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The Ultimate Local Ad Model: Fact or Fiction?
By Chad Schott | October 26, 2007
At the SMX Local & Mobile conference earlier this month Greg Sterling moderated a panel of this same title. It was one of the more upbeat and engaging panels of the show. It wasn’t actually a discussion of a single, ultimate ad model. Rather, I suspect, Greg knew that the subject was a lightning rod of sorts within the industry and it would make for some interesting and lively discussion, which it did. It also got me thinking about how much progress we’ve made as an industry and how close we may actually be getting to this theoretical, ultimate, local ad model. This is what really makes me tick and I relish the opportunity to share the passion.
Simply put, “Local” is hard. There is not one single variable that if managed properly drives ultimate success. Rather, it requires a constant massaging of multiple variables (ad product, ad inventory, sales channel, content management, consumer usage, heck, even the economy!) for a company to position itself for success. If it was just hard though, without much payoff to the one that gets it right, we wouldn’t all care about it so much and spend the resources we spend trying to solve it. But because local businesses represent such a large share of total local advertising we invest the way to do in hopes of solving at least one piece of the overall puzzle leading to a requisite share of the resulting spoils. It’s this aggregate mission by this passionate, competitive and incestuous ecosystem of the local search industry that I find so interesting, and that keeps me motivated, and ultimately led me to Marchex and our unique combination of local assets.
I suspect I’m preaching to the choir here. You’re reading this, so you at least have an interest, if not a stake, in how the game plays out. So let me get back to the “Ultimate Local Ad Model” concept and share some thoughts about how the progress to date sets us up for further successes in the future. In my mind it really boils down to one, single driver (with a couple of parts) that I believe has the greatest effect on the progress – past, present and future.
That key driver is the emergence of pay-for-performance (PFP) advertising. Its emergence has initiated an expansion beyond fixed-fee, guaranteed placement advertising of the past, towards a greater, more inclusive and expansive future in local advertising. PFP advertising is still “directional advertising” like traditional yellow pages, so it’s not a complete divergence from the past. What’s important, however, is that the newer models will ultimately appeal to a far broader base of local advertisers than the legacy placement models have. So, the upside is that a move to PFP advertising is not about a shift in ad dollars (away from print which has a very strong overall ROI story) as much as it is about access to new dollars from businesses that have chosen not to participate in the old models. Another layer deeper highlights the expanding “flavors” of PFP advertising. Pay-per-click was the first, but isn’t likely to ever appeal to all types of businesses, especially local service-based businesses. More akin to that group is the pay-per-call model(s) ushered in by Ingenio and now joined by Voicestar and others. I think we’d all agree that a phone call means a lot more to a local plumber than a click ever will, but even pay-per-call isn’t the silver bullet or “ultimate” model. Today we’re seeing “pay-per-action” models like pay-per-booking, or per-lead, and we’ll clearly see others. The point is that the emergence of performance-based advertising has, and will continue to have a profound influence on the adoption of online advertising by small businesses (as well as on the sales channels that sell to them). I still don’t personally believe that this will lead to mass adoption of self-service provisioning of PFP advertising, but clearly these new advertising models will become increasingly easier to sell based on the increasing simplicity of the pitch: “If you get a <blank> then, and only then, you will pay me.”
That leads to another key element to PFP advertising: its inherent transparency. With the Internet in general, and PFP advertising in specific, there exists a tremendous amount of performance data that provides near complete transparency into, thus understanding of, the effectiveness of the advertising. True, many local businesses are not prepared to digest all this data, and we may not necessary want them to yet, but the simple fact is that transparency leads to more clear determination of ROI which in turn leads to better optimization of ad campaigns, which in turn leads to more and more local businesses willing to give it a try.
So, the truth is that there is not yet, and will not likely ever be, a single, “ultimate” local ad model. But another truth is that there doesn’t need to be. We are already experiencing multiple new local ad models that are working for local advertisers and are constantly being improved. These are incredible times that we will all look back on in later years and truly relish for the excitement they provided. Some of us will have been on winning teams, and some less fortunate. But without a doubt, local businesses and local consumers will win. If we keep those two groups in mind, and act in their best interests, there will be a great story to be told down the line.
If you can’t get excited by this industry, at this time in its existence, you need to find another line of work. This is exciting stuff!
Topics: Pay-For-Performance |