Convergence Ad Sales Dampen Growing Online Ad Revenues: Report

Local online ad revenues have shown impressive growth lately, but a new report by Borrell Associates suggests that those gains would have been more substantial if it hadn’t been held back by bundling traditional and non-traditional media. The signs that ad sales based on “convergence” were crippling local websites’ growth have been building over the past two years and Borrell believes that by next year, such deals will be all but abandoned. And if the practice isn’t being severely cut back, Borrell’s report, 2008 Local Online Outlook: Convergence Era Ends, Stand-Alone Sales Skyrocket, which is scheduled to be released next week, makes the case that it should be.

The critique of convergence is placed within the context of rising local online ad revs, projecting growth of 47 percent this year to $8.5 billion and 44 percent to $12.5 billion in 2008. The implication being that on its own, local online advertising will rise higher.

The failure of convergence: “The notion that a single operation can deliver content to multiple outlets has never worked for local media in the past, especially when it comes to expecting a single rep to sell multiple media products. God bless them for trying, but I seriously doubt that any web operation can grow to its full potential without being significantly separated from its parent,” the report states. In terms of models of online success, Borrell points to Google (NSDQ: GOOG), Yahoo (NSDQ: YHOO), AOL (NYSE: TWX), eBay (NSDQ: EBAY), (NSDQ: AMZN). That most of these companies have high profile links with old media – e.g., the Yahoo Newspaper Consortium – isn’t the point; it’s that none of these companies achieved stellar growth as a subsidiary of a traditional media company. “When one of them tried to marry up with a traditional media company (AOL and Time Warner), look what happened.”

Convergence failed newspapers: Local newspapers represent a perfect example of the failure to increase online revenues through