1. 1 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. Annenberg USC Presentation Local Online Revenues and Hyperlocal Dec. 4, 2009 Peter Krasilovsky, VP and Program Director Marketplaces: Verticals, Classifieds & E-Commerce

2. 2 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. About Us BIA/Kelsey: Local digital advertising research and analysis since 1985. We work with everybody. Peter Krasilovsky: Editor, www.LocalOnliner.com; VP, BIA/Kelsey. 1985 Annenberg MA (communications mgmt).www.LocalOnliner.com Much of career has focused on self sustaining models for community media. Hyperlocal Highlights: Cable Television Information Center (public education and government channels) Alliance for Public Technology (grassroots community telecom lobbying) Benton Foundation Survey of Technology Test beds NTIA Information Superhighway Grants (sustainability evaluations) Family Education Network PTA projects Consulting with local media and directory companies (everyone from Citysearch to the USPS)

3. 3 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. The Search for Self-Sustainability, 1985- 2009 Self Sustaining Categories may be divided into “Community Support” and “Commercial” Community SupportCommercial Local Taxes (franchise fees) Sponsorships/Cause Related Marketing Grants (CNN, SeniorNet) Advertising eCommerce General e-marketing support

4. 4 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. My Thesis: HyperLocal Commerce Brings Sites Closer to the Community “Markets are Conversations” Doc Searls and David Weinberger, Clutetrain Manifesto, 1999

5. 5 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. Cause Related Marketing is Powerful. But for Most Local Advertisers, Spending Decisions are Based on ROI CategorySearchPrint Yellow Pages Chiropractic$45$38 HVAC$25$30 Lawyer$43$35 Locksmith$16$17 Moving & Storage$20$24 Optician$28$22 Cost Per Customer Acquisition

6. 6 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. There is a Potpourri of Hyperlocal Ad Categories….What Works in HyperLocal? Hyperlocal sites can sell or support a variety of ad products. But can they compete with other local media based on traditional reach and ROI factors? Banner Ads Text Ads Directories Classified ads Network Local/Lifestyle Ads Print products

7. 7 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. BracketVery LowLowMediumHigh Range of Annual Spend $0 - $1,500$1,500 - $5,000$5,000 - $19,000$19,000+ Av. Annual Spend on Adv. (Monthly Spend) $410 ($34) $2,516 ($210) $8,436 ($703) $25,564 ($2,130) Av. Annual Spend on Website* $911$628$2,670$6,117 Percent of SMBs (by count) 61%16%17%5% Percent of Total Ad Spend 7%12%42%39% *Base: LCM respondents that have a “web site or homepage”. Source: Kelsey Group estimates based on LCM XI data, Nov. 2007. Estimates are sensitive to assumptions. Most Local Businesses Actually Spend Very Little on Advertising SMBs may be sorted into 4 spending brackets

8. 8 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. BIA/Kelsey Forecast: Local Ad Spend 2008-2013 $155.3 Source: The Kelsey Group (2009) US$ Billions

9. 9 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. Online is 19% of Local Spend: $29.8 Billion Source: Proprietary research by The Kelsey Group, mid-2007. Sample: 1,200 SMB advertisers in 4 major US MSAs). Methodology: Telephone survey. Cosponsor: ConStat. Search has gotten local advertisers online

10. 10 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. US: 2013 Interactive Ad Market $58.57B Source: Kelsey Group Over time, search is the ‘new directory’

11. 11 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. ‘Free’ Social and Classifieds Services Will Disrupt Our Forecasts (But By How Much?) SMBs that Intend to Use a Page On a Social Site in Next 12 Months Overall average @ 32% Note: Scale begins at 10%. Source: Local Commerce Monitor. Wave XIII August 2009 (Sample: 302). Methodology: Online. Co-sponsor: ConStat.

12. 12 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. Social Management is Something That Local Businesses May Pay For NCI (The Real Estate Book, Apartment Finder) has been providing Community Sherpa services to Real Estate agents for $290 per month. The idea is to move real estate agents higher on Google rankings. The fee includes SEO, daily blog posts, Tweeting. Other companies are also looking at website support, video editing and uploading and reputation management.

13. 13 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. ‘Self Serve’ Ads Holds Promise Self Serve advertising that doesn’t require sales forces, especially classified ads, holds promise. The New Haven Independent is seeing sales in “five figures” ($20,000+?) from using PaperG’s self serve “Flyerboard” for classifieds and display. A June 2009 survey by BIA/Kelsey found little active penetration by self -erve solutions today. But a new generation that has gotten used to buying self serve AdSense ads might quickly change this. Media penetration of a community is considered a key factor in successful self serve ad platforms.

14. 14 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. Key Influences on Media Buying Decisions Source: Local Commerce Monitor Wave XII August 2008. (Sample: 299). Methodology: Online. Co-sponsor: ConStat.

15. 15 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. Content Sponsorship Also Holds Promise Examiner.com lets advertisers sponsor different bloggers. In Denver, for instance, Loveland Ski Resort is sponsoring seven Ski bloggers. Sacramento Press has a Content Management System that automatically lets advertisers buy ads next to chosen keywords and categories.

16. 16 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. Directories My Have Promise, But They Also Have Challenges Local business directories may have the richest potential for hyperlocal. They can be well-used. Directory listings may act as a foundation for other types of advertising. But they must compete against comprehensive directory books. They don’t have the advantage of “holding” advertising space for advertisers and there is little penalty for quitting.

17. 17 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. Networks: If You Build Them..(And Still, Maybe Not) There are some opportunities for network sales, especially if you develop relationships with adjacent blogs (i.e Next Door Media in Seattle). GrowthSpur Networks is seeking to build a natoinal network for hyperlocal. But don’t expect P&G and GM to come knocking at your door. They are looking for higher local reach. The best opportunity for network sales are generally going to be for local/social categories such as entertainment that leverage hyperlocal demographics (young, educated?).

18. 18 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. 5 Conclusions About HyperLocal (At Beginning of Day) 1.Going head to hear for ad sales may not be successful. But sponsorships and “Cause Related Marketing “ are low hanging fruit. 2.Self serve solutions can work to a limited degree in “easy” categories, such as classifieds. But they are very limited. 3.Directory sales have potential in terms of volume and penetration. But they have different factors than universally distributed phone books. 4.Developing deeper tech relations with local businesses, focusing on search engine marketing, can lead to a broad roles within the community that go beyond websites. 5.Hyperlocal sites don’t figure very much in our forecast of local media sales. But via partnerships and product extensions, they might prove disruptive.

19. 19 Proprietary and Confidential. Copyright © 2008 The Kelsey Group, a division of BIA Advisory Services, LLC. All Rights Reserved. ILM:09 Conference is next Wed-Friday in Century City. Come! Pkrasilovsky@kelseygroup.com 760-918-0450 Pkrasilovsky@kelseygroup.com