Achievable Digital Revenue

By Corey Elliott, Vice-President of Research & Analysis, Borrell Associates | March 2017

Ever been to Lincoln, Nebraska?

The Capitol of Nebraska

Home of Husker football, a pretty cool capitol building, and a unicameral legislature. Lincoln based businesses also spent $89 million on digital advertising last year.

It is right around now that local media professionals stop taking notes, furrow their brows, and start to whisper things like, “$89 million? In Lincoln, the home of the National Museum of Rollerskating? Seems high.”

That is usually a matter of perspective. Media companies can sometimes settle into a view of the world around them focused through the lens of their own customer list. Over time, that list, which is only a portion of the market, slowly is perceived to be the entire market. And then all market data is judged against that distorted, yet debatably realistic view.

In a way, both truths can exist simultaneously. There can be an $89 million dollar digital ad market in Lincoln AND a local media company can realize that it’s available share of that is something much smaller – but nonetheless achievable.

The key is understanding how these local digital dollars are being spent – and what entities are collecting the cash. Let’s start by understanding how local advertisers spend their digital dollars.

Above is a table that shows how 3 different kinds of advertisers spend their digital dollars. This is, of course, an average from a 7,500+ local advertiser survey, which does not mean to suggest that EVERY advertiser spends in EVERY form of digital advertising, but gives an indication of what kind of spend is happening overall.

The division across different digital offerings is similar, but the total amount is striking. TV advertisers spend nearly twice as much on digital advertising than newspaper advertisers. Radio advertisers fall some-where in the middle.

Paid search dominates for all advertisers with social media sites and ad network cross-site buys rounding out the top 3. In fact, these 3 constitute about 60% of the digital spend for each kind of advertiser.

There are a lot of places a local business can spend their digital dollars.

Now, if we average ALL the spend and put it into a cute little pie chart, (incidentally, the Hi-Way Diner in Lincoln has incredible cherry pie) we start to put the pieces of achievable digital revenue into perspective. Just over half of the spend by local businesses is spent on paid search or social media.

Is that where local media companies play? Maybe. De-pends on the offerings, right? However, we all know where those dollars are probably flowing. It is something media companies have known for years, and it contributes to that refocusing of the digital potential out there.

It should be noted that one-third of the ad spend is spread across different local sites. Each local media only picking up a fraction. And if perception can be reality, it is easy to see that even though there may be $89 million being spent, an individual local media site is only seeing a fraction of that, and thus can be victim of a skewed view.

This entire exercise will of course lead to an examination of who is getting all of these digital dollars. It is possible to simplify the recipients into 4 basic buckets.

The biggest share goes to that mysterious “All Other” – which in this case, is actually representing anything that is NOT in the other 3 buckets. This includes directory sites and digital pureplays like Yelp, Angie’s List, Autotrader.com, Craigslist, Weddings.com, etc.

Even though the previous pie chart showed 33% going to paid search, Google/Bing garner 32%. That last 1% is reserved for local media companies that resell these services. For local media companies, the addressable market is 19% of all the digital spend in the market. For an individual media company, the achievable share is usually 7-10%, or up to half of this addressable share. And this is the precise point where two different realities (the media company’s perspective and the overall market) can co-exist.

In Lincoln, the local media company’s achievable digital revenue is $3.08 million. This is the amount any local media company should target. For most media companies, it will be a stretch. However, it is absolutely doable. Local businesses are spending online, but they need expert local help. Local media companies should not be turned off by the large numbers associated with local digital ad spend, but rather take steps to understand what is realistically achievable in their market. In Lincoln, a local media company could grab $3 million in digital revenue. First stop: the National Museum of Rollerskating.