02 Jan 2010

2010 Local Online Advertising– why we’ll see massive growth

21 Comments facebook marketing and advertising, Featured, finance and economics, internet marketing training, local advertising

Let’s first address the size of the local online advertising market, then show why these masses will have a good shot at finding success in 2010, but haven’t before. If you don’t like stats, skip down to the red text below and start reading.

Borrell Research, in their 2009 “Main Street Goes Interactive” report lists 14.6 million small businesses online in the United States.  Kelsey claims 18 million. Other Yellow Pages publishers claim upwards of 22 million.  Whatever cut-off you use for small business– if you include lemonade stands and folks selling tupperware or beauty cream at night– the price point for these small businesses is $500 a month for advertising.  That’s not just PPC or even online marketing to build websites and run email campaigns– that’s the whole budget for everything.

For paid search, these businesses spend an average of $261 on paid search per employee per year– keep in mind the lie of averages, since you’re accounting for companies that spend zero, as well as those hobbyist businesses. That $261 represents 11% of the total ad budget, which works out to $2,373 per employee per year.  Assuming the average small business salary is $35k, then advertising is 7% of labor cost– low for professional service firms, but high for a retailer.

  • SMBs (Small and Medium Businesses) spend on average only $267 per year on their website (hosting, development, and support).
  • While all businesses spend only 26% of their online marketing dollar on advertising, SMBs spend 83%.
  • While all businesses spend 67% of their online dollars on support, small businesses spend 9.3%.

Why?  They can’t afford custom development for just a couple hundred dollars.  And the ones doing paid search are using self-serve with budgets of a couple hundred dollars a month– way too small for an agency to pick up and provide a listings product, PPC campaign, site development, email autoresponder, call tracking, and the significant consulting (client education) needed to make this happen.

The small business sweet spot is $500 a month and under, while the price point in the market to truly deliver value (there are players who are less than $500 per month, but don’t deliver the full solution needed) is $2,000 per month. That gap will close in 2010.

The way it will close is through the intersection of local, mobile, and social.  The research we did at Yahoo! showed that small businesses are not comfortable with self-serve, no matter how “simple” we try to make creation of PPC campaigns, building a site through templates, setting up email autoresponders, and so forth.  Too daunting, not enough time, too expensive– and therefore it remains untouched.  The stats from 2007 were that 87% of small businesses were aware of PPC, but only 9% of them were actually doing it.  This gap underscores the point.

Video game dynamics teach users complex systems of rules via a gradual leveling and unlocking mechanism– starting from a basic set of operations and gradually revealing new features and options until players have learned the game. You can read here about these mechanisms and how they apply to Farmville, your local supermarket, learning to read, or other activity by checking out this post on social game dynamics.

Now these games have moved from the desktop to your phone– and now there are games such as FourSquare, Gowalla, and Poynt, where you can earn virtual currency in a giant, real world scavenger hunt. And the phone knows where you are, can take pictures, can collect data in ways that PC’s can’t.

And the social networks have now amassed the social graph in ways that makes game dynamics truly possible.  Facebook recently shot through 350 million users worldwide and is now 25% of the traffic in the United States– that’s 1 in 4 pageviews across ALL traffic in the US–

So now you have a mobile crowd that is connected to the social graph, earning incentives to record where they are and gather information on local businesses.

THIS is your salesforce. This is the borg that will assimilate you into the hive– the stay at home moms that will earn points for enrolling small businesses into BlitzLocal, playing a video game that happens to earn them real dollars.  This is the army of local entrepreneurs, playing not FarmVille, but BlitzVille.  We’re not calling it that, but you get the idea. Watch as thousands of stay at home dads, motivated by online video games designed to enroll small businesses use a system that simplifies the process of online marketing for local businesses.

And the small business will receive personal service from their friends, a measurable result from the system that they’re using together (after all, video games are all about clear rules), and have a good time while they’re at it. No more hard sell, no more being handed off to the next available call center agent (he says his name is “Peter”, but you know it’s not from his accent).

It will be interesting to see how the traditional model of aggressive direct sales fares in the open, social, local, mobile approach:

  • Consider how they will react when small businesses demand transparency (just show me the CarFax) on how much of their dollar is actually being spent on ads versus sales commission and overhead.
  • How will they deal with margin compression when their model of having multiple people involved in the process– sales, operations, engineering, support– gets squeezed down when the local/social/mobile approach requires just one person who is eager, well-educated and already has a relationship with that client?  The direct sales model has 30% of cost in sales and marketing, while the local/social/mobile model has no traditional advertising costs.
  • How will the traditional sales model deal with a price point that will drop below $500 per month– maybe to $200 per month– ye still be forced to drive as much value at the previous $1,000 a month packages?  You’ll see a deflationary impact just like the rapid obsolescence of computer equipment.
  • And to the software sellers, who are licensing software for $200 a month– so they do meet the price point– how will they solve the “last mile” problem of collecting enough data from that small business owner to be able to create a website that is compelling– that won’t waste the traffic that comes from a templatized PPC campaign?  The SaaS (software as a service) model of monthly software fees is appealing for its scale and ability to sell at low price points, but will fall down for not being able to integrate service.  If service weren’t necessary, then everyone would be on Adwords and WordPress already.
  • What will the software and direct sales firms do when they cannot spend their way out of the margin issue, no matter how much money they raise– IPO or not?  If you’re selling $10 bills for $8, you’re not going to make it up in volume.

The model of local/social/mobile is:

  • Akin to the open source software movement– a belief that the community can organize to provide products for nearly free and of better quality– that results should be transparent and that campaigns should be owned by the small business, as opposed to being held hostage so they can’t switch out.
  • Keeping dollars in the local economy– to support local businesses, with anyone being able to start their own local Internet marketing firm to serve their neighbors honorably– to create a grass roots army of local Internet marketing experts.
  • Employing stay at home moms, students, and anyone who is well-educated, but can’t work full-time in sales. We’ll tap into the labor market of part-time and underemployed folks, who might not be trained professionally in Internet marketing, but can use our systems to create results as good or better than the “big firms”. They might have a Masters degree, but need to spend time with the kids. Or maybe they just don’t want to work in an office 40 hours a week.

If you want to join our team, see our training processes, or even try our product for free, just drop me a line.  Gamers of the world unite. You will be assimilated.

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written by
Dennis Yu is the Chief Technology Officer of Portage. He is an internationally recognized lecturer in Facebook marketing, having been featured in The Wall Street Journal, New York Times, LA Times, National Public Radio, TechCrunch, Fox News, and CBS Evening News. He is also an author at InsideFacebook and AllFacebook. Dennis has held leadership positions at Yahoo! and American Airlines. He studied Finance and Economics from Southern Methodist University and London School of Economics. Besides being a Facebook data and ad geek, you can find him eating chicken wings or playing Ultimate Frisbee in a city near you. You can contact him at dennis@portage.co, his blog, or on Facebook.
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21 Responses to “2010 Local Online Advertising– why we’ll see massive growth”

  1. Reply Denny Sugar says:

    Awesome article Dennis. The idea that technology will be easier to assimilate through a game is brilliant. I think for many local marketers (the few of us that our out here) being able to show business a way to recruit and leverage their fan base is huge. I can see coupons and special offers fueling challenges similar to what Groupon is doing now. The possibilities are endless.

  2. Reply Thos003 says:

    Great post. I have often compared SEO to video games. Anyone that knows how to beat a computer game will excel online. But I am amazed that so many are so willing to give up so much information and ultimately work for free via foursquare and the likes. While the per piece value of that info may be so small the truth is that it valuable. On the follow through with that thought is that we may be creating an army of drones that will eventually see that there is a value and then feel they, their thoughts, recommendations, and such, are worth more than they really are.

    But hey, I am in for actually getting paid a little for giving my opinion that I give so freely.

  3. Reply Twitted by doston says:

    [...] This post was Twitted by doston [...]

  4. Reply Tom Wilkowske says:

    Dennis, this post came at just the right time for me. I’ve spent the better part of a year trying to figure out how to redirect my writing and design skills from print to a web context. I know my local market well as a journalist. Trying to teach myself WordPress/Thesis, SEO, CSS, and call-to-action writing has left my head spinning. Tell me more about BlitzLocal.

    • Reply Dennis Yu says:

      Tom, your timing is excellent! I’ve sent you a private email explaining how the BlitzLocal system works– why there is great opportunity for you and why it will make you the Internet marketing star of repute in Duluth, MN. Learning SEO, CSS, PPC- or whatever acronym is not really a good use of your time, as it’s impossible for any one person to master a dozen different areas that are already highly competitive with people that spend their lives learning just ONE area. Thus, ultimately it’s about making sure you’re competing on your competitive advantage– and not to have one is foolhardy– to invite failure in the marketplace. But given your knowledge of your local market, writing skills, and journalism background– you can pair that with our technology advantage, so that we can take care of those technical details and support you on all your deals.

      That’s the crux of my post here — that there are so many people who, if just equipped and supported the right way, could run their own successful Internet marketing businesses. Not only would local clients choose them for being local and accessible– but these local analysts would offer superior, indisputable proof of ROI, as we can track how many phone calls our Internet marketing is driving. This is talking the language of the business owner– if I spend a dollar, how many dollars do I get back? That, as opposed to some technical gobbedly-gook.

      Looking forward to working with you, as well as anyone else who wants to join us pre-launch.

  5. Reply Mark says:

    Dennis,
    This is a fine follow-up to your post on game theory and social media; takes it deeper and then the unexpected turn at the end. I know that as a local seo business we deliver a ton of value to our customers; it also is a ton of work to get those results and I’ve been struggling with how to make that scalable.

    There are so darn many people and businesses to help and if they don’t get up to speed, they will be roadkill on the info superhighway.

    We’ve talked about the demise of YP and even though they are innovating as fast as they can in IYP, I think the writing is on the wall for them – I don’t take any pleasure in saying that!

    So if traditional media swirlies down the drain, where then do SMB’s contact customers? Online? Sure but the real BIG market is mobile. And to scale into that and do a great job requires expertise in local seo, video seo, mobile seo, PPC, and social media. Attsa big meal!!

    Man if you have something that eases even part of that workload, I’m very excited to learn more.

  6. Reply Rob says:

    great post.
    whats the product you are talking about?

    • Reply Dennis Yu says:

      Hi Rob,

      We have a $10/month local listings product. It’s not publicly available on the site, but if you shoot me an email, I’ll send you some stuff for you to review. Use dennis@blitzlocal.com. I’m excited to see what happens when we launch in a few weeks– it’s been a long time in the making!

      I went to your site, by the way, and didn’t find an “About Rob” tab and the Facebook profile link didn’t seem to work– would like to hear more about what you do.

  7. Reply Priyanka D says:

    with farmville having more users than twitter, gaming is surely on the rise!

  8. Reply Bill Corse says:

    Dennis, I come from payments world and am working out gift cards, loyalty, text marketing and developing a scenario whereby I maximize all this with measurable results via cell, promo code, cell number and then enter via POS so we have collective result for any and all campaigns. Local search online and via cell I have no clue outside typical text based sign up. I would like to incorporate.

    I have the tech to incorporate coupon, loyalty, promo via POS and bring back into central Dbase- your balance would be great benefit

    Please contact
    Bill

  9. Reply Search Marketing Local says:

    Great article! I believe we will see a huge growth in local search marketing. So many businesses are recognizing that this is a cheaper and more effective way to market their business, and if don’t properly it can be a great benefit to them. Thanks for sharing this great article!

  10. Reply Local Search Marketing says:

    Local search is definitely the bomb right now. Local businesses that get in now and start firming up their internet real estate real estate will be the big winners.

  11. Reply Kimberlee Stephens says:

    This is an awesome article and looks like a great company. I’ve been in online sales and marketing for over 10 years, most recently at Adobe. Since leaving, I’ve started a few sites/ventures: Adobe affiliate program for upgraders http://www.cs5upgrades.com, personal blog at http://www.kimberleestephens/blog, and mostly recently offering small business affordable local AdzZoo search marketing packages http://kimberlee.adzzoo.net/ – I’d be really interested in your feedback on the AdzZoo offering and a competitive analysis of what you are offering and the results local advertisers are going to get vs. and AdzZoo campaign. There is just so much to learn. I want to make sure I’m headed in the right direction before getting too far in.

  12. Reply Eric James says:

    Awesome article Dennis! This just gives me even more inspiration to the events that will unfold with the LoocalAdvertisingBlueprint.com concept. We are developing a turn key approach that will synergize the 3 elements you mention. Education on that local level is what will bring the power to the small to medium businesses. What we endeavor to accomplish is create a do it yourself model for both the business managers themselves or a local advertising entrepreneur who wants to build up their own local digital marketing ad firm with emphasis on social, SEO and mobile.

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