Borrell Associates Releases New Internet Usage Report for Small and Medium Businesses March 17, 2009

c 2009 BORRELL ASSOCIATES INC. ALL RIGHTS RESERVED

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MAIN STREET GOES INTERACTIVE

EXECUTIVE SUMMARY

As larger businesses appear tapped out, headed for bankruptcy, or just extremely reluctant to

continue longstanding advertising practices, local media companies are scrambling to find new

customers along Main Street. These small- and medium-sized businesses, or SMBs, in aggregate

may seem like a bonanza: There are more than 14.6 million SMBs, and they tend to overspend on

advertising relative to their size.  In reality, however, the SMBs in any market are less like a two-ton gorilla and more like a thousand four-pound monkeys – difficult to chase down, and almost impossible to corral

The smallest U.S. businesses have average annual sales of $212,000 and spend just $5,671 per year on advertising– typically in the yellow pages or on direct mail ads or on coupons. But all that’s changing

with the rise of the Internet – where they are now investing 11 percent of their advertising, up

from less than 4 percent three years ago. These SMBs are blurring the lines between what’s advertising and what’s not. They consider whatever they spend on their own Web sites to be “advertising,” though in actuality that spending is a technology, design and telecommunications expense. When marketing professionals were asked in which media they intended to spend more money this year, two thirds of them said ….“my own Web site.”

As their Web sites look increasingly like storefronts with shopping carts and checkout counters,

SMBs are being deluged with offers to drive traffic to them by placing listings in online directories,

bidding for keywords on search engines, running e-mail marketing campaigns, and buying display

ads on media Web sites.  The SMBs are listening, but not quite cooperating. They are less receptive to buying banner ads (now accounting for 54 percent of their online spending, but declining) in favor of search-engine advertising, online directory listings, and streaming video. And they are diverting money toward something that feels to them like advertising, but in reality is technology-supported marketing: Website design, search engine optimization and customer databases.

Their current rate of interactive advertising spending is no drop in the bucket. The nation’s 14.6 million

SMBs were responsible for more than $6.7 billion in locally generated, locally targeted interactive

advertising in 2008 – more than half of the U.S. total. And while the smaller merchants spent less than $300 each on Web site support last year, we are forecasting that SMBs will triple this “non-advertising” marketing expenditure over the next few years. SMBs are collectively poised to plow billions of dollars into their own Web sites.

The owners of small businesses would be well advised to understand these trends as they look to the

Internet to help stimulate sales from both inside and outside their market. Many Internet marketing

products are oversold and under perform. Some work well. And a few work phenomenally well.

Understanding the nuances of online marketing is even more important for local media companies

trying to serve this smaller, lower-ticket advertising segment. This report helps identify SMBs and

¹ Source: B@B magazine, 2009 Marketing Priorities and Plans Survey, November, 2008

                                                                                c 2009 BORRELL ASSOCIATES INC. ALL RIGHTS RESERVED