Borrell Associates has always been the most bullish among the firms forecasting and tracking local ad revenues. Their firm’s new report on what “local websites earn” is out. Here’s the chart breaking down what Borrell says is a $12.6 billion local online ad market:
Source: Borrell Associates
If we take just the directory and newspaper categories, here’s what the percentages translate into:
- Directories: $1.32 billion
- Newspapers: $3.2 billion
For 2008, according to the NAA, online newspaper revenues were $3.1 billion. These numbers likely include bundling and are probably not “pure” online advertising.
Per the IAB, full year 2008 online ad revenues were $23 billion. Borrell’s overall number, $12.6 billion, is just over 50% of the IAB’s overall online ad revenue figure. That seems quite high to me. However the directory and newspaper figures above are pretty accurate. I’m not sure if verticals are included in Borrell’s “directories” category however.
Screenwerk 
May 1, 2009 at 11:29 pm
Greg — thanks for the comments on our report. We certainly hear a lot of the same — that our numbers seem quite high. The IAB numbers shouldn’t be compared with ours because of the different methodology. (In fact, the IAB uses our local numbers, not theirs from Price, Waterhouse.) The trouble is, it’s EXTREMELY difficult to count “local,” and very few do it well. It’s like flying above a forest and trying to estimate how many trees are down there. Unless you’re on the ground, counting the saplings beneath the canopies of those large trees, you’re going to be way wrong. There are tens of thousands of companies taking a shot at local online advertising, and most people try a top-down methodology of adding newspapers’ online revenues, TV stations, yellow pages, etc., then some of the big pure-plays like ReachLocal, IAC, Local.com, etc. We actually count in the opposite direction — up, starting with what advertisers are SPENDING, not what media companies are collecting. It allow us to see all the little guys — thousands of them — that nobody else does. Like http://www.officite.com, http://www.blizzardinternet.com, and http://www.attorneysonlineinc.com. The difficulty in seeing the large numbers comes from the way the media industry typically counts advertising dollars. It was very easy before the Internet came along because there were a KNOWN number of TV stations in any market, a KNOWN number of radio stations, and newspapers, and yellow pages books, and cable companies and magazines. But with the Internet, like I said, it’s awfully difficult to KNOW all the entities taking money from the market. So we follow the money from the source, rather than try to count all the recipients. In markets where we’ve been challenged on the numbers and had the opportunity to show the market detail, people have walked away saying, “Wow, that’s incredible. I had NO idea!” It’s actually a damned fun business, and we at Borrell Associates are having a blast doing it.
May 1, 2009 at 11:45 pm
Thanks for the clarification Gordon. Still need to catch up with Kip on the “stages” methodology.
May 3, 2009 at 2:09 pm
Under this methodology, does the revenue number reflect the “marketing spend”, which (to me) may include website costs, SEM markups and promotion/agency costs? If so, the apples/oranges gap feels more intuitive. IAB is about ad buying not the fulfillment chain eco-system.
I’d also curious if you have looked at a “channelized” view. For instance, I believe that a significant portion of the “pure play” revenue comes as distribution partners for the Directories and Search Engines. So, to me, this chart represents the point of traffic generation, which is much different from the point of sales view, tracing the demand side back to the revenue supply side. How do you filter the double counting, since pure players revenues are often costs of ad acquisition from the other channels?
May 3, 2009 at 2:29 pm
Thanks for your question, Perry. All Borrell’s references to “advertising” are just that. We have another bucket called non-advertising marketing, which is where the SEM, website design, consulting, and everything else shows up. So anytime you see “online ad spending” numbers from us, they are only the amounts spent with media companies.
With regard to the channelized view, it gets fuzzy because of what you just described, but we do filter it. Remember, we have the “receipts,” including amounts collected by media companies from search advertising. We separate out all of Google’s and Yahoo’s search money and can tied (not good but not perfect accuracy) it to the appropriate media companies/publishers. But if you looked at the flow of, say, search dollars in that media pie, the vast majority would be flowing to either the pureplays or the yellow pages slices. I just did the calculation: traditional media companies got 1.6% of all local search advertising, while the “pureplays” got 98.4%. The vast majority of Google and Yahoo’s publisher checks go out to pure-play companies. The local media guys are getting piddly amounts from these programs, if they participate at all.
May 3, 2009 at 2:38 pm
Gordon:
Haven’t newspapers in your model historically had a big chunk of local online ad dollars?
May 4, 2009 at 7:07 pm
This just reminded me… “Pureplay” is another word that needs to be banished!! It’s not only vague, but it overlaps so many other revenue types. It’s now just a catch-all for “other”.
https://gesterling.wordpress.com/2009/04/22/what-words-would-you-like-to-banish/
May 11, 2009 at 10:40 pm
Yes, pureplay, banish it! In answer to Greg’s question (sorry, just saw it now, a week later), newspapers had a 44% share of locally spent online dollars in 2004, due mainly to having a lot of upsold classified listings on their websites. Currently, newspapers’ share is 26%; the big slippage is because they are sellling mostly banners and listings — the lowest-growth categories — and unable to capture an appreciable amount of search advertising or e-mail advertising.
May 12, 2009 at 10:16 am
Gordon:
How widely penetrated are the “Media4Metrix” sorts of deals. I know that they’re starting to proliferate and know selected papers that are selling SEM but I’m not as clear on how many newspapers are starting to try this. Although, in the atmosphere of chaos and distress that is the NP industry right now it’s got to be tough to set up such a program.