Say Goodbye to Yellow Pages

Sales staffs retool for the shift
July 2008

Acknowledgements

We would like to thank the yellow pages executives and others in the local search and interactive directories business who helped us develop our analysis for this report, and especially yellow pages consultant Dick Larkin, who provided valuable insights from years of observing and working inside the industry.

Borrell Associates Management

• Colby Atwood, President
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• Gordon Borrell, CEO
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• Kip Cassino, Vice President of Research
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• Peter Conti, Jr., Senior Vice President
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Table of Contents

Executive Summary

Chapter 1- Directory Publishers Seize the Future

Fig. 1.1: Five-year forecast for media spending

Fig. 1.2: Usage of online yellow pages by type of HH connection

Fig. 1.3: R.H. Donnelley’s home page: The book is in “the past”

Fig. 1.4: Directory publishers lead the pack in online revenue transition

Fig. 1.5: Addressable market for directory publishers is mushrooming

CHAPTER 2 – DIRECTORIES AND NEWSPAPERS BATTLE IT OUT

Fig. 2.1: Local online sales force empowered to sell online advertising, 2007 10

Fig. 2.2: The Sacramento Bee's interactive directory oering 12

Fig. 2.3: What peole do online: Directory lookups get 16% share 13

Fig. 2.4: Online marketing expenditures by size of business 14

Fig. 2.5: High correlation for print and online look-ups 16

CHAPTER 3 – THE NEW FRONTIER: VIDEO AND MOBILE

Fig. 3.1: Yellow pages attempt crossover with video products

Fig. 3.2: Local online video becomes largest category by 2013

Appendix A Delphi Panel results on Mobile

Appendix B Local Video and Local Search Spending Estimates by DMA for 2008

Appendix C Our Methodology for Ad Spending Data 32

Company Proile

Executive Summary

The headline of this report is not so much a prediction of sudden demise as it is a play off a 1998 report by Forrester Research, “Say Goodbye to Classifieds.” When that report was published a decade ago, the newspaper scoffed as its print classifieds continued to overshadow upstart internet sites. Yet the bottom has fallen out of newspaper classifieds, and in generally the same timeframe that we are predicting for print yellow page directories. Since 2001, half of the annual print classified spending by car dealers and job recruiters-billions of dollars in annual sales – has dried up. Last year the newspaper industry saw its steepest- ever decline in print classifieds, driven largely by a 23 percent falloff in real estate classifieds.

The conditions for yellow pages publishers are eerily similar. Print directory revenues have shown stability throughout most of this decade despite the rise of the search engines – the same pre-condition that newspapers saw in the late 1990's with the rise of online classified verticals. The economic trigger – a recession – is now forcing small-business advertisers to be more careful with their ad budgets. Over the next five years, we are predicting that 39 percent of the ad spending on print yellow pages revenues will vanish as small businesses shift marketing budgets online. After 12 years as an advertising medium, the internet has finally reached small-business owners with viable marketing opportunities in the form of keyword advertising, interactive directories and low-priced online video commercials.

Until now, the key beneficiaries of this shift have been the search engines. But legacy media companies – yellow pages publishers included – have unleashed a newly trained army of local sales people to hunt down this migrating money. Directory publishers have crosstrained nearly all their print reps to sell interactive media, while newspaper publishers have launched their own interactive directories and have deployed cross-trained sales troops to sell them. All told, online products are being peddled by 34,100 trained local sales reps – more sales people than any other local medium. With all those reps hawking banners, paid search, interactive directory listings and online video, it is no wonder that local online advertising is increasing at a rate of 61 percent this year, to $14.1 billion.

Yellow pages publishers have spent the past three years transforming their massive onthe- ground sales forces into marketing consultants who can meet their customers’ demands both in print and online. Their combined print/online packages are simple, low-priced, one-stop solutions to small-business advertising needs. The proof of the industry’s rapid transformation is in the numbers: Of all local media companies, yellow pages publishers have been the most successful in moving toward digital sales, averaging about 14 percent of their gross revenues from online sales this year. By contrast, the online contribution for most local newspaper, radio, cable and TV competitors is less than 5 percent of gross revenues.

The main battle for the small business ad spending is between the pure-plays, on the one hand, and the two groups with the largest local sales forces: newspapers and directory publishers. Both have feverishly cross-trained their sales forces in the past three years and added “online only” reps to pursue the hottest-selling advertising product in local markets: interactive advertising, including the fastest-growing format of all, online video commercials.

Directory Publishers Seize the Future

Yellow pages publishers face the least-certain future of all local media. The business of delivering targeted, affordable advertising to small businesses- the yellow pages forte – is being battered by more targeted and even more affordable search advertising. We are forecasting a 38.9 percent decline in print spending over the next five years- the largest decline of 11 local media categories we track. We expect print directory spending to slide from $12.7 billion this year to $7.8 billion in 2013 as smaller businesses cut back their yellow pages spending in favor of online search, interactive yellow pages, and the hottest category of all – online video commercials.

Publishers have already started making cuts. Idearc recently eliminated 28 of its 1,200 directories and Yellow Book USA laid off 550 sales reps. Layoffs and folded directory titles are expected to continue over the next two years.

The key drivers of these changes are broadband penetration and the growing sophistication of search engines and interactive directories. Between 2005 and 2007, 10.4 million adults stopped using the yellow pages "during the past month."²

_{1 As with all our media estimates, the Print Directories number includes only the amount spent on print directory advertising. It does not include amounts that print directory companies sell in online advertising, which is included in the “Online” category.
2 Scarborough Research Inc., 2007 Release II}

Directory Publishers Seize the Future

If the trend continues, by 2010 average monthly use of the print directories will have slipped below critical mass: the majority of all adults will not crack open a yellow pages book in any given month. Improving Internet connectivity makes that more likely: broadband users are four times more likely to use an interactive directory than dial-up users (see Fig. 1.2).

None of this has been lost on yellow pages publishers. They have transformed their industry in the past four years through“frenemy” reseller alliances with Google, Yahoo and MSN White Pages and by re-training their sales force. They have also invested heavily to expand their own online offerings, going on a $700 million buying spree and scooping up companies such as AdMission, YellowPages.com, Business.com, LocalLaunch, LocalSearch.com, Switchboard. com and InfoSpace. These and other acquisitions are helping directory publishers deliver a so-called triple-play offering: a print ad, an interactive directory listing, and an “online marketing” package that includes Web site design and hosting, search engine optimization and keyword purchases. In a world where advertising choices seem increasingly complex – especially for the Small and Medium Enterprises (SMEs) – a cover-it-all package may be just the ticket. And with yellow pages publishers already having relationships with most of those SMEs, the up-sell may be a lay-up.

_{3 Scarborough Research’s survey of 100,000 adults in 2007 indicates that 48.3 percent say they did not use the print yellow pages directory “in the past 30 days,” up from 44.7 percent in 2005. Overall Yellow Pages usage remains high: The Yellow Pages Association says that 89 percent of adults use the yellow pages at least once a year.}

Directory Publishers Seize the Future

Perhaps the most poignant illustration of the industry’s transformation is on the home page of R.H. Donnelley, which publishes 700 directories. No longer just a print directory company, Donnelley calls itself a “Leading Yellow Pages Publisher and Online, Local Search Company” and displays a picture of a laptop in front of a yellow pages book – declaring that it is “connecting you to the future, building on the past.”

A commitment to online products has helped yellow pages publishers lead the pack among local media trying to morph into “cross-media” companies. Overall, local directory companies will generate $1.2 billion from interactive sales this year – most of it from up-selling their current print advertisers. Directory companies averaged about 9 percent of their gross revenues from online sales last year, while most other local media competitors barely made it to 5 percent. By 2011, we expect directory companies to get one-fth of their revenues from digital sales.

Directory Publishers Seize the Future

Even better news for directory publishers is the fact that their addressable market – or the size of the market they are able to reach with the products they are selling – has vastly expanded. (See Figure 1.5.) Search engine advertising is to thank for most of that growth, but video advertising is fast becoming a more important category. (See Chapter 3 for more on video advertising.)

Directory Publishers Seize the Future

While local and national print directory sales began their descent in 2005, local paid search began kicking in, and now online video advertising is poised to outstrip all other segments by 2012.

The key question is, will directory publishers be able to capture enough of these new online categories to oset the decline on their print side – or perhaps even grow their businesses? The answer, most likely, rests in their sales force. Massive cross-training of existing sales reps to sell lower-priced, more-complex products might work . . . but the conclusions of a lot of business-school case studies would have to be wrong if it did. History suggests that applying a disruptive technology to existing customers without setting up a separate unit to pursue new-to-the-enterprise customers ultimately results in lost share.⁴

_{4 “Disruptive Technology and Local Media,” report by Borrell Associates, June 2007.}

Cross-media Sales Drive Huge Online Force

Directory publishers have gone the furthest in terms of cross-training their 14,600-member print sales force to also sell online ads. We estimate that approximately 80 percent of yellow pages reps are actively selling online products – compared with a 35 percent cross-training rate for newspapers and just 5 to 15 percent for radio, TV and cable sales stas. Combined with the directory industry’s estimated 1,400 “online-only” sales reps, this totals more than 13,000 salespeople actively selling online advertising for directory companies. This is second only to newspaper publishers, which are also actively pursuing local online sales with approximately 15,500 of their own reps.

_{3 Yellow pages cross-training estimate is sourced from company statements; newspaper estimates are derived from Borrell Associates’ annual survey of approximately 1,000 daily and weekly newspapers.}

Cross-media Sales Drive Huge Online Force

All told, online products are now being sold by an estimated 34,100 reps across the U.S. – the largest local sales force for any media product. Newspaper print advertising runs a close second, with 31,900 sales reps. Newspaper and yellow pages companies, which cross-trained their existing reps while hiring a handful of “online-only” reps, account for 84 percent of this mushrooming sales force.

This army-sized “empowered” local online sales force appeared relatively suddenly: in 2005, the online sales force was only about one-fourth as large. With legacy-media sales lagging, the urgency for managers to fortify their offerings with online products has been sharp. We expect the cross-training and the hiring of “online-only” sales reps to continue at a brisk pace. Based on our 2008 survey of local Web operations, we are expecting a 55 percent increase in the online-only sales force this year. Most of that growth is coming from sites that had no sales reps in 2007 and plan to add their first one in 2008. Sites with more than five sales reps last year were planning to increase the size of that staff by about 30 percent in 2008.

This army of local online reps is ghting against robots – the fully automated online ad selling machines that have been deployed with considerable success by companies that have no local sales reps. These systems are pulling billions of dollars out of local ad budgets without anyone actually talking to the advertisers. Their sophisticated user interfaces are designed to give advertisers – small and large – the ability to design, purchase, place and monitor their online ad campaigns without the expense of personal help. Google is the preeminent but by no means only example of this approach. The interesting questions here are how many more SMEs are left that are willing to take on that level of daily ad management, and whether face-to-face selling can pry many early adopters out of the robots’ clutches.

Local media company sites are participating in the search sector through vendors such as Local.com that offer private-label search services. But, even Local.com puts value on personal sales. Local.com had 50 outsourced reps at the end of the first quarter of this year and planned to double that number in Q2 on the way to “hundreds” of reps by the end of the year.

National rep rms are also getting into the act as print sales lag. AB Advertising Group, which works with more than 300 directory publishers, now oers Internet directory and pay-per-click programs and has even bought StyleTemplates. com, a site that sells Web design templates for as little as $30.

Meanwhile, newspaper publishers are diving headlong into the interactive directories business, selling directly against the print yellow pages. More than a quarter of the newspaper Web sites that we surveyed in June feature an interactive directory. Many are sophisticated and well-thought-out oerings that go well beyond standard listings. Some were even launched as entirely separate brands – like Cox Newspapers’ Kudzu.com (www.kudzu.com), which Cox earlier this year extended to dozens of its newspaper, radio, TV and cable markets, or The Charleston Post & Courier’s PalmettoBizBuzz.com (www.palmettobizbuzz.com), or The Sacramento Bee’s Sacramento.com.

Cross-media Sales Drive Huge Online Force

At this point revenues from most of these directories are piddly – in the tens of thousands of dollars – because of low-priced oerings and scant sales resources. But there are potential harbingers. The Tacoma News-Tribune employed The Blinder Group, an outside sales trainer, earlier this year and targeted yellow pages advertisers. The blitz had an 82 percent close rate and generated $410,000⁷. At another newspaper, The Palm Beach Post, the directory-killer campaign sold $260,000. More than 70 percent of the closed business in both cases were new advertisers to the newspapers.

The newspaper industry is intent on pursuing interactive directory products for three reasons:

1. Newspapers have never been able to gain significant customer penetration in the smaller-business segment. Interactive directories allow them to offer lower price points and reach new classes of customers.
2. Newspapers have spent the past 10 years up-selling their existing print customer base and are over-grazing that field. They’re looking for greener pastures.
3. Newspapers are beginning to understand that their most valuable franchise is not local news, but local sales information. In fact, roughly half the people who purchase a newspaper do so for the advertising, not the news, and 30 percent of Internet-using newspaper readers went online to research a product that they saw in the paper. Yellow pages – a pure advertising media produce – is a worrisome competitor.⁸

_{7 The Blinder Group Inc., June 2008
8 Newspaper Association of America 2007 readership survey.}

Newspapers may have an interesting strategic opportunity: meshing an online directory of static business listings with current “what’s on sale today” information, delivering a powerful product. Look for a mattress company – and find out which ones are having specials this week.

The epiphany that newspaper managers are beginning to experience is that local news and community information (as opposed to national news) may not attract a large or particularly attractive audience for small advertisers. In fact, people are 66 percent more likely to go online to look up yellow pages listings than they are to look for local community events. (See Fig. 2.3.)

Cross-media Sales Drive Huge Online Force

The size of the opportunity to reach these smaller businesses seems enormous. After all, there are so many of them. Of the 16.4 million businesses in the US, 14.4 million of them, or 95 percent, are classified as small busines- those with less than $1 million in annual revenue. Small businesses account for 30.5 percent of all online marketing expenditures. They spend between $1,656 and $5,111 per year on online services, including building and maintaining their own Web sites. (See Figure 2.4.)

Cross-media Sales Drive Huge Online Force

Cross-media Sales Drive Huge Online Force

The top-spending businesses in online directories have a high correlation with the top-spending print directory categories. (Figure 2.5.) Three of the Top 10 directory categories are now spending more online than they are in print directories: restaurants, doctors and auto dealers. Categories such as dentists, auto repair, auto parts and lawyers still put far more of their ad budgets into print directories.

The New Frontier: Video & Mobile

Interactive directories such as Superpages.com, YellowBook.com, and YellowPages.com have gained significant momentum in the past year. The number of visitors to interactive yellow pages sites was up 68 percent between December 2006 and December 2007, according to comScore – well beyond the growth we have seen for news sites. Broadband’s “always on” nature and high-speed have begun putting online directories on par with the book in terms of utility. Consumers have clearly begun turning to their computer screens for basic product and business information.

As advertisers attempt to meet this wallet-ready audience, they’re looking for a way to stand out. A simple top-of-the-listings advertisement is still no match for the sizzle of what small businesses have always wanted but could never afford: a TV commercial.

Enter streaming video and its ersatz, flash animation. Online video is the fastest-growing category of advertising on the local scene. We are projecting that local online video will be a $1.4 billion category this year, up almost threefold from what it was last year. The most popular format is not the traditional “pre-roll” commercial, but an on-demand infomercial that runs for 90 seconds, 5 minutes or longer. It is the small business owner’s dream – a video commercial with a very low price point because it does not require a broadcast schedule to reach shoppers. See the lawns and rooms at a B&B. See a Lasik surgeon describe how safe the procedure is. See the ambiance of the facility and the smiling faces of senior citizens at a nursing home.

White Directory Publishers Inc., the largest independent yellow pages publisher (80 directories), expects to sell up to $4 million in video commercials at very low price points – in the hundreds of dollars each.

White is not actually selling video, but flash-animation, which is more like a slideshow with audio. It’s the same format that the newspaper industry is using to up-sell classified advertisers, particularly in the help-wanted category.

Dexknows.com, run by R.H. Donnelley, is selling full-motion video for less than $3,000 per year and is taking a shot at local TV by telling advertisers, “unlike TV, customers actually seek out your video when they are ready to spend.”

Video advertising is catching on rapidly at the local level - local advertisers are buying streaming-video spots from yellow pages publishers, newspapers, cable companies and TV broadcasters. Production companies such as Spotrunner (www.spotrunner.com) offers to produce slick 30-second video commercials with customized voiceovers for $500 apiece. The spot can be placed on television or used online. Companies such as AdFare (www.adfare.com) and Digital Media Communications (www.digitalmediacommunications.com) also provide streaming-video and flash-animation video, typically for media companies. Rates have been as low as $75 apiece for a simple flash-animation commercial.

The New Frontier: Video & Mobile

Inexpensive production and high demand from advertisers have driven the spending skyward. We are projecting that local online video advertising will climb from $1.4 billion this year to $7.6 billion by 2013. At that level, online video will become the largest ad format for online media, beating out local search advertising, e-mail and banners.

The New Frontier: Video & Mobile

Another category that holds promise for smaller businesses is mobile. It seems intuitive that directory lookups and directory assistance will migrate from the phone books and land lines to the more ubiquitous mobile devices. But will mobile devices support advertising, or some form of payment, and will it be worth the media company’s investment in building out and promoting an online directory?

Our research indicates that while the mobile-device audience is large, the future of advertising on the tiny screens is certainly not here and now.

Our latest Delphi panel* asked a series of questions regarding mobile usage as it pertained to mobile directories. The responses from front-line local advertising buyers and sellers indicated that:

• Wireless carriers are likely to migrate to an ad-supported system that allows customers to accept ads on their mobile devices in exchange for lower monthly fees.
• Phone books will not entirely disappear (despite the title of this report), but they may be reduced to niche publications.
• A portion of search advertising will migrate to mobile devices and become the dominant source of mobile advertising (as opposed to display or video advertising dominating mobile devices).
• Stores and malls will locate mobile users within range and send them personalized messages to lure them in the door. Most respondents believe this will occur in three to five years.

(For the full results of our Delphi panel on mobile advertising, see Appendix A.)

Despite the heavy press about mobile advertising and the proliferation of mobile devices, the amount of money being spent by local businesses on mobile advertising is so small that we can't yet offer viable estimates of how large this category is – or how large it may become. Mobile advertising is reminiscent of the early days of the World Wide Web in the 1995. It was not until 1998 that we were able to begin tracking local online advertising on the Web, and not until 2000 that it became a billion-dollar category. To us, for the moment, mobile appears to be more of a marketing expense or “placeholder” investment than it does a viable advertising opportunity.

_{* Borrell Associates conducts a quarterly survey of approximately 400 front-line local advertising buyers and sellers. The survey employs the Delphi method, which gauges responses to a statement and calculates responses in a way that delivers a powerful prediction. Visit www.borrellassociates.com/delphi.aspx for more information.}

Appendix

Statement Analysis: Future of Mobile

Results from the Borrell Panel
Questionaire 1, Round 2

Dear Panelist,
Thank you for participating in the second round of our survey on mobile advertising. Here are the final compilations of the opinions of our panelists. As the use of mobile devices continues to advance, mobile advertising advances with it. We encourage you to share these results throughout your company and use them for planning purposes. A panel participant from a major cable network, who wishes to remain anonymous, won an iPod in our Participants' Drawing for this quarter's survey. Congratulations! Please feel free to invite your colleagues to join this panel – the more participants we have, the more reliable the results become. We welcome input from people with a wide variety of perspectives on the advertising industry. To join, just contact me.
Abbv Sineni

STATEMENT 1: Wireless carriers trade fees for ads. The first “free”, ad supported mobile phone plans are offered to consumers.

According to the panel, it is likely that wireless carriers will trade fees for ads. Half of the panel believe there is more than a 60 percent chance that free ad-supported phone plans will be offered to consumers within the next 5 years.

Consumers have long shown a willingness to accept some advertising in exchange for free services. This is especially true of the Internet. Considering mobile's many similarities and connections to the Internet, it is no surprise that many see this business model migrating to mobile as well.

STATEMENT 2: Do Not Call goes mobile. Congress passes legislation allowing consumers to “opt out” of mobile ads – both voice and text.

The Do Not Call list will go mobile. Nearly nine out of ten panelists think Congress will pass legislation on a mobile Do Not Call list, and eight out of ten think it will happen in the next 5 years.

This reveals some resistance to the findings of the previous statement. Consumers already use the Do Not Call list for their home phones, so we can expect to see that legislation extended to their mobile services as well. In the end, consumers will have a choice: listen to ads, or pay not to.

STATEMENT 3: The first yellow pages distibutor stops publishing phone books. Instead, online directory services integrated to mobile devices are offered.

The panel is divided on whether yellow page publishers will stop printing directories. The majority of the panel (52 percent) believes this is more than 60 percent likely to occur. Although the panel is split on whether this will happen, if it does it is likely to happen within the next 5 years.

About 30 percent of US adults still do not use the Internet and many still do not have mobile phones. Yellow pages distributors will continue publishing phone books as long as there is demand for them, but as online directory usage continues to increase, the phone book will eventually be reduced to a niche publication.

STATEMENT 4: Mobile devices replace PCs for most consumers. Docking stations with controllers, keyboards, and “big video” put desktops in museums.

The panel is divided on mobile devices replacing PCs for most consumers. The panel does agree, however, that if this occurs it won't be for a while.

There is a growing movement away from PCs and into laptops as the computer of choice. Until there is a commercially viable breakthrough in human-computer interface technologies, the small screen and cramped keyboards inherent in mobile devices limit them from becoming the mainstay of home computing. Mobile device usage will continue to increase, but don’t expect the PC to disappear anytime soon.

STATEMENT 5: Social networking websites become indistinguishable from their mobile platforms.

Four out of five panelists think that social networking services will have the same feature sets available on mobile platforms as they do on their main sites. Three out of four panelists think that if this occurs, it will be within the next 5 years.

Services like MySpace and Facebook have already taken steps toward mobile platform delivery, but there is still a significant difference between the mobile platform version and the Web version. With high-speed wireless connections and enhanced usability, the two feature sets will merge and social networks will take to the streets with their members.

STATEMENT 6: Ad spending directed to mobile devices surpasses $20 billion dollars. Mobile becomes the fastest growing ad media choice.

Half of the panelists think that mobile has a 60 percent chance of becoming the fastest growing ad media choice, and more than half think it will happen in the next five years.

Advertising growth follows audience growth - typically along the familiar S-shaped adoption curve. As the number of people equipped with text-, video- and GPS-enabled mobile devices expands, advertisers will rush to add that medium to their mix. We are in the flat portion of the mobile advertising growth curve now, but the panel sees a transition to the steep part in the next few years.

STATEMENT 7: Local search accounts for more than half of mobile ad spending.

More than half of the panelists think that local search will account for more than half of mobile ad spending. Nearly seven out of ten panelists think that if this occurs, it will be within the next five years.

Mobile consumers are looking for information quickly and the desire to access information on the go or while at a store is on the rise. The technology to enable that is catching up as well. As soon as wireless broadband and GPS-equipped devices become commonplace, expect local search to move quickly to mobile platforms.

STATEMENT 8: Sponsorship sales for mobile’s “Up Front” surpass those for the broadcast TV networks.

More than seven out of ten panelists say it is unlikely that sponsorship sales for mobile will surpass those of broadcast TV newtorks. Eight out of ten panelists think that if this occurs, it will be in 6-20+ years.

TV networks deliver a national mass audience that attracts large national advertisers; the "upfronts" have evolved to serve that market. By contrast, a major component of mobile advertising is local and highly targeted, so national programming aimed at mobile devices will be only part of the mobile ad picture - and it has many hurdles to over come before it becomes viable.

STATEMENT 9: Using GPS, stores and malls send personalized messages to shoppers within range.

More than six out of ten panelists think that stores and malls will send personalized messages to consumers using GPS devices. Over seven out of ten panelists think that if this occurs, it will be within the next 5 years.

Delivering time- and location-sensitive coupons and ads to consumers who are in a position to respond immediately is appealing to advertisers, especially at the local level. We are now seeing the technical trials of this form of advertising, and as those are refined into viable advertising vehicles, the panel sees them catching on.

STATEMENT 10: The first mobile device directory service becomes available.

More than seven out of ten panelists think that directory services targeted to mobile devices will become available and nearly nine out of ten panelists think this will occur within 5 years. Multifeathred online directories are prevalent today; directories that are optimized for mobile devices are an obvious extention of these services. Mobile directory services are likely to leverage GPS functionality to enable highly-targeted local advertising.

Services like MySpace and Facebook have already taken steps toward mobile platform delivery, but there is still a significant difference between the mobile platform version and the Web version. With high-speed wireless connections and enhanced usability, the two feature sets will merge and social networks will take to the streets with their members.

APPENDIX B

APPENDIX C

Our Methodology for Ad Spending Data

The statistical model underlying the advertising numbers in this report has been under continuous development since 1990 as a basic model for gauging advertising spending in any geographically defined market. The methodology is based on the concept that advertising expenditures are essentially equal to advertising receipts at the national level. The heart of the methodology is the manner in which these totals are allocated among individual counties.

We pay particular attention to online advertising and spend most of our time collecting and analyzing data from this media segment. Our model is founded on two databases:

• Database 1: An estimate of online ad spending by all 12 million U.S. companies, by Standard Industrial Code (SIC), across all media channels.
• Database 2: An estimate of online ad receipts by all U.S. online media companies.

The model recognizes the fact that ad revenue that is spent by advertisers located in one market may go anywhere. Similarly, a portion of ad spending from any other market may end up in the market being measured. Therefore, the model separates ad spending that is coming into a market from ad spending that is going out of the market. This enables us to measure ad spending that is

• Generated and spent in a given market
• Directed to a market from elsewhere
• Generated in a market but spent elsewhere

We compile Database 1, (Ad Spending), from sources that include Dun & Bradstreet, Interactive Advertising Bureau, AdRelevance , the IRS, and other government agencies. There are also more than 30 secondary sources, including industry research and reports as well as articles from a variety of trade publications. We then adjust the preliminary version of the Spending database in two ways:

1. To fit a market’s specific media demand pattern according to Nielsen, SRC and other sources.
2. To be based on per-employee revenues, rather than on total company revenues.

The per-employee basis is an important aspect of the model. As businesses get larger, the absolute level of their ad spending increases, but the per-employee amount of their ad spending actually drops. The per-employee metric adjusts for company size and is therefore more reliable.

Database 2, Ad Receipts, is based primarily on Dun & Bradstreet, the annual financial reports of media companies, and our own database of more than 2,800 online media sites that participate in our annual survey. Numerous secondary sources include reports from industry and trade associations such as the Newspaper Association of America, Direct Marketing Association and Interactive Advertising Bureau, as well as surveys and articles from various magazines and online sources, such as Media Week and Advertising Age.

After we compile and adjust the databases, we compare them with estimates generated by companies such as McCann Erickson, Veronis Suhler and Jupiter. Discrepancies are analyzed to ensure that differences are due to differences in theory or methodology rather than data error.

When the Spending and Receipts databases agree, the spending estimates are distributed by SIC among all U.S. counties. This process involves three steps:

• Step 1: Allocation. Estimates are allocated to each county using the weighted values of several variables, including retail sales, households, internet usage, median income, population and median age.
• Step 2: Replacement. Whenever possible, allocated estimates are replaced by actual known information. Typically, 10 percent of the estimates are replaced.
• Step 3: Recalculation. After replacement, the sum of the estimates will no longer fit to the original national totals. So, all un-replaced estimates are re-indexed and recalculated.

The process outlined so far produces estimates of online spending directed to each county. At this point, we still don’t know how much of that originates locally.

To estimate this final piece of the puzzle, we take the online spending generated in a county (from Database 1) and add to it the amount spent nationally to reach that county, and then subtract the amount spent by local companies on national ads. This leaves us with the ad spending directed to the county.

This methodology has produced the local ad spending reports that our clients have relied on for years. Management consulting firm Booz Allen said, “It’s the only methodology that could work.”

Borrell Associates has compiled hundreds of WebAudit™ reports for individual markets in the past three years. Media companies use them to understand the flow of online advertising through their local markets and to target specific advertising categories for sales campaigns.

To obtain detailed online spending data for your specific market, contact us at:

757. 221. 6641

Company Profile

Borrell Associatesis an advertising research and consulting firm with a concentration on online media. We help media companies develop and implement successful strategies for maximizing their local ad revenue. We uncover the advertising potential in a local market by drawing on primary research and our comprehensive data model of ad spending at the local level. Simply put, we help media companies make money.

Market Intelligence

WebAudit™ Report - Get a detailed look at online ad spending in your local market. The data include local online ad shares by type of Web site operator (pure-play, TV, newspaper, etc.) and comparisons with peers. A WebAudit helps managers identify and size strategic sales opportunities by comparing the local spending patterns of individual business categories and major vertical market segments (Auto, Jobs, General Merchandise, etc.) with U.S. norms and analyzing the differences. Ad reps can use the report to strengthen presentations and enhance their role as consultants in the sales process.

LA$R (Local Ad Spend Report) - This market data provides comprehensive estimates of ad spending across 11 major media types (newspapers, TV, billboards, online, etc.) by each of the top 100 business categories in a market. Conversely, the report also presents the amounts that each medium receives from each of the business categories, with a summary of their relative shares of total ad spending. Both views give estimates of spending by advertisers located inside and those located outside the market.

WebSegment™ - This data divides a market’s population into five segments defined by the amount of time a person spends using the Internet (ranging from no time to more than 20 hours per week). The report offers insights into a market’s demographics, media usage patterns and purchasing behavior based on the amount of time a person spends using the Internet.

Media Profile - This report provides a snapshot of local media usage – including usage of newspapers, coupons, online services, and overall broadband and Internet patterns – in a specific market. This report also illustrates levels of online spending by consumers on key items such as clothing, computer software, books, etc. We use a combination of Scarborough Research’s data (updated twice a year) and data from Claritas.

Custom Market Data - Our researchers can generate unique data sets that provide insight for a variety of market segments. For example, we have developed detailed trending analyses of local automotive ad spending in multiple markets for a network of cable companies and have provided deep segmentation of ad-spending data by business size for a national portal.

Other Products and Services

Online-Sales Training - Our program provides hands on, in-the-field training that utilizes local Web usage patterns and ad spending data from your market to build dynamic, compelling sales pitches. The program also offers guidance on sales recruitment, compensation, staff structure, rates and marketing materials. The typical program is two to three days per market, including one day of "classroom" training followed by sales calls with your sales team.

Consultation - Uncover the advertising potential in your local marketplace by drawing on the research we conduct throughout the year on thousands of local media operations. We work with Internet businesses, online media companies, newspapers, TV and radio stations, and vendors who provide enabling technology to these outlets. We provide executive-level strategies that focus on helping your company grow local advertising revenues exponentially rather than incrementally.

Research Reports - We publish 10 to 12 research reports per year that provide an in-depth look and analyze major trends in local online advertising. Reports include annual revenue benchmarking for local media sites; reports on the automotive, real estate and recruitment verticals; and an annual outlook report published in early fall designed to provide next-year budget guidance.

Presentations - We conduct a large number of presentations every year, typically for executive management, industry seminars and trade conferences. Each presentation is tailored to your needs. We tie the "big-picture" analysis into actionable information about the audience's specific markets. These presentations are challenging, insightful and filled with facts about the future direction of new advertising formats and trends.

Webinars - Borrell Associates can host and deliver an exciting Webinar for your organization or association. Our topic list is extensive and we tailor a presentation for each audience. We offer research and factual evidence backed by real-world experience.

_{For more information and to download data samples, visit www.borrellassociates.com}