Local Advertising Isn't Jumping Online

For at least a decade, Web startups have spun visions of conquering local ad markets. Their dream is to tap that vast array of attorneys, lawyers, dentists, shoe shops, restaurants, and other close-to-home businesses that tend to advertise in the yellow pages. No single local business spends a lot on ads, but in aggregate, they represent a lot of money.

And why not chase the local buyers? Big national accounts have been snapped up by massive Internet companies with broad reach: Google (GOOG), Yahoo (YHOO), Microsoft (MSFT), and Time Warner's (TWX) AOL. And daily newspapers are in a serious state of decline, so all those advertisers who used to place ads in the classified sections of print newspapers will flock to the Web, right?

Market Growth May Decline Not exactly. Local interactive advertising is headed for a big slowdown this year, according to Borrell Associates, an online advertising researcher. This year "will be the first in many in which some components of interactive advertising show little or no growth, or may even decline," Borrell said in a November report. The market will grow 4.7%, to $13.3 billion in 2009, after 50% growth in 2008, Borrell says. And don't expect a rebound when the economy recovers. The market shows "no sign of improving quickly, irrespective of upward movement in the nation's economy," the report goes on to say.

Local small businesses will likely curtail spending on Web software, too, and that's bad news for OpenTable, the online restaurant reservation company that in late January filed to sell shares to the public. After being in business for a decade, the San Francisco company eked out operating profit of just $261,000 on sales of $41.3 million in the nine months through September 2008.

Bright spots in the local market are rare. Even Craigslist, arguably the most successful of the handful of Web companies specializing in local advertising, has taken off in only a few cities and monetizes less than 1% of its users. Yelp, the online review site, has outlasted peers, but Chief Executive Officer Jeremy Stoppelman concedes it hasn't been easy.

There's No Here, Here What happened to the "everything is local" adage? The concept of local is morphing quickly in a world where instant global communications and social media widen our circle of friends and acquaintances to include the world. In essence, we've become national—if not international—citizens.

Thanks to the myriad of online communities from information aggregator Digg to social network Facebook to niche blogs about everything under the sun, we can identify and coalesce around similar interests and shared passions with anyone in the world. You no longer have to be best friends with your neighbor or co-worker when a site like Twitter recreates a feeling of intimacy, if only a passive kind, online.

So if you're an advertiser and want to reach a particular geographic region, good luck. You can target a group, whether it's young singles, men between the ages of 35 and 50, or women climbing the corporate ladder—but increasingly, they're scattered across the country, not lumped into one city vs. another.

News Dailies Dropping Like Flies It's against this backdrop that local newspapers are in decline, even in major cities. The Seattle Post-Intelligencer and Denver's Rocky Mountain News could be closed if they're not bought—and there's not a lot of buying going on in this economic climate. The Miami Herald is also for sale. As the blog 24/7 Wall St. points out, newspaper chains Journal Register (JRCO) and GateHouse Media (GHSE) have been delisted from the New York Stock Exchange and another chain, the McClatchy Co. (MNI), is struggling to make debt payments. The blog picked bets for the 10 media properties most likely to be shuttered this year. Who made the list? None other than my own local newspaper, the San Francisco Chronicle.

At first the thought of a major metropolitan area like San Francisco not having a daily print newspaper sent a chill up my spine. Then I remembered that I haven't subscribed to my hometown newspaper for the better part of a decade. And despite the pain inflicted on the journalists and others losing their jobs as a result, there's not much of an outpouring of public outrage.

Remember "National Buy a Newspaper Day," an effort by a journalist to get Facebook users to go out and purchase a print paper on Feb. 2? Yes, more than 19,000 people pledged to buy a paper. But more than 22,000 couldn't be bothered to reply and 17,000 said they wouldn't make the pledge. Don't forget there are more than 150 million people on Facebook. The cause didn't exactly catch on like wildfire.

Is It Really Craig's Fault? Newspaper boosters are quick to blame the Internet for the death of dailies. The frequent object of their ire is Craigslist, which lets users post local ads for nothing. Craigslist CEO Craig Newmark begs to differ. In my interview with him on Yahoo's TechTicker last year, he said his site has had a "significant, but still pretty small" impact on classified-ad placement. In his view, local newspapers are at least partly to blame for their own demise. "Newspapers have much bigger issues," he continued. "Conventional news media have forgotten they're a community service. They're supposed to speak truth to power and do things like fact-checking and editing, and when newspapers forget to do that they lose more trust. And that is more damaging than anything we could ever do."

Whatever the root cause of the upheaval among local papers, local advertisers are not rushing to online local sites to fill the void left by this moribund industry. And that means Web sites hoping to profit from local Internet advertising may be in for as big a struggle as their counterparts in print.

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