Media firms grapple with local ads

05 June 2012

NEW YORK: Online and traditional media companies are struggling to tap the local advertising market, which offers a major opportunity but requires complex business models.

Google, the search-to-mobile group, was reported by the Wall Street Journal to be testing a variety of new local ad products, targeting a sector valued at $21.2bn by BIA/Kelsey, the insights provider.

"Helping local business is a big part of our focus at Google," Jeff Huber, an SVP at Google. "In local, our vision is not a one-size-fits-all product, but a range of flexible solutions that make the web work for all local businesses."

Greg Sterling, an analyst at Sterling Market Intelligence, argued the possibilities for organisations able to succeed in this space are enormous, although most players have made limited progress thus far.

"The overwhelming majority of businesses are local stores, and that's a huge pool of money that nobody except newspapers and the Yellow Pages has done a great job of tapping," he said.

Recently, Starboard Value, a group of investors holding a 5.3% stake in AOL, another online operator, issued a document criticising various aspects of the firm's strategy.

One particular area of attention was Patch, a unit of AOL drawing together 863 local news sites. Starboard Value estimated Patch yielded $13m in ad revenue, and lost $147m. "We do not believe Patch is a viable business," it added.

Last year, Allbritton Communications, owner of the current affairs platform Politico, also reined in its spending on, a site specialising on Washington.

The Washington Post and New York Times have similarly scaled back their investment in equivalent activities, as has the Guardian Media Group in the UK.

Further figures from BIA/Kelsey also revealed internet users complete online searches 109 times a month, but visit local properties just once or twice in that period.

"The question for these hyperlocal sites is 'How do you get frequency way up?'" Matt Boot, of BIA/Kelsey, said. "People only really need or desire these sites a couple times a month. The rest of their information requests are satisfied elsewhere."

Alan Mutter, a journalism instructor at the University of California at Berkeley, argued these services have a key flaw, as they require big sales teams but talk to firms with small budgets. "The economics don't work," Mutter said.

Data sourced from Wall Street Journal/Business Week; additional content by Warc staff