Despite Churn, Local Search to Grow 30% in Five Years: Borrell

Locally placed search advertising in the U.S. is projected to grow 30% over the next five years, from $4.1 billion in 2008 to $5.3 billion in 2013, according to Borrell Associates.

But that growth comes with an extremely high rate of attrition among small and mid-sized businesses hoping to use search to build sales and traffic.

According to the report, “The Economics of Search Marketing: Addressing the Challenges of a Scalable Local Online Advertising Model,” many online advertising resellers and affiliates who service local businesses, churn half their customers within a year’s time, and some lose as many as 90%.
The churn rate for advertisers on Google AdWords is roughly 50% a year, Borrell finds. But local search portals such as Yodle, ReachLocal and LookSmart, which draw heavily from the SMB market, can see an annual dropoff of 60%.

Affiliates and resellers of search advertising who do not invest in sophisticated technologies will continue to see high levels of customer attrition, the Borrell report maintains. But new affiliates and resellers who optimize and scale search engine marketing advertising performance through simple software tools and reporting – that clearly communicate and deliver value – will be poised to capture a larger share of the local advertising marketplace.

“The question is, can the local online advertising market’s rapid growth continue under a current sales model that either delivers little to no profits or, more likely, requires companies to peel dollars away from advertisers’ total media spend in order to profit?” said Gordon Borrell, CEO, in a statement.

“A scalable online advertising business requires an investment in a sophisticated SEM management platform that drives efficiency and effectiveness, while earmarking appropriate levels of spending toward keyword media buys.”

The report was produced in conjunction with software provider Clickable, which has just rolled out a search campaign management platform aimed at small to mid-sized businesses.