The Kelsey Group recently released the company's annual forecast for the global advertising market. Traditionally, the forecast focuses on changes in the local directional media landscape (Yellow Pages, local search and Internet Yellow Pages). As part of the research effort, we consider the various consumer behavioral shifts and the ad spending changes in the global market.

In 2007 we estimate the global advertising market at US$605 billion. Advertising growth will keep pace with population and economic expansion, increasing at a compound annual growth rate of 3.2 percent through 2012 when the market will reach US$707 billion globally.

One of the tenets of the forecast is that a fixed upper limit on ad spend exists (with variations for cyclicality, seasonality, etc.). Therefore, if one segment is going to grow faster than the overall CAGR in the forecast, another segment will decline. This also means that if a new ad model takes off, advertisers are not spending new ad dollars but instead are reallocating their spending.

Interactive advertising will be the fastest growing segment globally. That segment will grow from 7.4 percent today to 21 percent of the global ad market in 2012. The Internet ad spending changes are following the vast consumer migration to digital media. Conversely, print newspapers will be particularly hard hit over the forecast period, dropping to 13 percent of the global ad market in 2012 down from 21 percent today.

Without going into too much detail by segment, consider how little looking for a car in the print newspaper has changed over the years. The Internet allows for a much richer experience with superior searching and colored photos, where column inches are not a consideration. Chip Perry, chief executive officer of AutoTrader.com (and a former newspaper person), realized this long ago and now runs one of the most successful classified businesses with revenues well over US$500 million. These shifts are driven by changes in consumer behavior, and they are happening across all vertical segments.





Global Search Usage
One of the most important drivers globally of the ad shift is search usage. Fundamentally, search engines allow consumers to sift through billions of pages of data to find what they are looking for. Consumer search behavior (as opposed to query volume) by country highlights some interesting trends. Based on a sample of Pacific Rim, Australian, European and U.S. Internet users provided by comScore (see chart below), U.K. consumers search the most at 127 times per month while U.S. consumers search the least at 58 times per month. This suggests myriad interesting digressions, but one of our forecast assumptions is that query volume growth driven by more consumers searching more often will be the main driver of search ad growth. Ad coverage (how often an ad appears on a given search) and click prices will increase through 2012, but not nearly as fast as they have in recent years.



U.S. Search Market
Consider U.S. consumer search engine behavior relative to the previous chart. Our forecast shows that searches per user will grow from 56 to 108, a CAGR of 14 percent through 2012. Consumers searching more often and a few other factors will drive search query growth 16.6 percent through 2012.



The Local Directional Media Market Internet trends, including the aforementioned top-line search growth, are important drivers (positive or negative) across the local directional media landscape, which includes local search, print Yellow Pages and Internet Yellow Pages.

All directional advertising media see high conversion to leads (clicks, calls or e-mails) relative to usage. This means they are extremely effective advertising channels in which to message consumers. It also means these ad media rightly see higher relative economics for the publishers or operators than some peer groups on a per-action basis. For example, the display ad revenue per impression is far lower than revenue per search.

Why? Directional media are really about purchase intercept. Consumers are looking for a specific product or service, and placing a contextually relevant ad in front of them while they are deciding where or what to buy leads to high conversions into sales. People don't pick up the Yellow Pages on Friday night and browse the plumbing section unless they really need that service.

That's why ads placed in the print Yellow Pages generate high call volumes relative to usage. These calls convert into sales at a very high rate. Logically, that is why advertisers pay more for directional media ads: On a per-usage basis they are effective since more convert into sales. On the Internet in 2006, for example, search constituted less than 5 percent of usage (measured by pages viewed) but generated 40 percent of the ad revenue.

That leads to our forecast. Globally, the directional media market will grow from US$33.3 billion in 2007 to US$41.4 billion globally in 2012 (4.5 percent CAGR). The global outlook for each of the three key segments of the directional media market during the forecast period (2007-2012) is as follows:

•  Local search revenues will grow from US$2.1 billion to
   US$6.6 billion (25.5 percent CAGR).
•  Print Yellow Pages revenues will decline from US$27.5 billion
   to US$25.6 billion (-1.4 percent CAGR).
•  IYP revenues will grow from US$3.7 billion to US$9.2 billion
   (20.1 percent CAGR).

Overall, we expect strong international growth to play an important role. We do foresee, however, a revenue and usage decline in print Yellow Pages. Some large markets where Internet usage and content are strong will have caused a softening in revenues. We expect this trend to continue.

On the local search end, increasing query volume and growth in the number of searches with a geotargeted modifier coupled with more localized content appearing in listings will drive local search revenue. Overall, this segment will see the highest growth rate through 2012 at a 25.5 percent CAGR.