is one their main growth engines, complete with windows stickers mailed to neighborhood restaurants. Countless other online innovators vie for new ways to connect commerce with consumers with pinpoint targeting that can be efficiently managed in massive databases halfway around the country.

It used to be that TV, radio, newspapers and yellow pages once tussled over the lion's share of local ad dollars, but with distinct differences and marketing advantages that kept their industries competitive but separate.

The digital world has erased not only the physical boundaries, but also much of the business differentiation among local online media. People competing in Local Digital Media don't often think of themselves as participating in a single industry. But the old saying about friends and family applies to business, too. You get to pick your friends, but you don't get to pick your family -- or your competitors.

Conventional Internet wisdom says there's lots of money in local marketing, that it's growing fast, and that it's readily available as newspapers see readership and classified advertising fall off.

The analysts who follow local online media would agree with those broad statements – but they disagree significantly on how large the market is and how fast it's growing.

For instance, Borrell Associates calculates three times as much local online advertising spent in 2009 as BIA / Kelsey does, but BIA / Kelsey sees the next five years growing at a pace five times faster than Borrell predicts. NetNewsCheck dug deeper with the companies to understand why their data diverged in three key areas: Total dollars, growth rate, and market share.

Total dollars. Borrell says local businesses spent $13.4 billion online dollars to reach consumers in their local markets last year, plus another $300 million in mobile spending. Together, that's three times greater than the $4.4 billion that BIA/Kelsey says was spent by local business for local digital media, which it defines as including mobile.

"One reason we're higher than other estimates is the way we collect data," said Gordon Borrell, CEO of Borrell Associates. "We base our numbers on tax receipts of what businesses said they spent on marketing. Other researchers look at reports of what media businesses say they received.

"Those numbers should match if you have a small number of media in a market, like newspapers or TV stations. But there are so many Internet options for marketing out there that gathering media receipts doesn't tell the whole story."

In fact, the two consulting firms do agree on a figure spent with online yellow pages. But for the other sectors, BIA / Kelsey Vice President Mark Fratrik said, the issue is further confused by the definition of "local."

"We focus on locally-addressable audiences," said Fratrik. "That's spending from inside the market going to locally-targeted media" - not advertising spent by regional or corporate headquarters.

Borrell agreed that his numbers include headquarters spending intended to drive consumers to local businesses, which adds up to big numbers for fast-food franchises and department-store chains, among others.

"Some of our clients also ask us to break out the locally-owned businesses only, and we do," he said. "But we like them to see the bigger number, too, because it helps them think bigger."

Growth rate. BIA/Kelsey is bullish on local online media, and sees annual growth averaging 19.6% for the next five years, to total $10.8 billion in 2014. Borrell sees only 4.1% average growth, with a bigger jump this year and online spending going flat or actually declining a smidge by 2014.

BIA/Kelsey includes mobile in its definition of online advertising, but agrees that it's a fast-growing segment. "We don't think it's so easy to separate mobile and web advertising, and we debate it a lot internally," said Fratrik. "One of our analysts even proposed that if it can be held in one hand, it's mobile, and if it takes two hands, like a tablet it's not."