Online classified ads take $3.1Billion from newspapers

The Washington Post has an interesting story today about the online classified advertising market which recorded $3.1 Billion in sales in 2006, while newspaper classifieds have dropped by about $3B in the last five years.

I have written about newspapers dying, needing to focus on hyper-local content, and how craigslist and Monster.com have taken huge market share in classified ads and job listings.

The chart on the left, courtesy of The Washington Post, shows just how dramatic the shift has been, and will continue to be.

I was talking with a respected Venture Capitalist a few weeks ago about several emerging companies in the local directory / search space. One of the partners said "I don't think those companies will generate VC class returns". I responded that this market is far larger than most people realize.

Billions of dollars from small advertisers -Consider that Google generated over $10 Billion in online ad revenues last year, while Yahoo, Microsoft, and others raked in another $10B or more. The vast majority of this revenue came from small advertisers, not the Fortune 500.

I reminded this VC that 7 years ago everyone thought big sponsorships of $10M or more from big companies was the way to monetize web traffic. Remember when Yahoo, AOL, Excite, and Lycos were announcing big ad/sponsorship deals for banner ads? Google turned that model on its head. Most of Google's billions in revenue comes from small advertisers paying 50 cents to $5 per click for a text ad.

Classified ads are the same thing. Most people look at a newspapers and think the big revenues come from the full page display ads from Macy's, Verizon, and other big names, when in fact most of the revenue comes from the tiny classified ads in the back of the newspaper.

The Next Big Thing - Online classified ads, local search, and mobile search are huge markets, with no dominant leader, and lots of opportunity for innovation. New business models will emerge and a new set of leaders will reap billions in profits...pennies at a time.

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Comments

[Chuck Sacco, PhindMe]

The worrisome part about this trend is that just as local retail was carried away by the big box retailers, so now is local advertising being taken by big box information giants.

Not to pick on any one big box retailer, but to play on Fishman's book, let's call it the "Walmart Information Effect".

Local business advertisers have limited options today when it comes to staying truly local with their online spend. Sure, they can setup a Google Local account and run some search-based ads, but it's really hard to optimize the ad spend so it only targets local consumers. And in the process, this approach cuts out the the hyperlocal experts that know the most about the nuances of their local markets.

I agree, Don, that there are plenty of opportunities for innovation ahead.

[Andrew]

but its really tough to reach critical mass if you run a classified platform. VC's want to see critical mass before funding.

[Danial Jameel]

Dear Don,

I couldn't agree more in regards to the market for small advertisers. This is something which has been prevalent in traditional industries for a long time now as discussed in my blog a few months ago. While it is difficult to compare different business modles due to the interaction of several variables, we might generalize that google attempted to do what companies like toyota have been doing in more traditional business mocdels i.e Create and target a market for the masses.

The decline of newspaper is not something new and has been occuring for a long time. Magazines and celebrity papers became a major threat for them decades ago. Newspapers in the traditional format will still be around for a long time, however with the advent of the internet, technology is providing them with a more efficient platform than the printing press. In my opinion, this is a logical conclusion and such evolutions have been apparent throughout our history. Similarly, Classifieds also will move towards more efficient mediums and platforms. The interesting thing to see if they would be integrated with news platforms on the internet or remain separate entities like craigslist.

A real challenge in regards to news on the internet would be to provide a platform that is condusive to all perceptions of news media namely Global, State, Private (local media) and citizen (citizen journalism). Something which we are striving to achieve with our upcoming project.

My best wishes to everyone.

Danial Jameel
www.ureporting.com

[Mark Evans]

Don,
I agree with you that hyper-local is the way newspapers need to go. The question is how do newspapers generate revenue? If you look, for example, at Craigslist; it's a local service that's cutting into the newspaper classifed business. The same can be said for Monster.

Mark

[Rafal]

I agree! This market is huge! Please try 5 million jobs search at Classifieds website http://www.zikbay.com