Borrell’s Blog

By Kip Cassino
Borrell Associates, VP Research

Two headlines caught the attention of Wall Street during the past week:

1. Newspaper revenue continued to slide, the victim of faltering classified ad sales.
2. Google’s revenues, though stellar, were below investment community expectations.

The former was really no surprise to any media industry observer. The latter was mildly surprising, unless you are a Borrell subscriber. If you are, you have known it was going to happen since this time last year, if not before.
Newspapers have been losing share of real estate spending for some time – since 2002 at least. However, the strong market for home sales masked the drop in share, since the revenue continued to rise. Only when real estate sales declined did the loss of share reveal itself. This same scenario has been played out twice before in the last decade: in 1998 with recruitment advertising, and in 2000 with department stores. Yet the newspapers continue to remain stubbornly surprised when it occurs. Online ad sales do not have the remedial effect they have had in past years, either. Spending on the “standard” online formats has slowed and will decline in many markets this year, as online advertisers turn to paid search engine placement, e-mail marketing, streaming audio/video, and online promotions instead.
That should be great news for Google. Indeed, it has been in the past few years. But paid search is changing, too. National paid search has reached its peak, and will now begin to degrade in favor of other online marketing choices. Local paid search is still very much on the rise, but brings less revenue with it. A local business seldom gets as many “hits” as a national brand. As localized search replaces unfocussed/”national” paid search, Google and others who rely upon this particular flavor of online marketing expenditures will see growth rates drop. That is, unless things change.
Change is endemic in online marketing. Trends that used to take years to appear offline erupt in months on the web. At Borrell, we spend most of our time examining and projecting the impact of these changes. It helped us get these numbers right, a year or more before they became headlines.
KC