One of the most challenging aspects of local search is small business (SMB) advertiser acquisition. Everyone is aware, especially Google, Yahoo and Microsoft, that the US SMB market is where the advertiser volume is: almost 99% of US businesses qualify as small businesses (here defined as < 100 employees).
According to the US Small Business Administration (SBA), more than 20 million firms qualify under the definition above, with almost 19 million of those having no employees at all!
Paid search was built by small businesses, which discovered its effectiveness long before the Fortune 1000. I’ve estimated that as much as 70% (perhaps more) of Google’s advertiser base qualify as SMBs. And while Google is moving “upstream” to try and capture more major branding dollars, it’s equally concerned about gaining more small business advertisers, as are Yahoo and Microsoft.
But the lack of a local sales force has made it difficult to deeply penetrate the SMB market. By contrast, the new AT&T, for example, will have roughly 3,500 local sales people. Google, Yahoo and Microsoft have relationships with yellow pages publishers and others, which they’ve used as channel partners to gain small business advertisers they would otherwise have been unable to directly acquire.
Accordingly, one of the raging debates in local search concerns “self-provisioning” or “self-service.” The question is: how many SMBs will sign up directly for paid search and how many must be acquired through a “push” channel (local sales force)? There are those convinced that a sales force is absolutely necessary to acquire any meaningful penetration in the SMB market.
In the end, I tend to agree — “DIFM” (do it for me) is more powerful than “DIY” (do it yourself). But I also think that larger numbers of SMBs will do some form of self-service as those tools and entry points become more pervasive and simpler to use.
Google, Yahoo and Microsoft have all been implementing simplified processes to gain SMB adoption. Google has AdWords “starter edition,” which offers a simple landing page, simplified budgeting and keyword tools. The company also did a novel deal with Intuit’s QuickBooks, embedding AdWords in the software workflow. Yahoo’s Panama has comparable tools and the company also has flat-fee advertising on Yahoo Local. Microsoft has AdCenter sign up via its Office Live SMB domain registration and website building tool.
But what is reasonable to expect from SMBs in terms of actual numbers?
Let’s take a real world example: Kudzu. Kudzu is a local search site owned by Cox Enterprises, which started in Atlanta, Georgia and is now in four cities across the US.
Georgia has roughly 813,000 SMBs, according to the US SBA. That number represents almost 98% of all businesses in the state. The greater metropolitan Atlanta-Sandy Springs-Marietta area is where approximately 50% of those businesses are located.
Kudzu, for several reasons, experienced unusual success in getting SMBs to register and augment the information provided on the site. Kudzu GM Tom Bates reported that the site had 20,000 local businesses that actively registered.
The Kudzu figure represents about 5% of greater Atlanta area businesses according to my calculation. This is not the number of advertisers mind you, just businesses that have registered and changed or added information on the Kudzu site. But getting them to register is a step in the process of getting them to advertise.
As online marketing becomes essential for SMBs more of them will be motivated to make more effort to advertise online. And as online marketing and paid search become simpler to adopt more will adopt it accordingly. In other words, a kind of movement toward the middle will take place.
I somewhat aggressively forecast in 2006 that within five years about 10% of US SMB advertisers would be doing some form of self-service. But let’s assume the number is somewhere between 5% and 10%.
The question then becomes between 5% and 10% of what? It’s not exactly clear what the right number is. Consider that the US yellow pages industry has 3.2 million “advertisers” according to industry reports (but define advertiser). And yellow pages are the single largest vehicle for SMB advertising. But, as mentioned, there are more than 20 million SMBs in the US (25.85 million when you use a broader definition of SMB).
If one uses 10 million SMBs as the “addressable market,” that would mean between 500,000 and 1 million US SMBs self-provisioning online ad campaigns in some fashion, according to my projection. If on the other hand one uses an addressable market figure of 15 million that would mean between 750,000 and 1.5 million within five years.
Currently there are approximately 500,000 (give or take) paid search advertisers overall.
Of course, this does not consider how many businesses will be brought into paid search or online marketing indirectly through local directories, verticals and small agencies, which are the primary ways that most will appear online. And those numbers will ultimately be much larger than self-service.