Let’s first address the size of the local online advertising market, then show why these masses will have a good shot at finding success in 2010, but haven’t before. If you don’t like stats, skip down to the red text below and start reading.
Borrell Research, in their 2009 “Main Street Goes Interactive” report lists 14.6 million small businesses online in the United States. Kelsey claims 18 million. Other Yellow Pages publishers claim upwards of 22 million. Whatever cut-off you use for small businesses– if you include lemonade stands and folks selling Tupperware or beauty cream at night– the price point for these small businesses is $500 a month for advertising. That’s not just PPC or even online marketing to build websites and run email campaigns– that’s the whole budget for everything.
For paid search, these businesses spend an average of $261 on paid search per employee per year– keep in mind the lie of averages, since you’re accounting for companies that spend zero, as well as those hobbyist businesses. That $261 represents 11% of the total ad budget, which works out to $2,373 per employee per year. Assuming the average small business salary is $35k, then advertising is 7% of labor cost– low for professional service firms, but high for a retailer.
- SMBs (Small and Medium Businesses) spend on average only $267 per year on their website (hosting, development, and support).
- While all businesses spend only 26% of their online marketing dollar on advertising, SMBs spend 83%.
- While all businesses spend 67% of their online dollars on support, small businesses spend 9.3%.
Why? They can’t afford custom development for just a couple hundred dollars. And the ones doing the paid searches are using self-serve with budgets of a couple of hundred dollars a month– way too small for an agency to pick up and provide a listings product, PPC campaign, site development, email autoresponder, call tracking, and the significant consulting (client education) needed to make this happen.
The small business sweet spot is $500 a month and under, while the price point in the market to truly deliver value (there are players who are less than $500 per month, but don’t deliver the full solution needed) is $2,000 per month. That gap will close in 2010.
The way it will close is through the intersection of local, mobile, and social. The research we did at Yahoo! showed that small businesses are not comfortable with self-serve, no matter how “simple” we try to make the creation of PPC campaigns, building a site through templates, setting up email autoresponders, and so forth. Too daunting, not enough time, too expensive– and therefore it remains untouched. The stats from 2007 were that 87% of small businesses were aware of PPC, but only 9% of them were actually doing it. This gap underscores the point.
Video game dynamics teach users complex systems of rules via a gradual leveling and unlocking mechanism– starting from a basic set of operations and gradually revealing new features and options until players have learned the game. You can read here about these mechanisms and how they apply to Farmville, your local supermarket, learning to read, or other activities by checking out this post on social game dynamics.
Now these games have moved from the desktop to your phone– and now there are games such as FourSquare, Gowalla, and Poynt, where you can earn virtual currency in a giant, real-world scavenger hunt. And the phone knows where you are, can take pictures, and can collect data in ways that PCs can’t.
And social networks have now amassed the social graph in ways that make game dynamics truly possible. Facebook recently shot through 350 million users worldwide and is now 25% of the traffic in the United States– that’s 1 in 4 pageviews across ALL traffic in the US–
So now you have a mobile crowd that is connected to the social graph, earning incentives to record where they are and gather information on local businesses.
This is your salesforce. This is the borg that will assimilate you into the hive– the stay-at-home moms that will earn points for enrolling small businesses into Content Factory, playing a video game that happens to earn them real dollars. This is the army of local entrepreneurs, playing not FarmVille, but ContentFactoryVille. We’re not calling it that, but you get the idea. Watch as thousands of stay-at-home dads, motivated by online video games designed to enroll small businesses use a system that simplifies the process of online marketing for local businesses.
And the small business will receive personal service from their friends, a measurable result from the system that they’re using together (after all, video games are all about clear rules), and have a good time while they’re at it. No more hard sell, no more being handed off to the next available call center agent (he says his name is “Peter”, but you know it’s not from his accent).
It will be interesting to see how the traditional model of aggressive direct sales fares in the open, social, local, and mobile approach:
- Consider how they will react when small businesses demand transparency (just show me the CarFax) on how much of their dollar is actually being spent on ads versus sales commission and overhead.
- How will they deal with margin compression when their model of having multiple people involved in the process– sales, operations, engineering, support– gets squeezed down when the local/social/mobile approach requires just one person who is eager, well-educated, and already has a relationship with that client? The direct sales model has 30% of the cost in sales and marketing, while the local/social/mobile model has no traditional advertising costs.
- How will the traditional sales model deal with a price point that will drop below $500 per month– maybe to $200 per month– yet still be forced to drive as much value as the previous $ 1,000-a-month packages? You’ll see a deflationary impact just like the rapid obsolescence of computer equipment.
- And to the software sellers, who are licensing software for $200 a month– so they do meet the price point– how will they solve the “last mile” problem of collecting enough data from that small business owner to be able to create a website that is compelling– that won’t waste the traffic that comes from a templatized PPC campaign? The SaaS (software as a service) model of monthly software fees is appealing for its scale and ability to sell at low price points but will fall down for not being able to integrate service. If service weren’t necessary, then everyone would be on Adwords and WordPress already.
- What will the software and direct sales firms do when they cannot spend their way out of the margin issue, no matter how much money they raise– IPO or not? If you’re selling $10 bills for $8, you’re not going to make it up in volume.
The model of local/social/mobile is:
- Akin to the open source software movement— a belief that the community can organize to provide products for nearly free and of better quality– that results should be transparent and that campaigns should be owned by the small business, as opposed to being held hostage so they can’t switch out.
- Keeping dollars in the local economy— to support local businesses, with anyone being able to start their own local Internet marketing firm to serve their neighbors honorably– to create a grassroots army of local Internet marketing experts.
- Employing stay-at-home moms, students, and anyone who is well-educated, but can’t work full-time in sales. We’ll tap into the labor market of part-time and underemployed folks, who might not be trained professionally in Internet marketing, but can use our systems to create results as good or better than the “big firms”. They might have a Masters’s degree but need to spend time with the kids. Or maybe they just don’t want to work in an office 40 hours a week.
If you want to join our team, see our training processes, or even try our product for free, just drop me a line. Gamers of the world unite. You will be assimilated.