Report: Many Local Businesses Are Disillusioned With Search Advertising


imageSearch engines are aggressively trying to entice local advertisers with new initiatives. The findings in a new report from research firm Borrell Associates shed some light on the reason for that urgency. While local businesses as a whole are increasing their search-advertising spending, they are nevertheless largely unhappy with that option, the research firm says. Roughly half of the local businesses that buy search advertising direct from search engines abandon campaigns after a year. Churn rates among resellers and affiliates that buy search advertising on behalf of local businesses are even higher. (The WSJ puts the statistics in perspective, noting that churn rates for cellphone and cable companies are “a few percentage points per quarter.”)

It’s not that search engines haven’t been trying. Just last week, Google (NSDQ: GOOG) introduced an analytics dashboard that gives small businesses a better read on their local search traffic. But “the quick emergence of the multibillion-dollar paid-search industry has spawned unrealistic expectations among local businesses eager to turn the Web into a cash register,” the Borrell analysts write. Many small businesses don’t see return on investments from their ad spend, while others think that they are being ripped off by resellers. It’s unclear though just how much cash is being left behind. Borrell Associates, for instance, still expects search advertising spending by local businesses to reach $5.3 billion in 2013, up from $4.1 billion last year. But for search engines — and even sites like MySpace and MSN — that see local advertising as a still largely untapped market, the findings have to be cause for concern, considering that they imply that many businesses that might initially purchase ads won’t be in for the long haul.


Zach Milne

I couldn’t agree more Max. I think, from what you mentioned, if #2 is put in place, then all else will follow. When business owners gain a clear picture of their marketing results, then the overpaying for clicks on whatever platform will cease. Right now it is imperative for local businesses to find creative solutions to capture the opportunity, because it is there!

Max Kalehoff

Thanks for your interest in the Borrell report. There is friction in the local search advertising marketplace, and there are opportunities to strengthen it. Most important, it really is a massive opportunity — for the search engines, affiliates, technology enablers and local businesses. As the WSJ underscored, "as consumers continue to search for more local businesses information online, it is inevitable that local advertisers will follow." As you underscored, locally placed search advertising in the U.S. is projected to grow 30 percent over the next five years, from $4.1 billion in 2008 to $5.3 billion in 2013, according to Borrell Associates. We believe that's significant growth, and it could eventually be more.

Importantly, there's a huge opportunity to grow the entire local search advertising industry if it does three things in concert:

1. Delivers more ROI to local businesses by allocating a greater percent of their investment into search media spend, while optimizing and scaling with better technology platforms (i.e., a departure from selling Web site clicks and a push toward performance).
2. Does a better job of clearly delivering and communicating ROI to local businesses, including tracking results more simply and accurately.
3. Realigns sales efforts to better manage expectations.

Again, there is friction in the marketplace, but there also is huge opportunity, and solutions to capture it. There will be many winners as the market matures.

Max Kalehoff
VP- Marketing, Clickable

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