The local online advertising market is poised for rapid growth from its current $4.3 billion annual revenue due to heavy competition and new businesses entering the fray.
Posted Mar 22, 2007
People might tend to think of national campaigns when advertising is mentioned, but we may be seeing the ascendancy of local advertising, at least in the online space. A new study from Jupiter Research predicts that the local online advertising market will achieve a compound annual growth rate (CAGR) of 13 percent over the next five years, increasing from $4.3 billion in 2006 to $8 billion in 2011.
According to the study "U.S. Local Online Advertising Forecast, 2007," the growth rate will vary by category, as different parts of the total market are affected by their relative maturity and the ability of local advertisers to take advantage of emerging opportunities. Classified ads, the largest and most mature category, will grow from $3 billion now to approximately $4.9 billion in 2011, a CAGR of 10 percent; the much smaller and much less mature display advertising category, however, will grow at a CAGR of 20 percent, reaching $1 billion in the next five years.
Search, which Jupiter characterizes as "the key battlefield among the major portals," will achieve a CAGR of 17 percent through 2011, outpacing the growth of general Internet advertising and reaching a total market size of $2.1 billion. This excludes local mobile search, which is not measured in the Jupiter study. "Search advertising has been useful for local advertising almost from the beginning, although it has not matured as quickly as national search advertising or online classifieds have," the report states. "Local advertisers have still not adopted search advertising in large numbers, and local search advertising is still dominated by national advertisers seeking customers in specific locations." Jupiter predicts that large local advertisers will continue to discover local search advertising, and this combined with improvements to infrastructure and services will drive growth.
Barry Parr, media analyst for Jupiter and lead author of the report, doesn't rule out the possibility of surprising growth, but it will depend on sudden innovation. "There are so many people working in the area of local search, so much competition, and such a potentially large audience, that we could well see an industry-changing event like MySpace or YouTube have created," he says.
The question is where a disruptive event would occur. "Search is the most conservative category; most of the risk is a downside," Parr says. "Classifieds are where we see the most risk. Lots of players are giving classifieds away in order to sell search or display." Display advertising will likely only grow through increased demand, according to Parr, because the category is too small for there to be much supply.
Chances are, though, that Jupiter's predictions will be closer to the mark than any expectation of a transforming event. "The other piece to consider is that when you're talking about local, you're talking about people's livesand how they live them--it's very personal, chaotic, and ad-hoc," Parr says. "Local advertisers can't expect to change the way people live in their own communities, it can only provide options for people who are inclined to take advantge of the services. Incrementalism may be its destiny."
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