Around 50% of all search advertisers that buy their ads directly from the search engine companies, including Google (GOOG), don’t do it again the next year, according to a new study. Businesses like Yodel, ReachLocal and LookSmart lose 60% of their local advertisers each year.
The news could mean greatly diminished growth prospects for Google and its competitors.
In 2006, Google (GOOG) said local advertisers would spend $10 billion on Google search ads by 2010. But this new study, commissioned by Clickable and carried out by Borrell Associates, reports that local businesses won’t spend more than $5.3 billion online until after 2013.
Until now, the explanation for such slow adoption from local advertisers — the kind that made local newspapers cash cows for years — has been that local businesses are slow to adopt new technologies.
In 2006, Google exec Sheryl Sandberg explained the challenge:
We think the [local] market is widely under penetrated. It sounds surprising to a lot of us, but even in the United States, arguably the most developed market in the world for ecommerce less than 50% of businesses even have a Web site, or let alone advertisers, so we think there is tremendous opportunity to bring those people online and bring them into our advertising product.
Clickable’s study suggests a new — and for Google, alarming — possibility. When we learned the bit about how 50% of all self-serve search advertisers don’t do it again the next year, we wondered: Maybe these local advertisers have tried to get on board — advertising their businesses on search engines Google and Yahoo — but decided their marketing money was better spent elsewhere.
Clickable, which paid for the study in hopes of turning up new new sales leads, sees the results differently and says the problem is that without a handy service like Clickable, local advertisers have a difficult time measuring the return on their search ad-buying investment. So they should become Clickable customers.
But Borrell CEO Gordon Borrell sees it more our way. He told the WSJ that the problem is that for local businesses, search advertising is more expensive than it should be. “Search advertising has been over-hyped and over-sold to local businesses,” he said. He also noted that over-charging middlemen, known as affiliate marketers, are part of the problem.
If it’s true that the multi-billion dollar local advertising market is not “under-penetrated” as Google has always argued, and that local businesses are simply uninterested in search advertising because it doesn’t generate enough return on investment, the growth prospects for search engines companies like Google must be considered greatly diminished.
Photo: s o d a p o p