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2009 OUTLOOK:
BIG SLOWDOWN BEGINS
FOR LOCAL INTERACTIVE ADVERTISING
Borrell Associates - November 2008
Forecasting how businesses will spend their precious ad dollars next year is like skeet-shooting in a windstorm. We’ve got the velocity and trajectory down pat, but the gusts caused by the credit crisis make it harder to pinpoint the target. The generalities, however, are certain for 2009:
spending on traditional media will decline, while spending on interactive will increase.
Our latest forecast has offline media dropping 1.4 percent next year, while interactive media increases 7.2 percent.
For local interactive media, the big ad slowdown has begun a year earlier than we anticipated. Spending by local advertisers – which has grown at a frenetic 47 percent this year – is expected to diminish to a paltry 7.8 percent in 2009. Local media companies projecting double-digit and even triple-digit increases in their interactive budgets next year will have a very di fficult time meeting those expectations – especially if they rely on banner ads.
The credit crisis has magnified trends that were already in motion. For most of this decade, advertisers have been viewing interactive media as a more efficient, less costly way of reaching consumers than traditional media buys. “Adjusting the dials” of advertising expenditures is normal business behavior in bleak economic environments. It can be seen in prior downturns as far back as 75 years ago, when radio advertising got a big boost (at the expense of newspapers) during The Great Depression, and 17 years ago when cable advertising expenditures accelerated during the 1991-92 recession. The dials are just about adjusted for interactive media, with some final tweaking occurring next year.
But just saying that interactive advertising will see mild increases next year isn’t telling the entire story. Not all forms of it are forecast to show the same rate of growth. We are expecting a decline in “standard” formats – banners, pop-ups, and interactive display in general – in 2009. As new advertisers move to the Web, they are less inclined to spend their newly-shrunken ad budgets on traditional formats that they perceive to be less eff ective. The same “John Wanamaker Syndrome” that a ects traditional media –
“Half my advertising works, and half of it doesn’t. Trouble is, I don’t know which half!” – is now creeping into the interactive advertising world. The sparkle of banner advertising has dimmed, and advertisers are turning their attention toward newly sparkling formats that may hold greater effi ciency: e-mail, paid search and streaming video.
In summary, 2009 will be the first year since the start of the century in which some components of interactive advertising show little or no growth, or may even decline. The changes foreseen are not cyclical, and show no sign of improving during forthcoming years, irrespective of upward movement in the nation’s economy. No form of advertising yet invented has grown forever. Interactive ad spending is no di fferent. However, the downward trend of some interactive ad formats has been hurried along by a massive economic downturn.
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Google’s (GOOG) earnings are ancient news now. The search company did much better than expected. The
economy did not bring it down like a rhino killed off in the wild.
The company’s Q3 EPS of $4.92 was above Wall St's forecast of
$4.75. Revenue moved up a remarkable 31% to $5.54 billion. The number that
almost no one expected was that the rate at which customers clicked on Google ad
search links went up. Consumers are still interested in buying things and they
find them mixed within the Google search results.
Google may get advertising from large companies like GM (GM)
and Bank of America (BAC). They apparently find that the targeted environment of search is more a more powerful tool for
getting customers. None of that is good for internet display ads, TV, or
newspapers. In a recession, there is only so much marketing money to go
around.
What is less obvious than the fact that big advertisers are
moving to search is the strength of small business spending which the Google numbers uncovered. The hidden economy of
tiny enterprises must be doing substantially better than some government numbers
would tell.
Google may have some brand name marketers among its
customers, but most of the volume of its advertising comes from hundreds of
thousands of smaller companies around the world. Drop the word “baby” into the
Google search box. The advertising is from topbabynames.com and
babymommystuff.com. Punch in the term “boats” and the paid links are to
pontoonstuff.com and hotboatdealers.com.
Google’s results uncover the robustness of an unimaginable
number of marketers who may only spend a few thousand dollars to vie for
customers. But, they would not be spending the money unless, in the judgments of these modest operations, it worked.
The surveys from the Commerce Department and MasterCard Small
Business would have the public believe that the economy is dying from the ground
up at the same time that companies such as GM (GM) and Merrill Lynch (MER) are
dying from the top down.
The Google earnings may be good for Google, but also allow
for a remarkable optimism about the rest of the economic world. It is surviving
dollar by marketing dollar and click-by-click, but it is still surviving.
Douglas A. McIntyre
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LOCAL WEB SITE VALUES
Borrell Associates - September 2008
The oldest newspaper, radio TV and "city.com" Web sites turned 14 years old this year. In that short time span they have evolved from being interesting experiments to become their parent organizations' center of attention and financial saviours. Some of them now generate millions in revenue and significant profits, and have high potential for continued growth - begging the question of just how much these local Web sites might be worth.
As traditional media companies increasingly find themselves on or headed for the trading block, the need to place a separate value on these Web operations - at a far greater muliple of revenue or profits than their parent properties - is growing. And what about the independent city.com sites such as Atlanta.com, LosAngeles.com or Toledo.com? Could these brash upstarts be creating value that might one day challene their more mature media bretern? | |
BIA Financial Network has teamed up with Borrell Associate to analyze local Web site revenues, expenses and growth trends in an attempt to answer these questions. What emerged was another strong indication of the fundamental changes taking place in the media industry; local Web sites generate important value for their owners, especially for woners that have positioned their sites for growth in ke high-demand advertising categories such as e-mail, streaming video and paid search. Some of these local Web sites are woth between $300 million and $450 million, and even small sites are seeing values in the low millions of dollars.
Not all local sites are created equal. Newspaper-owned Web sites tend to have the highest revenues, but their valuations are constrained because their gowth rates have slowed and they are selling mainly banners and listings - relatively slow-growth advertising categories. TV, radio adn local pure-play sites tend to have higher multiples associated with their valueation because they are better positioned for future growth.
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2008 LOCAL WEB REVENUES REPORT
Borrell Associates
Local Web sites continue to ride a wave that defies even the most optimistic forecasts. Local online revenues are growing at a phenomenal rate of 50 percent this year – even more astonishing considering that retail sales have suffered such a sharp drop. We expect local online advertising to reach $13.1 billion in 2008, up slightly from our initial forecast last December.
Part of the growth is being driven by traditional local media companies selling advertising on their own sites. Most of it, however, comes from pure-play companies delivering lower cost advertising that intercepts consumers not as they are reading news online, but as they are using the Web to research products and prices. The recession is an economic prod that is motivating advertisers to abandon their long-time spending patterns and seek out more economical methods of reaching potential customers.
Amid the relentless growth, a transformation is taking place. A few years ago, it was easy to tell who owned which local Web site. Radio station sites looked like they belonged to radio stations. Yellow Pages sites had the walking fingers logo. TV sites carried the station’s call letters and the anchors’ pictures at the top. Newspaper sites pushed local news and classifieds under their traditional mastheads. Now it is getting tougher to tell, and it is becoming less relevant by the year to compare Web sites against each other according to the core product their parent company owns.
After compiling this year’s survey, two headlines screamed out:
·
The most financially successful local Web operations are venturing into page designs and product lines that have little to do with the medium that gave birth to them. Like their “new media” predecessors in radio in the 1920s and television in the 1950s, they are creating unique identities and breaking away from their print and broadcast roots.
·
Suddenly everyone seems focused on using the Internet to attack the Yellow Pages. Interactive directories have popped up everywhere, and legions of sales people are selling local business directories and search-advertising packages in competition with the print directories. Unfortunately for them, Yellow Pages publishers have already staked out the turf and have been the most successful of all media companies at developing their interactive revenues and protecting their core customer base.
What’s in store for these local Web operations in the coming years? A slowdown is inevitable. Over the past four years we have seen local online ad sales reach a Compound Annual Growth Rate of 48 percent; over the next four we’re expecting it to be 15 percent.
We are forecasting another 18 months of strong double-digit growth for local online ad sales, which will settle to single-digit or “market norm” levels by 2012. By then we expect the “winners” in local online advertising to have grown to the size of the second- or third largest media outlets in their markets in terms of total revenues. Newspaper sites, with a formidable lead on everyone else, have the biggest head start.
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Slowing Economy Hits Online Advertising
July 8, 2008
-By Brian Morrissey
CNEW YORK The slowing economy is cutting into online ad growth -- although it is likely to take a greater toll on offline media, according to a new survey.
William Blair & Co. surveyed 150 Chicago-area interactive marketing companies to gauge the health of the medium. While it discovered a positive outlook, the investment bank found the gloomy outlook for the economy slowing growth.
Two-thirds of respondents said economic turbulence is affecting spending. Respondents indicated an expectation Internet advertising would grow slightly more than 16 percent in the next year. In its previous surveys, William Blair tracked 19 percent growth expectations. The areas forecast to thrive: paid search and direct response ads that can be tied directly to ROI.
"Online's healthy, but the economy is definitely having an impact," said Sean Riegsecker, CEO of Centro, a Chicago ad service for newspaper sites, in a conference call to discuss the findings. "In a weak economy, people are going to move more towards direct response. We're seeing brand advertising take a much bigger hit this year."
The findings come as ad forecasters revise their projections for the sector because of the slowed economy. Magna Global svp Bob Coen now expects 12 percent growth in online display advertising, a sharp correction from the 16 percent bump he forecast last December.
Dave Marsey, group media director at Digitas, said: "It seems like advertisers are holding back until they see what's going to happen over the next few months. All boats seem to rise and fall with the tide."
One effect of the rocky economic climate: Ad price inflation is slowing. While last year's respondents pegged price increases at 7.3 percent, this year's prices are up 3.2 percent. William Blair attributes this to the vast amounts of inventory now available thanks to the popularity of social networks driving down prices for remnant inventory. The bank expects CPMs will continue to decline at portals and vertical sites.
"It's holding steady," said Marsey. Absent of the economy, it would have been higher.
Google's current run of success in Internet advertising, at the expense of rivals Microsoft and Yahoo!, is expected to continue, according to a new survey of interactive marketers.
William Blair found 61 percent of respondents identified Google as the Internet media company best positioned for the next two years. Facebook was the top choice for 11 percent of respondents. Yahoo! got nods from just 6 percent, down from being the top choice of 30 percent in the previous year's survey.
William Blair sees a confluence of factors that are benefiting Google while hurting Yahoo!. Users are visiting more sites, making Google's search engine more important, yet conversely weakening Yahoo!'s lead as a portal. The growth of social networks is putting pressure of Yahoo!'s display ad business, too, driving down prices and taking away time spent on Yahoo!. What's more, the Internet remains the choice for direct marketing budgets rather than brands, the survey found.
"You're not going to prove to a brand advertiser that I'll show you a click on an ad and it'll move budgets," said Gian Fulgoni, chairman of comScore, an Internet measurement service.
Marketers identified behavioral targeting, mobile marketing and social networks as areas poised for growth over the next year. William Blair estimates social networks now account for 15 percent of overall time spent online, although their corresponding ad revenue is far lower at 4 percent.
The percentage of respondents advertising on social networks rose from 41 percent in last year's survey to 62 percent this year. The key to increased spending identified by the survey: better targeting. William Blair believes social networks occupying as central a role in advertising as they have in consumer behavior will be a long slog.
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2008 Perspectives On Local Online Advertising and Content
Marchex
Excerpts from this Report....
Consumers are increasingly relying on local search to make decisions about where to spend their money and time offline.
In fact, 86 percent of Internet users search for local products and services, up from 70% in 2006 (Neilson/Net Ratings
Survey) and more than 90 percent of the transactions resulting from these searches are completed offline (Yahoo Search).
A recent study by comScore Networks and TMP Directional Marketing, found that local search grew 24 percent in 2007, while
general Web search grew only 14 percent.
Recognizing an opportunity, advertisers’ investment in local online advertising services are projected to grow from $8
billion in 2007 to nearly $20 billion in 2011, equaling the $20 billion spent on total online ad billings in 2007
(Veronis Suhler Stevenson, 2007).
Improved and more affordable mobile data services will only tip the trend towards consumption of local information
faster.
Mobile
will extend the applicability of content originally developed “by locals for locals” to travelers who seek an insider’s
edge on how to get the most enjoyment out of their visit to a given neighborhood.
The adoption rate of online advertising services by small- to medium-sized businesses (SMBs) will continue to rise,
driven by local sales channels such as AT&T. SMBs are becoming savvier about where they spend their advertising dollars,
and local sales channels are placing an increased emphasis on Internet advertising sales. They are introducing new online
advertising services that prove their value through detailed reporting and analytics, which are similar to what large
marketers have grown accustomed to.
Local advertising is nothing new to most marketers. In fact, about $100 billion will be spent on local advertising this
year. However, marketers are only beginning to tap in to the massive audience of buyers searching the Internet to
determine not only what products and services to buy, but whether they want to purchase them online or at a provider’s
place of business.
According to Yahoo! research, 88 percent of sales revenue generated from online advertising is derived from consumers who
have done their research on the Internet then made their purchase in a brick and mortar store.
The local search and content landscape is fragmented across a plethora of providers including search engines, Internet
Yellow Pages, local search and review sites, and newspapers. The lack of leadership in providing local content online is
a testament to the challenge. Google may attract the majority of searches with local intent, but there is still no
trusted source of complete local information that users can rely on.
As local searches return richer answers related to communities, users will rely more on local content online. Beyond
hotels, restaurants, and classifieds, there isn’t a central repository of information about our neighborhoods online,
whether it is the status of a construction project down the street or high school sports results.
As citizens are
empowered to share more information about where they work, live, and play online, users will begin to search for that
information online. The availability of business reviews has certainly been a driving factor in rising local search
volume. Users check restaurant reviews before they go out for a special occasion or research contractors before having
work done on their homes.
Local information sites are all trying to make their sites better. The key question is, better for whom? Success will be
directly correlated to participation – and not just the number of end users (consumers). Site owners also need to engage
business owners, and site owners themselves must participate. Multiple participants are required to promote an ongoing
conversation. This gives a site vitality and relevance, and encourages return visits.
Businesses have joined the community. They understand the importance of participating in the conversation. Local
information sites offer programs that allow merchants to enhance their presence on the site, such as the ability to add a
logo, photos, description, offers, etc; and, on occasion, businesses join the conversation directly by writing responses
to consumer reviews.
The problem: merchants must select which local information sites they will focus their resources on
to manage their presence in the community.
The solution: the sites offering the greatest extent of participation by all
groups will emerge as leaders. Merchant participation will accelerate in 2008.
The problem: most sites don’t participate in the community they enable.
The solution: local sites need to understand their customers’ needs and share their “local knowledge” about the information available on their site. The more site
owners participate in the conversation with timely information, the more users will return to the site because they want to, not just because they need to. Participation is what makes the most popular portals, blogs, sports, and news sites successful.
Small businesses understand the importance of advertising, but their focus is on running their business. They don’t have
time to research all available advertising options. They don’t have unlimited budgets, and sales people are always
calling on them. They trust tested proven methods, and they need to be convinced that new methods are worth their
investment. A sales channel that can communicate a compelling ROI story for Internet advertising will find an audience
with small businesses.
Any new sales channel needs to establish and maintain credibility with small business owners. As these businesses receive
sales pitches from numerous representatives, they become very discerning. A trusted partner, with whom they have an
established relationship, such as their existing Yellow Pages publisher, is in a strong position to sell Internet
advertising. To ensure that traditional media sales representatives can deliver this message effectively, many local
sales channels have committed to online advertising sales training programs.
A real estate agent identifies himself as a real estate agent. A tennis and sporting goods store owner describes herself
as such. So, even if a sales channel or agency can address all of the previous elements properly, they still need to
speak to small business owners in their own language, avoiding local ad speak.
Ultimately this calls for local online
marketing offerings tailored to specific business categories.
Determining the optimal blend of business model and inventory sources will be a prerequisite for success as mass adoption
takes hold and business owners become more discerning. This is what will keep us all at the top of our game for years to
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Local vs. National Online Ads
JANUARY 31, 2008
The locals are no longer yokels.
Local online display and search advertising are set to be the fastest-growing online ad categories, according to
JupiterResearch
.
The research firm recently predicted that local search would eventually compete with national search.
“Although traditional media such as newspaper and local broadcast are facing new challenges regarding their business models, local advertising in these media mainstays is not a dying market,” said Barry Parr, analyst at JupiterResearch.
This analysis agrees with eMarketer's predictions for local online ad growth over the next several years. In 2008, the local online ad growth rate will be nearly twice that of national online ads.
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INTERNET ADVERTISING REVENUES IN Q3 '07 SURPASS $5.2 BILLION, SETTING NEW HIGH
NEW YORK, November 12, 2007 The Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers LLP (PwC) today announced that Internet advertising revenues exceeded $5.2 billion for the third quarter of 2007, representing yet another historic high for a quarter and a $1.1 billion increase, or 25.3 percent, over Q3 2006. The results, published in the IAB Internet Advertising Revenue Report, are nearly 3 percent higher than Q2 2007, itself the last record-setting quarter. All three quarters in 2007 have set new highsQ1 at $4.9 billion, Q2 at $5.1 billion, and now Q3 at $5.2 billon. Revenues for the first nine months of 2007 totaled $15.2 billion, up nearly 26 percent over the $12.1 billion recorded during the first nine months of 2006.
"The continued robust growth of the industry indicates that marketers increasingly understand and appreciate the benefits of interactive advertising," said Randall Rothenberg, President and CEO of the IAB. "Marketers large and small have come to accept digital media as the fulcrum of any marketing strategy."
"Internet advertising revenues are on an annual run-rate exceeding $20 billion, further demonstrating the industry has truly come into its own," said Peter Petrusky, director, Entertainment, Media & Communications Practice, PricewaterhouseCoopers. "The emergence of new platforms, including broadband video, rich Internet applications, mobile, and social media promise to deliver new benefits for consumers, and create exciting new venues for marketers to realize value in digital media."
"The results of the survey continue to underscore the value that interactive advertising brings to the marketplace, as marketers and agencies build on established guidelines and best practices to control costs and maximize returns from their growing interactive budgets," added David Silverman, partner, Assurance, PricewaterhouseCoopers.
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ONLINE AD SPENDING TAKES A LARGE JUMP
Bloomberg News - October 5, 2007
U.S. Online advertising spending topped $5 billion in the second quarter, a record for a three month period, signaling that more advertisers are abandoning newspapers and television.
Companies boosted ad spending 25% to $5.1 billion from a year earlier, the Interactive Advertising Bureau and PricewaterhouseCoopers LLP said Thursday. For the first half, spending rose to about $10 billion, also a record.
Google Inc. and newer entrants such as News Corp.'s MySpace and Facebook Inc. are benefiting as companies spend more to reach Internet users. Spending on search ads, Google's main revenue source, accounted for 41% of all online ad spending in the first half, the study found. Display ads such as banners and video accounted for 32%.
Spending on network television spots fell 3.6% to $11.8 billion in the first half, while newspaper ads declined 5.8% to $12.9 billion, TNS Media Intelligence said last month. Radio ad spending fell 2.7% to $5.14 billion
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RAMA Research Finds Magazines, Television and Newspapers Prompt Online Product Searches
--
Young Adults Using New Media to Communicate About Online Searches --
Washington, DC, March 12, 2007 – Though there is no question that online searches are becoming more popular among consumers, what exactly triggers those consumers to search online? In a recent analysis of BIGresearch’s Simultaneous Media Survey (SIMM 9) conducted for the Retail Advertising and Marketing Association (RAMA), consumers say they take cues from traditional advertising to determine when and where to search for merchandise online.
Consumers said that they were most motivated to begin an online search after viewing advertisements in magazines (47.2%), newspapers (42.3%), on TV (42.8%) and from reading articles (43.7%). Women were more likely than men to be motivated by coupons (41.8% vs. 29.0%) and in-store promotions (29.0% vs. 24.5%) while men were more driven to start an online search based on a face-to-face conversation (36.1% vs. 29.5%).
“When it comes to advertising, retailers always need to be careful not to put all of their eggs in one basket,” said
Mike Gatti, Executive Director of RAMA. “While search engine marketing continues to be a popular strategy, retailers should not lose sight of traditional advertising channels to promote products and services.”
After searching, online consumers said they are most likely to communicate with others about their search through face-to-face discussion (68.9%), though email (53.1%), telephone (50.9%), and cell phone (30%) communication were also popular choices. Young adults 18-24 are also taking advantage of an influx of new media, communicating about service, products and brands by instant messaging (37.5%), text messaging (23.7%) and through online communities like
MySpace and
Facebook (20.6%).
”Retailers must realize that online communities are now producers and through their stories are able to extend the distribution of traditional media with a trust and truth not even approximated by mass media,” said Joe Pilotta, Vice President of BIGresearch.
Shoppers continue to use the web as a resource before determining which items to buy and where. According to the survey, 92.5 percent of adults said they regularly or occasionally research products online before buying them in a store. Products that are most often researched online before being purchased in a store include electronics (50.8%), apparel (31.9%), and appliances (27.0%). Men were twice as likely as women to shop for automobiles online (20.2% vs. 10.2%), though women research home décor products more often than men (18.9% vs. 11.6%).
About the Survey: The SIMM 9 survey is a consumer centered survey of 15,287 consumers, which is conducted two times each year. SIMM measures consumption across media, retail channels and products and provides marketers with unique, holistic consumption insights for improving marketing ROI. SIMM 9 was collected in November and December of 2006. The SIMM Survey has a margin of error of plus or minus 1.0 percent.
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Publisher's Newsletter
No. 1 Web site worth more than best local radio station
November 9, 2006
By Marc Wilson
Your online newspaper can earn more money than the local Yellow Pages and the largest radio station in your market. Your online newspaper might even become more profitable than the largest local TV station.
That’s the conclusion of a new study conducted for the Suburban Newspaper Association by Borrell Associates.
“The steady growth of local (Web) sites over the past seven years has turned many of them into mature, sizable ventures generating more revenue and cash flow than the local Yellow Pages books in their markets,” the Borrell report said. “Many markets will hit another milestone this year: The biggest local Web site – typically run by the major daily newspaper – will generate more revenue than the largest-grossing broadcast radio station in the market.”
We knew, via multiple Belden research studies, that many online newspapers were attracting two to three times the cumulative market share of the largest local radio station.
Now, Borrell is telling us that savvy newspapers are turning that marketplace dominance into revenue and cash flow.
“In 36 markets we chose at random,” the Borrell study says, “we found 15 local sites surpassing the largest terrestrial radio stations in those markets in terms of gross revenue. With double-digit annual revenue growth over the next four years, it is conceivable that a large local Web site will gross more than the largest cluster of radio stations owned by a single company in its market by 2010…and perhaps more than the largest-grossing TV station.”
Wow.
That’s big news for publishers looking for a business plan to replace revenue bleeding away from print products. That’s assuming the newspaper doesn’t cede the opportunity to a competitor – a local radio or TV station, or an online-only startup.
Borrell added: “These Web sites could be considerably more valuable than the broadcast stations: Their profit margins are often double that of radio stations — 60 to 70 percent EBITA (earnings before interest, taxes and amortization) compared with typical radio margins of 25 to 35 percent — and their growth potential is far higher.”
Regular readers of this column know that one of my most repeated themes is the need for the local newspaper to “own the Internet.” This is a franchise that can be developed with relatively little cost — and can be hugely valuable in the future.
But the Borrell report noted that newspapers aren’t guaranteed the spot as the No. 1 local Internet site. “Joining the pack last year … were the Johnny-come-latelies — the TV and radio stations that had written off the Internet as a fad just a few years ago, and a whole new crop of entrepreneurs attacking the market from the ground up with home-grown local sites.
The new sites and newspaper Web sites increased online sales pressure that “drove local online ad sales up 78 percent last year, to $4.8 billion.”
Intel from reports such as the Borrell study, are causing newspapers to take decisive action.
Gannett, the nation’s largest newspaper group, earlier this month launched an innovation known as the “
Information
Center.”
Gannett CEO Craig Dubow defined the
Information
Center as “the newsroom of the future." He called it “a way to gather and disseminate news and information across all platforms, 24/7. The
Information
Center will let us gather the very local news and information that customers want, then distribute it when, where and how our customers seek it. It is the essence of our Vision and
Mission and a key element of our Strategic Plan.”
Dubow, in a Nov. 2 memo to Gannett employees, said 11 pilot projects had tested the concept and created “stronger newspapers, more popular Web sites and more opportunities to attract the customers advertisers want.”
“Implementing the Center across Gannett quickly is essential,” Dubow added. “Our industry is changing in ways that create great opportunity for Gannett. Innovations such as the
Information
Center are one way we are meeting the challenge and implementing our strategic plan… Let me close by saying I truly believe the
Information
Center will transform our industry…”
His memo added: “Creating an
Information
Center means retooling the newsroom, expanding into multimedia, embracing community interaction, shifting resources and rethinking the way a community is covered.”
He said larger Gannett newspapers will create actual desks to accomplish these tasks while smaller papers “will combine multiple jobs into various areas.”
Gannett has clearly seen the need to fundamentally change the way it does business in order to “own the Internet.”
Borrell shows that there’s great value in such ownership.
Somebody is going to own a very valuable Internet franchise in your community. Will it be you, or will you let the opportunity slip away?
(Marc Wilson is CEO of TownNews.com and president of The Job Network. He is reachable at marcus@townnews.com.)
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2007 OUTLOOK: LOCAL ONLINE
ADVERTISING
Borrell Associates Inc.
Executive Summary
September 2006
Local online advertising faces another banner year in 2007 as local businesses continue to seek new, more efficient ways to drive traffic to their Web sites and, ultimately, to their businesses. It will grow to a $7.7 billion category in 2007, reflecting 31.6 percent growth over 2006.
The online advertising stampede in local markets has Web site operators scrambling to add hunters. About half of the local Web sites were adding to their sales forces this year already, increasing the small but growing army of online-only sales people by about 37 percent. Some of the largest local Web sites now have three to four dozen salespeople dedicated to online sales.
Of course, recent growth rates can’t continue forever. We are projecting a slowdown in the growth of standard online ads by 2008, a further slowdown in 2009, and a flattening or perhaps even a mild decline in local online advertising by 2010 as online promotions begin to attract more ad dollars away from traditional advertising.
In the near term, online ad spending will continue to migrate toward more targeted forms of online advertising such as e-mail and paid search. We also expect to see local video advertising become a trackable category in 2007.
The biggest online ad opportunities currently revolve around real estate and automotive. Combined, these two categories comprise slightly more than one-third of all local online advertising.
www.BorrellAssociates.com
COPYRIGHT © 2006 BORRELL ASSOCIATES INC. ALL RIGHTS RESERVED
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Online Ads: A Source of Further Learning for Consumers
By Enid Burns
November 7, 2006
Online advertising ROI ( define ) could be off if it doesn't take into account subsequent Web site visits or in-store visits. That's according to Doubleclick 's fourth annual "Touchpoints" study.
More consumers (8 percent) see online ads as a source of further learning than product discovery (4 percent). Consumers do respond to online advertising, though not necessarily at the time of the impression. Sixty-one percent navigate to a site some time after viewing an ad, while only 30 percent click on the ad to get more information at the time of viewing. Sixty-seven percent report going to a store location to learn more about a particular product. The study warns marketers to include those activities in metrics for calculating ROI.
"It is something real, it is something trackable, and it is something that with a control group can be observed," said Rick Bruner, research director at DoubleClick.
Emerging media can play a role in consumer interest. Online video is viewed by 43 percent of survey respondents, and the same number send text messages and use cell phones. Thirty-eight percent view online video on portable players. In terms of video advertising, 43 percent of respondents watch movie trailers in online ads "all the time," "frequently," or "sometimes." Only 9 percent play with interactive Web ads.
"There is room for new content online and flexibility in a new pricing model, to me suggests there is a lot of room for growth for dollars in video," said Brunner. "Plus all that money coming from TV advertising looking to find a new home."
Some verticals respond to Web advertising more effectively than others. The Web is the most influential factor for decision-making in the travel category, in which air travel, hotels, and rental cars show positive purchase behavior from Web advertising. TV plays a stronger role, however, in promoting movie ticket sales. And service-oriented verticals such as investments and telecommunications respond more positively to word of mouth.
DoubleClick's "Touchpoints IV" study, conducted in July, is based on a survey of 6,121 adults over 18. Respondents, all Internet users, were solicited from an opt-in panel of online research participants.
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Executive Summary
IAB Internet Advertising Revenue Report
2006 Second-Quarter and First Six-Month Highlights
PricewaterhouseCoopers, LLP
Internet advertising revenues (“revenues”) in the United States totaled $7.9 billion for the first six months of 2006, with Q1 accounting for $3.85 billion and Q2 totaling $4.06 billion. Internet advertising revenues for the first six months of 2006 increased nearly 37 percent from the same period in 2005.
Key trends underlying 2006 year-to-date results:
• Revenues Continue to Post Record Results – Internet advertising revenue in the U.S. totaled $4.06 billion in the second quarter of 2006, marking the seventh quarterly revenue increase since the fourth quarter of 2003. Total revenues for the 2006 second quarter increased 5.5 percent from the 2006 first-quarter total of $3.85 billion, and 36 percent from the 2005 second-quarter total of $2.99 billion. Year-to-date Internet advertising revenues through June 2006 totaled $7.9 billion, up nearly 37 percent versus the same six-month period in 2005.
"Interactive delivers an arsenal of options for advertisers no matter their marketing and business objectives. From search, broadband, lead generation, behavioral targeting, consumer generated content and new emerging platforms like mobile and iPTV, Interactive continues to solidify its position as a mainstream medium. This latest report is a clear indication that Interactive is of increased importance to marketers today to engage their consumers and drive sales."
– Greg Stuart, President and CEO, IAB
• Consumer Advertisers Lead Spending – Consumer-related advertisers accounted for the largest category of revenues at 49 percent of 2006 second-quarter revenues, down from 51 percent from the same period in 2005. Financial Services, the second-largest category, accounted for 16 percent, followed by Computing advertisers at 10 percent. Within the Consumer category the biggest sub-categories are Retail (47 percent of 2006 second-quarter consumer revenue category), Automotive (21 percent), Leisure (14 percent) and Entertainment (8 percent).
"The latest results reaffirm the Internet's growing importance for marketers to integrate online advertising into their overall media plans. While search advertising remains the largest format in terms of revenues, we expect to see new formats like video ads to continue to emerge as advertisers seek to leverage the branding opportunities afforded by the growing installed base of broadband users."
– David Silverman, Partner, PricewaterhouseCoopers LLP
• Search Continues to Lead, Followed by Display, Classifieds and Referrals – Search revenue accounted for 40 percent of 2006 second-quarter revenues, consistent with the same period in 2005. Display advertising, Classifieds, and Referrals all increased compared to last year accounting for 21 percent, 20 percent, and 7 percent of 2006 second-quarter revenues respectively.
"Internet advertising continues to reach new milestones, exceeding $4 billion in quarterly revenues for the first time, and on pace for another record year of revenues. With the seventh consecutive quarter of growth behind us we are confident that the Internet will continue to reconcile the imbalances between its share of media consumption versus its relative share of total advertising spend."
– Peter Petrusky, Director, PricewaterhouseCoopers LLP
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UNDERSTANDING SEARCH BEHAVIOR
Grant Crowell
Search Engine Watch
June 14, 2006
Searchers interact with search engines in a variety of ways, and understanding searcher behavior is an increasingly important aspect of effective search marketing, according to speakers exploring the topic at a recent Search Engine Strategies conference in New York.
Greg Sterling, former Senior Vice President and Program Director of Interactive Local Media at The Kelsey Group, said that search closing in on email as the primary daily online activity (77% email; 63% search).
"Understanding how and why consumers interact with search engines is critical in maximizing the value and effectiveness of SEO/SEM and of broader campaigns that include other media," he said.
Kelsey Research determined that:
" 35% of online shoppers reported loyalty to one search engine
" 53% said that they used two or three search engines
" 10% percent indicated that they used four or more search engines regularly
Local search behavior has also evolved considerably. "43% of search engine users are seeking a local merchant to buy something offline," Sterling continued, "and 54% of search users have substituted Internet/search for the phone book, mostly for specific local lookups. Local is growing faster than general web search."
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Search Engine Advertising Begins to Gain Ground
on Old Media Stalwarts
Keith McArthur
Globe & Mail
October 12, 2006
Despite being one of the fastest growing ad media, search marketing is still misunderstood by many marketers.
In the United States, search advertising will overtake on-line display advertising for this first time this year, according to Jupiter Research, which estimates that search will grow to $11.1-billion (U.S.) in 2011, up from $5.1-billion last year.
"Search is still a baby . . ." says Wendy Muller, president of Google Canada. "We're still way behind the percentage that someone will spend on television, print and radio [but] we're starting to see more and more Fortune 500 advertisers embracing this."
The great advantage of search advertising is that it targets consumers at the exact moment they are looking for something. Traditional advertising vehicles such as television commercials are "push" advertisements, interrupting consumers when they are trying to do something else. With search advertising, consumers select the kind of information they're looking for, then decide on their own, whether to participate in the "pull" advertising model by clicking on the sponsored links.
"It's such a great medium. It connects advertisers with willing consumers. That's what makes it so powerful and what makes it so attractive to advertisers," says Nick Barbuto, who buys Internet advertising for clients at Cossette Media. "When you're looking to reach consumers who are actively in the market looking for your products or services, I can't think of a better place to spend your first dollars."
Ms. Muller at Google Canada says search advertising is already one of the most accountable forms of advertising, and becoming increasingly so. She says Google and its rivals are able to prove return on investment better than other media precisely because customers only pay when the ads work, that is, when consumers click.
Jeff Quipp, president of Ajax, Ont.-based Search Engine People, believes that search will replace television as the premier advertising medium of the future. "It's going to sound a little ludicrous, but long-term I do see search becoming bigger than television advertising," he says. "The sky's the limit."
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Small Business: Innovation Looking Online for Local Customers
Los Angeles Times
Chris Gaither
May 16, 2006
The upholstery business was starting to look a little threadbare. Search engines helped restore the luster.
Sales at Michael's Custom Built Inc. in San Rafael, Calif., were on a steady decline a few years ago. Owner Michael Jimenez blamed the growing popularity of inexpensive furniture that's cheaper to replace than reupholster. The second-generation craftsman wondered whether he was tethered to a dying profession. That changed in 2004, when a client suggested that he try "keyword advertising" on search engines.
Jimenez signed up with Google Inc., then Yahoo Inc., and ads for his website began appearing alongside search queries for terms related to upholstery in Northern California. Business was up 20% last year and is expanding at a similar pace in 2006, Jimenez said. "We're getting e-mails from the whole Bay Area asking us to bid on work," he said.
The old-fashioned Yellow Pages are still the most common setting for ads placed by small and medium-sized businesses, according to research firm Kelsey Group. But locally oriented online ads are an increasingly popular tool for plumbers, hair salons, real estate agents and other businesses to land new customers.
Among the competitors to print publications are search engines that offer geographically targeted ads, Internet Yellow Pages sites such as SuperPages, local Web portals such as those operated by Citysearch, and specialty websites such as ServiceMagic.com.
"What the Internet has done is broken the lock that the traditional media had on the consumer," said Greg Sterling, founding principal of Sterling Market Intelligence, a local-media consulting and research firm. That's why small companies are following bigger ones into online advertising, according to research firm Borrell Associates Inc.
Revenue from locally focused online ads rose 78% last year to $4.8 billion and is expected to jump to $5.8 billion this year. Twenty percent of last year's growth came from local advertisers experimenting with search engine ads.
Overall, online advertising generated $12.5 billion in revenue in 2005, according to the Interactive Advertising Bureau. More than $5.1 billion, or 41% of those dollars, paid for search-related ads, up from $3.9 billion in 2004.
The Internet giants see an opportunity in connecting customers with bricks-and-mortar businesses in their local markets. After all, only 5% of small businesses surveyed by Kelsey Group last year employed search ads targeting specific localities. And only 23% said they were at least somewhat likely to start using them within the next year. Consumers, however, haven't held back, with 39% of those surveyed in February saying they used search engines for local shopping. Thirty-six percent said they used print Yellow Pages for local shopping, down from 51% in 2003.
Search engine giants such as Google, Yahoo and Microsoft Corp. are investing heavily in ways to make it easier for small businesses to appear online, in free listings as well as paid ads. All businesses in local phone directories are included in the search engines' basic listings at no charge.
Marketing experts say a small-business owner should spend a few hours making sure the search engines have up-to-date information on the company, such as its business category, accepted payment methods and Web address.
Some search engines and online directories also offer enhanced listings for a fee. For example, Melanee Thai Restaurant, on West Pico Boulevard, comes up when Yahoo users do queries for "Thai food Beverly Hills." The restaurant pays Yahoo $9.95 a month to display standard information plus a biography of its chef, a menu, coupons and photos of dishes.
"It used to be you were competing with everyone on the general search engine," said Thomas Mix, who built the Melanee Thai website. "Now it's localized, so your nearest competitor got a lot nearer. If they're in [the search engines] and you're not, you're going to lose business."
The search engines use other ways to figure out where an Internet user is, including registration information and "geolocation" technology, which links the numerical Internet address of the computer to its approximate geographical area. The more localized the search results, the more "sponsored links" -- ads that appear alongside regular results -- can be sold by the search engine. The advertiser pays only when someone clicks on its sponsored link.
Still, there are problems with search engines. One concern is "click fraud" -- clicking on competitors' ads to drain their advertising budgets, or clicking on ads placed by a search engine on one's own site to artificially boost revenue. Estimates of the extent of click fraud vary widely. A recent study by Click Forensics Inc. estimates that 12% of all advertising clicks on Yahoo and Google are fraudulent. And compared with print advertising, "the online stuff is a bit more mysterious," Kelsey Group analyst Neal Polachek said.
A business owner must answer these questions at a minimum: How much should I spend a month? Which search queries should I target? Which sites should I advertise on?
The difficulty has spawned a cottage industry of companies like Encino-based ReachLocal Inc., which helps businesses advertise online more efficiently. "If you're a dentist, you're running your business," said Michael Kline, ReachLocal's co-founder and chief operating officer. "You're not going to have the time to figure out how to do keywords on Google."
For example, Lewis Co., a Los Angeles copier sales and repair shop founded in 1936, isn't exactly on the cutting edge. The first time owner Ralph Loeff talked with his ReachLocal account executive, Allison DeFatta, he was tapping away on a typewriter as she explained how search-engine ads work. But now users of Google and SuperPages.com who type in "copier sales Los Angeles" or similar language will probably see an ad linking to the Lewis site on ReachLocal.
Loeff has stopped advertising in the print Yellow Pages and instead pays about $300 a month for search engine ads. The bottom line, he said, is that "I've got a lot of customers I never would have had if I didn't have the Internet."
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Study Finds Local Businesses Spend $1 Billion in Search Advertising
Dublin, Ireland
Cheap Web Hosting Directory
March 27, 2006
According to Research and Markets, local advertisers will place $1 Billion into search advertising, an amount that is expected to double by next year.
Tracking advertising categories is difficult, until they reach about $300 million, and the figures remain a bit unstable until they reach $1 billion. Last year was the first time local advertising categories appeared on the local radar as a trackable ad category, hitting about $420 million. This year it is estimated to hit $1 billion, allowing even further analysis.
Research and Markets' ''Local Advertisers Plow $1 Billion Into Search'' report states that from $25 million in Atlanta to $220,000 in tiny Zanesville, Ohio, local businesses have begun spending larger amounts on search advertising. Local advertisers now occupy one-third of the links on city-related keywords and will spend nearly $1 billion this year to draw traffic from the search engines.
The report attempts to offer a ground-up look at local paid search, from a local media perspective and includes insights of the 400-member advertising panel. It also provides a list of vendors offering turnkey solutions to local media, plus a market-by-market list of national and local paid search spending projections for 210 U.S. Cities.
In a few short years the national search engines have grown into multibillion dollar behemoths that have begun pick-pocketing local media companies. Anecdotal stories from smaller businesses tell of wholesale shifts of ad budgets out of traditional media - namely newspapers, yellow pages and direct mail - and into search engine advertising.
The report focuses on what is now a tiny spot on the wall - the $420 million that local businesses placed last year in search advertising. That spot will more than double in size this year to nearly $1 billion, and nearly double again next year, reaching more than $4 billion by 2010. The biggest concern for web sites run by traditional local media companies is that they face being walloped by something that should be all too familiar with - targeted media. Their web operations continue to rely almost exclusively on selling banners and listings, a form of online advertising that will grow slowly then decline as local paid search takes over. Vendors with local search applications are clamoring to help companies catch up. Local media companies should have one foot on the local search/local commerce bandwagon already, with plans to ''go deep'' in this area. It's a question of survival.
Local advertisers have gone beyond experimenting. Eighteen months ago they occupied 5.6 percent of sponsored links on the major search engines; today it's more than one-third. For some categories like real estate, local agents are buying half the sponsored links.
What does the future hold for local search advertising? A panel of 400 advertising experts foresee the likelihood of yellow pages morphing into Web directories, search engines morphing into local directories, and a locally focused search engine perhaps trumping them all.
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Local.com and InfoSpace Jockey for Local Search Traffic
By Kate Kaye
ClickZ News
March 28, 2006
From the looks of things, the Web is going loco for local. Just in time for a local search conference in San Jose this week, companies including Local.com and InfoSpace have announced new offerings.
InfoSpace, Inc. has launched a beta version of its personalized local search site InfoSpace Local which acts like a robust yellow pages site, putting together business listings, information on products, services and movies, as well as maps and directions, from over 30 different providers including infoUSA, Fandango and Ticketmaster.
"We believe that where the market is moving is towards a more consumer-centric local search view," explained Brian McManus, EVP sales and business development at InfoSpace. "The yellow pages are obviously an advertiser-centric view."
InfoSpace's system lets users perform multiple-keyword searches and customize searches based on neighborhood, landmark or point-of-interest. The service also lets users send information found on the InfoSpace Local site to SMS-enabled Cingular, T-Mobile, Verizon Wireless, Nextel and Alltel cell phones.
In an effort to appeal to 411 call users, InfoSpace is also offering its new location-based Find It! service through a relationship with Sprint Nextel. For $2.99 per month, users can search by name or category for nearby restaurants, shops or banks and get maps and directions based on their phone's GPS system or the closest cell phone tower.
Interchange Corporation's local search operation Local.com is sweetening its offerings with blogging capabilities and user-generated reviews implemented by online community site Judy's Book starting in April. Visitors to both sites will be able to write reviews which will be posted to both sites and integrated with Local.com's search results. The goal for Local.com is to spur repeat usage of the site and continue to build up its content.
Local.com already provides business reviews and offers pay-per-call ads through local business search and reviews site Insider Pages. It's also just signed on with pay-per-call ad network Jambo to implement pay-per-call ads on Local.com. Insider Pages, for its part, announced it has garnered $8.5 million in venture funding from Sequoia Capital, Softbank Capital and Idealab.
"The search ad market had been fueled by early adopters up until about a year ago," observed Local.com CEO Heath Clarke, who believes we're in the "early age of mainstream," suggesting small and medium businesses are beginning to integrate local search ads into their marketing plans.
"There is tremendous growth and opportunity in the local search space market today. The timing couldn't be any better," noted Luis Pereira, president and CEO of Ask Poodle, Inc., which plans to launch a local search site featuring pay-per-click and pay-per-chat advertising soon.
Many believe that both consumers and advertisers are driving the local search movement. As consumers have grown more comfortable with search engines, they've begun to search for local businesses using localized keywords like cities and ZIP codes. As users do more localized searching and search advertising becomes more mainstream, small and medium sized businesses which serve specific geographic areas are showing more interest in using local search advertising.
According to Kelsey Group research, local search will grow to $13 billion by 2010, experiencing a 30.5 percent growth rate over the next five years.
Combined with local search and mapping sites such as Yahoo! Local, Google Local and Microsoft's Windows Live Local, as well as local search sites from local media outlets like WKRN-TV's Nashville411.com and the Arizona Daily Star and Tucson Citizen's Tucson.com, it's all adding up to one local search extravaganza. However, local search may have a way to go before consumers are fully on board. According to recent research from the Kelsey Group and Constat, 39 percent of consumers rated local search platforms highly, the same number as the last time the study was conducted.
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As Paid Search Grows, Local Media to Battle Big Search Engines
By Kate Kaye
ClickZ News
March 10, 2006
Paid search advertising by local advertisers is poised to more than double this year to $987 million, and nearly double again in '07. That's according to the "2006 Local Search Advertising" report from research firm Borrell Associates, which indicates local advertising could have a transformative effect on the overall search engine landscape.
Despite localized ventures by the largest national search engines, local paid search accounted for a relatively meager $420 million last year, "a tiny spot on the wall," as the report puts it. The report projects, however, local paid search will go from representing barely 10 percent of all local online advertising today to 47 percent in 2010, reaching over $4 billion.
The experimentation stage is over for local advertisers, the report declares, showing that although just 5.6 percent of sponsored links on the major search engines were bought by local advertisers 18 months ago, today they're purchasing 36 percent of all such ads.
In addition to tracking over 2,000 online search ads on Yahoo! and Google, the study compiles the predictions of 400 ad "experts." Over 60 percent of the panel believe search engines will morph with the online yellow pages model in the next two years, contributing to the eventual demise of the print yellow pages in many major US markets. Another interesting prognostication: "More than three-fourths of the Borrell panel agrees that within the next five years, yellow pages books will evolve into directories of local Web site addresses. Eighty-five percent of respondents think this will happen within five years."
Real estate agents lead the local search ad pack. Real estate and mortgage advertisers are "usually right up there," said Borrell Associates president, Gordon Borrell. "They're the leading spenders on all [local Internet advertising], not just the search engines." Search ads for individual local agents have leaped from 17.5 percent of local search ads 18 months ago, to 23.9 percent a year later, to 49.6 percent of listings on keyword searches across 10 different cities.
Borrell chalks this up to the fact real estate agents want to drive traffic to their sites, which feature real estate listings more and more. Real estate agents tend to drive up keyword bid rates in their industry since, according to Borrell, they're typically a ego-driven, and cringe when their listings don't make the number one spot. "When we talk to the agents, a lot of them will tell us in whispered tones that they're doing all this search engine advertising, and it's double and tripled their businesses."
To be sure, local media outlets are feeling the squeeze as dollars are siphoned towards search spending from newspaper ads and local print yellow pages buys. The report provides some hope, though, if local online media play their cards right. According to the report, about half the panelists believe local search engines will replace national search engines like Yahoo!, Google and MSN when it comes to specific market needs. Two-thirds of the panelists say it could happen within five years, "If dominant local search engines emerge."
The report looks at a variety of vendors offering private-label paid search products to enable regional media outlets to sharpen their search claws, such as MIVA Media, Quigo, and Interchange Corp.'s Local.com. Borrell singles out Local.com, likening the service to a large TV network with multiple local affiliates that could more readily establish a strong foothold in individual communities than nationwide players. "Google doesn't have that," commented Borrell.
Local media outlets and search firms that work from a truly local level, contended Borrell, "would relegate everybody else to mere content providers."
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BUILDING A BETTER BOOM
By JOHN BATTELLE
Kentfield, Calif.
The New York Times
IT sure feels like a bubble, doesn't it? Let's tick off the signs: a red-hot market for Internet stocks (Google, for example, has more than quadrupled since it went public in 2004); fawning articles celebrating entrepreneurs; a glut of venture capitalists elbowing one another to invest in companies with no plans on how to make money past some hand waving about "advertising" and plenty of vague claims about how their technology will "change the world."
The Internet is exciting again, and once again folks are rushing in. In some categories - like search or social networking, for example - there are scores of start-ups vying for pretty much the same market, and it's certain that, just like last time, most of them will fail.
But regardless of all this déjà vu, we are not in a bubble. Instead we are witnessing the Web's second coming, and it's even got a name, "Web 2.0" - although exactly what that moniker stands for is the topic of debate in the technology industry. For most it signifies a new way of starting and running companies - with less capital, more focus on the customer and a far more open business model when it comes to working with others. Archetypal Web 2.0 companies include Flickr, a photo sharing site; Bloglines, a blog reading service; and MySpace, a music and social networking site.
These sites all came into their own in the past two years, and all of them have been sold for handsome sums to major media or technology companies. What do they have in common that proves that this time, we're not heading for a fall?
First, this time the Web is ready for the dreams of both its innovators and its public. The first version of the Internet - call it Web 1.0 - was long on vision but short on execution and audience. The technology was rudimentary, precious few had broadband connections and starting a business that "scaled" - one that could deal with success and the traffic it brought - was extremely expensive.
The Web has since become a platform, and building new businesses on that platform is no longer a multimillion-dollar proposition. Most new Web businesses nowadays are started with less than half a million dollars, and it's rare to find one that wants to use money from an initial public offering to get to profitability.
The reason? Start-ups are leveraging nearly a decade's worth of work on technologies that are now not only proven, but also free, or very nearly so. Open-source software can now do nearly everything that Oracle, I.B.M. and Microsoft specialized in back in the 90's. And the cost of computing and bandwidth? You can now lease a platform that can handle millions of customers for less than $500 a month. In the 90's, such a platform would have run tens of thousands of dollars or more a month.
I should know. It cost me millions to build my Web 1.0 business's Web site. My current business is based on blogging, where the average cost to start a site is about $100.
Or just ask Joe Kraus, a founder of the once high-flying Excite portal. Excite ran through millions in venture capital, then tens of millions of I.P.O. money, before its spectacular demise (Mr. Kraus had left before then). His latest start-up, JotSpot, is built on open-source software, and cost less than $200,000 to begin.
Mr. Kraus exemplifies the second reason I believe we are not in a bubble: this time, the financiers aren't driving. Instead, the entrepreneurs and geeks - often one and the same - are. The lessons of Web 1.0 are never far from their minds, and the desire to create something cool that might foster some good in the world is often equally paramount with the desire to make money. The culture of Web 2.0 is, in fact, decidedly missionary - from the communitarian ethos of Craigslist to Google's informal motto, "don't be evil."
Ah, yes, Google. That brings us to the third reason we are not in a bubble: vastly improved search technologies. Recall that the demise of Web 1.0 was predicated in large part on the collapse of the Internet advertising business - people were spending millions buying billboard-like ads that, it turns out, nobody was paying attention to.
But effective search engines - and what they enabled - changed all that. Right as the bubble burst, the Internet became a mainstream medium - a majority of Americans were now online. At about the same time, Google turned its first profit, as did Overture, a similar company now owned by Yahoo. These two companies made money by reinventing advertising. Using their services, advertisers paid only when people actually clicked on their ads, and it turned out, millions did just that - once the ads were matched to searches and therefore actually useful.
Search has provided the business models for countless companies, which use search to find new customers (eBay and Amazon are two of Google's largest advertisers) or which run Google or Yahoo's advertising networks on their own sites (a process called syndication). In fact, syndication has become the de facto business model of many start-ups: if you build a new service that garners a decent audience, syndication can provide enough revenue to give you time to refine your services and find your true business model.
Which leads me to the final reason I believe we are not in a bubble: the relative lack of public offerings. Most companies this time around are taking the path of acquisition, finding homes at large, stable and profitable companies like Yahoo, Google, News Corporation or Barry Diller's InterActiveCorp. The era of the hot Net I.P.O. is over, and good riddance.
So sure, there are too many start-ups, and sure, some venture capitalists are trying to get in on as many as they can. In the meantime, far more companies are starting that just might change the world, or at least interesting parts of it, and thanks to the lessons of the past, we now have an ecosystem that may enable them to make a serious go of it.
John Battelle,a co-producer of the Web 2.0 conference, is the author of "The Search: How Google and Its Rivals Reinvented Business and Transformed Our Culture."
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TECHNOLOGY ANSWERS DEMAND FOR FRANCHISES
By Paulette Thomas
November 15, 2005
The Wall Street Journal
THE PROBLEM: Demand for franchises outpaces an entrepreneur's ability to sell them.
Ken Sully picked up the phone in his San Diego office 18 months ago and a man introduced himself as Rich Wetzel. Mr. Wetzel and his wife, Elise, had recently opened an eBay drop-off store in Pasadena. The store, iSold It LLC, would photograph its customers' candlesticks or cameras, list them on eBay, ship them, process checks, and take a commission on the sales.
After a splash of press, the Wetzels (who also own the chain Wetzel's Pretzels) were drowning in inquiries from people who wanted to buy franchises. Mr. Wetzel wanted to know if Mr. Sully would be interested in becoming chief executive of iSold It.
Mr. Sully's background - with Mail Boxes Etc. as vice president for development when it was a fast-growing start-up, and some dot-com ventures - gave him the critical experience to take over as the iSold It CEO.
When he came aboard, the Wetzels had sold and opened one franchise. But they were sitting on leads from the hundreds of calls a week. Where to turn first?
THE SOLUTION: Just as online technology gave rise to the eBay marketplace; it would allow iSold It to scale up efficiently and fast. The company devised an online system to collect data from all inquiries and respond with email packages of information. "We don't mail anything," Mr. Sully says. Potential franchisees register for conference calls, held four times a week, allowing salespeople to present the concept to dozens of people at once.
Tuesdays Mr. Sully set aside for onsite tours, and people fly in from across the country to listen to a presentation, eyeball the franchise, and make their decision whether to buy.
To keep pace with the desired store openings, Mr. Sully stuck a deal with Total Resource Group of Chicago. Together they designed a "store-in-a-box" concept. TRG manufactures the store components - counters, fixtures, shelving - which can be installed quickly in existing strip-mall space after a lease is signed. "Once the truck arrives," says Mr. Sully, "we can open within 48 hours." And a private corporate intranet allows an online forum, where franchisees can discuss any topics related to the business.
These economies of scale allowed iSold It to move with alacrity. The company, which ramped up to 36 employees from four - mostly from online employee searches - has sold the rights to 600 franchises. Mr. Sully expects to have 170 stores open by the end of 2005, and a total of 400 by the end of next year. The company is now, Mr. Sully says, the No. 1 seller on eBay.
THE LESSON: Technology killed a lot of middleman businesses, but for those who spot the right niche, it's creating many more.
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