Local Web-Ad Market Cools Down

From yesterday's WSJ:

"Local ads have accounted for some of the fastest growth in Internet advertising in recent years, as small businesses from car-repair shops in Dallas to bakeries in Charlotte, N.C., have taken
their marketing online. This year, growth in the local-ad market -- which represents about a third of total online ad spending in the U.S. -- is expected to shrink, according to one key estimate, challenging the ad and media-buying shops that rely on the local Internet market.

A number of start-ups, including ReachLocal, Yodle and Spot Runner, have cropped up in the past few years, raising millions of dollars and building technologies to help local businesses make the most of their Internet ad buys. Meanwhile, moreestablished local-media companies, from newspapers to Yellow Pages directories, have scurried to retrain their sales forces to sell online ads alongside their traditional products.

Now, local businesses are chopping their total ad spending amid the recession. While the local online-ad market remains one of the few relatively bright spots in the ad landscape, it probably will be tough for any one ad-space seller to reap much of the benefit. "You have a lot of competitors offering the same thing, or something that is very similar. It's holding back the market to some degree," says Greg Sterling, principal at consulting firm Sterling Market Intelligence. And there won't be as much gold to go around as the prospectors had hoped. Online spending by local U.S. advertisers, which grew by 45% in 2008 to $12. 7 billion, is expected to see growth fall to 5.4% in 2009, according to media-research firm Borrell associates. Total U.S. online ad spending is expected to be about flat, declining 0.3% to $36.9 billion in 2009, compared with growth of 8.5% in 2008, Borrell says.

Despite the challenges, ReachLocal, based in Woodland Hills, Calif., plans to announce Wednesday that it has created a new system to help local advertisers buy targeted display ads. The initiative is part of its effort to become a full-service marketing shop for local businesses.

The system, which ReachLocal has been test-marketing, gives local advertisers access to some of the same sophisticated targeting technologies used by major marketers, such as showing ads only to consumers who previously visited the advertiser's Web site or live in a certain area.

ReachLocal chief Zorik Gordon says that despite the slowing growth, the shift from traditional
ads to more-measurable online advertising, which includes pay-per-click ads, will continue, and
that ReachLocal should benefit. Founded in 2004, ReachLocal is out to build a sort of mini-Madison Avenue stretching across the country. Backed by $67.9 million in venture funding, the company has about 700 employees in 30 offices world-wide. It started by selling Web-search ads, or ads related to what a search-engine user is searching for, and creating a reporting system that lets advertisers track the effectiveness of the ads they buy. For instance, ReachLocal can assign a special tracking phone number to an ad that allows the advertisers to tell how many phone calls the ad has generated, and to listen to recordings of those calls.

Among the first advertisers to buy display ads through ReachLocal's new system was Sport &Health, which operates a network of health and fitness clubs in the Washington area. The company tried purchasing display ads on its own in the past, buying ads on local news and weather sites as well as on health and fitness sites. The ads, which let consumers click through to a free trial offer, didn't bring many new customers into its health clubs, says Nancy Terry, Sport & Health's senior vice president of marketing.

The new ReachLocal system allows Sport & Health to display an ad for its clubs to a consumer who did an online search for "Health Club Washington D.C.," for example, and clicked on the ad but didn't respond. When that same consumer later surfs other Web sites, a Sport & Health ad can appear. Ms. Terry says it is an affordable way to drive more traffic to the Sport & Health Website".