2010 Outlook: Local Interactive Advertising.

It may be a horrible year for advertising overall, but not for local online — and certainly not for some companies seeing double- and even triple-digit growth for local operations.

Local online advertising is growing at a 12% clip this year, and we’ve taken a look at 2010 and expect further growth. This report forecasts 2010 local online sales to hit $14.9 billion, or 5% higher than where we’re expecting things to end up this year.

While mobile is a hot topic, we’re projecting it to be a relatively small category locally — only $500 million — in 2010. This report also features interactive ad spending by DMA and the publisher’s recent online account executive compensation survey results.

The wave of Internet advertising that locally focused media companies have been surfing for five years has now peaked, and some media companies are starting to eat sand. For the first time since they began selling online advertising more than a decade ago, sales are in decline for the majority of legacy media companies, but many companies with independent online-only sales forces are still hanging ten. This shift is highlighted by companies like CareerBuilder, which has seen sales driven by newspaper reps decline this year, while sales driven by its independent sales force are growing.

The trough will get even deeper in 2010 as local online advertising continues to slow and as a bevy of new competitors rush in to become purveyors of hyperlocal everything. PBS, ESPN, AOL, Huffington Post, The Knot, Microsoft, Yahoo and scores of others have announced plans to reach deep into local ad sales. While they missed this crest, there is plenty of money yet to be made in local online ad sales.

Meanwhile, the next waves are forming on the horizon, as they always do, and companies that know what to look for can begin moving to catch them. Online promotions and mobile advertising are two such waves. This 2010 Outlook offers observations and forecasts intended to help that process.

Local online advertising will hit $14.2 billion this year, 12 percent more than 2008. For 2010 the publisher is forecasting that it will grow just 5 percent, to $14.9 billion. In the past five years, local online advertising grew at a compound annual growth rate of 46.5 percent. For the next five, they are expecting that rate to be 2.9 percent. The forecast is predicated upon a slow economic recovery and the fact that “online” as a local media advertising category is approaching what the publisher believes is saturation. Online media buys currently hold a 13.8 percent share of all local advertising. The publisher believes it will peak at a 16 percent share by 2013.

Unfortunately, one of the hottest growth categories — mobile — is not likely to play a significant role on the local media landscape next year. The publisher is estimating that local buys will comprise only 20 percent of all mobile advertising, totalling slightly more than $500 million in 2010. Still, mobile is a category worth watching as the audience grows and as couponing, mobile directory advertising and sponsored text messages and viable applications for local marketers. The game in 2010 will centre more on stealing market share than growing the market.

Local advertisers have had plenty of time to assess the effectiveness of banner ads, search, streaming video and e-mail advertising peddled to them over the past decade. They will abandon programs that just do not work, and embrace those that produce measurable results. They are also likely to continue following a few years behind the spending patterns of national advertisers by expanding their use of online promotions, which give them more direct access to their customers and prospects — without having to rely as heavily on media companies to help reach them.

For more information at http://www.rab.com
(Source: Borrell Associates, 10/09)