$5.3 Billion Local Search Advertising Market Will Be Led By Companies That Invest In Scalable Technology And More Efficient Business Models

New Report from Borrell Associates on The Economics of Local Search Advertising Highlights Growth Opportunities

NEW YORK, June 8, 2009

Locally placed search advertising in the U.S. is projected to grow 30 percent over the next five years, from $4.1 billion in 2008 to $5.3 billion in 2013. According to new research by Borrell Associates, this growth will be led primarily by advertising service providers that adopt scalable technology infrastructure and recalibrate their economics to allocate more customer investment to search media spend.

According to the report, many online advertising resellers and affiliates, who service local businesses, churn half their customers within a year’s time, and some lose as many as 90 percent. This often is due to missed expectations and a lack of return on investment for local-business customers. Critical points for local advertising success include correctly pricing advertising products for local businesses, and devoting a greater percent of that investment to media spend. Most important, advertising products and value must be easily understood by local businesses. That requires a shift from selling Web site clicks to selling measurable leads, delivered via email and phone calls.

These are among the key findings in a new Borrell Associates report, “The Economics Of Search Marketing: Addressing the Challenges of a Scalable Local Online Advertising Model,” commissioned by Clickable. The intent of the report is to shed light on opportunities in the search engine-engine marketing (SEM) marketplace in an effort to strengthen the performance of search advertising for small and local businesses. This report is available for free at Clickable.com.
 
According to the report, affiliates and resellers of search advertising who do not invest in sophisticated technologies will continue to see high levels of customer attrition. In response, new affiliates and resellers who optimize and scale SEM advertising performance through simple software tools and reporting - that clearly communicate and deliver value - will be poised to capture a larger share of the local advertising marketplace.  

"The question is, can the local online advertising market’s rapid growth continue under a current sales model that either delivers little to no profits or, more likely, requires companies to peel dollars away from advertisers' total media spend in order to profit?" said Gordon Borrell, CEO of Borrell Associates and author of the report. "A scalable online advertising business requires an investment in a sophisticated SEM management platform that drives efficiency and effectiveness, while earmarking appropriate levels of spending toward keyword media buys."

Despite near-term challenges, the horizon for local search advertising is promising, with spending on paid search by local advertisers forecasted to rise 30 percent, representing average annual increases of $242 million. The most successful local search advertising service companies will not only manage expectations through simple reporting and greater ROI, but by migrating customers to higher average monthly media spends.

The Report Contains