UPDATE: Peter Krasilovsky, vice president and program director of Marketplaces for The Kelsey Group, sent in his comments about today's Wall Street Journal article, "Newspapers Think Locally for Online Ads: Sales Efforts Increase, but 'Smaller Dollars' Prove Hard to Chase."  More about the WSJ article and a recently-released relevant resource from NAA are below this update.

Here are Krasilovsky's comments:

As the Wall Street Journal article highlights, many newspapers are looking “downscale” to the high volume of smaller local advertisers to make up for their permanent losses in retail and classifieds.  About 30 percent of an estimated 10 million local small businesses put the bulk of their marketing dollars into the Yellow Pages. They are “directional advertisers,” and more interested in making sure their phone rings than how many impressions their ads deliver. In fact most would have no sense of the CPM they are paying.  

Are Yellow Page publishers vulnerable to such entreaties from newspapers and other local sellers? Sure, but it isn’t  going to be simple to take them on. While some portion of small business advertisers have left the YP (typically, more retail oriented businesses), there is no wide scale abandonment at this point.  Depending upon the category, the return on investment can be remarkably high – even with an average annual spend of $4,800. In addition, Yellow Pages publishers have another advantage: advertisers want to keep their position, year to year.  Consequently, most efforts will be to grab budgets allocated to supplemental books or upsell efforts.

More importantly, at the local level, it is no longer an exclusive club of newspapers vs. Yellow Pages.  Local advertisers are increasingly supplementing their YP buy with search engine optimization, search engine marketing, targeted email , featured listings, video production and links, and online promotions. Many are also investing more in their Websites.  

Yellow Pages companies can (and are) providing such products. Many are selling 7-8 products, and because their own sites don’t provide enough traffic, they are syndicating traffic to a wide host of players. In this regard, they are way ahead of newspapers, who are still a world onto themselves –even with smaller and smaller local shares.

Yellow Pages, of course, are not the only ones selling such capabilities. There are a lot of ways of buying Google, OK?   A number of other third party resellers are seeking to sell such services to local businesses, in competition  or partnership with Yellow Pages companies. In some cases, they are seeing large monthly budgets of $3,000-5,000. Some of these companies  (i.e. ReachLocal, WebVisible, Orange Soda, SpotRunner, Yodle)  are already working with newspapers, leveraging their strong local brands.

Ultimately, we see that newspapers have strong opportunities to enter these new areas of businesses and expect to see a great deal of new activity in this field. It will go beyond building a few vertical directories. The challenge, as the WSJ article correctly points out, is to get their sales and support activity to scale. While self serve efforts are rapidly improving, many small business owners are not ready for a self service option.

The Kelsey Group forecasts that 25 percent of local online dollars will come from “marketplace dollars" (verticals and classifieds) by 2012. But positioning these marketpalce as replacement dollars for traditional newspaper revenues doesn’t do anyone a favor. They are , in fact, exciting new lines of business.  As newspapers focus more on their niche and vertical strategies, all of this has to become a larger part of their gameplan.

Peter Krasilovsky

Vice President and Program Director, Marketplaces

The Kelsey Group

(Peter Krasilovsky wrote "The Newspaper Online Shopping Report" for NAA last year.)

This morning, The Wall Street Journal reported that over the past few years, the number of local salespeople selling online ads for newspapers has more-than doubled. But, “newspapers now control only 27.4 percent of the local online ad market.” This is down from 35.9 percent of the market in 2006, according to Borrell Associates.

Among the reasons for this: “The types of ads that newspaper companies are selling -- typically banner ads -- don't correspond with the needs of a local merchant. And much of the potential local online ad revenue growth comes from small and medium-size local businesses, a market segment that newspaper companies have typically ignored,” The Journal reported. In addition, the local online ad market is growing, as more companies sign up with Google. And, of course, the fact that online newspaper ads are cheaper than print ads isn’t helping newspapers’ bottom lines in this area.

Part of the solution may lie in local search and directories. Local search – for example, typing “city, dry cleaners” into a search engine or going to a locally-based or geographically-filtering review site or business directory – is a key way customers find businesses. For the newspaper, directories can be a great way to get a foot in the door of businesses that may not have enough money to purchase print ads. Creating newspaper Web site-based directories for local businesses can not only drive site traffic and help advertisers, but also it can eliminate the hurdle many ad sales people stumble over when a small business owner wants to advertise online, but doesn’t yet have a Web site.

In talking about the Lawrence Journal-World’s Marketplace, an online directory of local businesses that includes everytyhing from maps to hours, Sara Wilhelm said the newspaper’s directory is “like a Yellow Pages gold mine.” It sounds like it’s time for more newspapers to move in this direction.

Earlier this month, NAA released a Digital Edge report highlighting the opportunities in this area and looking at what newspapers can do to increase revenue. Here’s the info:

Local Search: Strategies for Audience and Revenue Growth

Newspapers are finding new and varied ways of tapping into the search space. Some are blending news and targeted advertising content with more sophisticated search tools, at times supplemented by human hands to differentiate them from the competition. Others still are feeding local-business listings to Google and other sites, or discovering potentially lucrative niches by helping their local advertisers play in both worlds.

The case studies in “Local Search: Strategies for Audience and Revenue Growth” examine several strategies, including:

• Boston.com’s creation of integrated search and its use of “search as platform.”
• Freedom Interactive’s companywide priority on search sales, integrating search optimization with traditional advertising in its markets.
• Ottaway’s metadata-sharing partnership with Google to bolster its regional directory sites.
• GateHouse Media’s product search strategy.
• NH.com’s consolidation of disparate verticals into a statewide directory to drive critical mass.
• The Lawrence Journal-World’s use of an online directory to open the door for new advertisers.
• SavannahNow.com’s use of SEO as a sales tactic to sell a blended array of services.

The Wall Street Journal article mentioned The Bakersfield Californian has started holding free seminars for local business owners about how to get their listings to appear on Google, Yahoo and on the newspaper’s own InsideGuide. We published a “Snapshot from the Edge” last year about the InsideGuide, and the newspaper contributed an update to that Snapshot that is included in the local search report.

On a separate-but-related note, we included this in the Online Publishing Update yesterday: