Local Online Ads Will Reach $12.6 Billion In 2008, Local Search Will Bring In $5 Billion Of That Total

Using an expansive definition of the marketplace, Borrell Associates says that “local online advertising” is worth $8.5 billion today. That number consists of local search, “local banners,” and local video. Banners is the biggest spending category and video the smallest. But Borrell expects local search to grow substantially to become almost 50% of the total local online spend next year, which is projected to reach $12.6 billion.

Local search is expected to grow from roughly $2.5 billion currently to $5 billion in 2008. Borrell expects local video to roughly triple from just over $400 million today to $1.27 million next year.

Borrell says “The Big Three” classified categories (jobs, cars, real estate) will have a 37.7 percent share of all online ad spending in 2008.

A few verbatim highlights from the report:

Next year will be a perplexing one for local media companies trying to tackle the Web. Most yellow pages publishers, cable companies, newspapers, radio stations and TV stations are still pinning their hopes on their traditional sales reps being able sell online ad packages. But there is increasing evidence to support the idea that a greater investment in an independent online sales force will be necessary to continue the growth these properties have enjoyed for the past few years.

The main agents behind this relentless growth are the popularity of search engine and online directory advertising and, to a lesser extent, the growing popularity of low-cost video commercials. We forecast local search to more than double next year to just over $5 billion and local online video advertising to more than triple to nearly $1.3 billion.

This trend is leading to a sort of Pac-Man effect in which the pure-play companies are getting a bigger and bigger slice of that $8.5 billion pie. Pure-plays currently hold a 43.7 percent share, compared with the newspapers’ 33.4 percent share. Three years ago, newspapers had the largest share at 44.1 percent and local yellow pages publishers had 18.4 percent.

The local business categories, according to Borrell Associates, that have the highest online penetration rates as a percentage of total ad spend are:

• Recruitment
• Real estate
• Computer-related services
• DotCom Businesses (this is a problematic category)
• Auto marketing
• Miscellaneous retail

Borrell uses a total market of 11.5 million “business locations” and says the average spend was $299 “per location” in 2007. The range is just over $18,000 at the high end to just under $100 at the low end.