Interactive Local Media: The New Wave Peter Krasilovsky VP and Program Director, BIA/KelseyBOLO 2011 The document discusses trends in local interactive media and advertising. It notes that local/local SMB advertising makes up 38% of the $132 billion local advertising market, while national/local advertising makes up 62%. Interactive advertising currently represents a minority of local spending. The use of social media, mobile, and vertical media is growing rapidly for both consumers and local businesses. New types of local commerce like daily deal sites are also disrupting traditional models. Overall, the local advertising market is shifting online and mobile, with opportunities for more targeted, local advertising across many new platforms and devices.

1. Interactive Local Media: The New Wave Peter Krasilovsky VP and Program Director, BIA/KelseyBOLO 2011

2. About Us: Navigating The Local Ecosystem

3. Our BIA/Kelsey Word Cloud

4. Come to ILM West San Francisco December 12-14 Bob Pittman, CEO, Clear Channel Also: Kara Swisher, AllThingsD Zorik Gordon, ReachLocal Todd Rowe, Google John Paton, Digital First

5. Today’s Local SuperForum Agenda Sizing The Local Market and Hot Trends (Krasilovsky) Local Opportunities in Media (Triplett, AZ Republic) The Local Search Opportunity (Yeich, Relevant Ads) Local opportunities in Rich Media (Simon, Local.com)

6. Local = $132 Billion: Local/Local vs. National/Local Local/Local SMBs make up 38% ($50.5 Billion) National/Local make up 62% ($82.5 Billion)

7. Interactive is Minority of Today’sLocal Spending *ERPM = E-Mail, Reputation and Presence Management Digital revenues associated with traditional media (e.g., Web sites associated with local TV stations, local radio stations, newspapers and magazines) are included in the revenues for the traditional media. Revenues for Internet Yellow Pages that are associated with print Yellow Pages are included in the overall Yellow Pages media category.

8. US: 2010 Interactive Ad Market $29.8 B Search has gotten local advertisers online Source: Proprietary research by The Kelsey Group, mid-2007. Sample: 1,200 SMB advertisers in 4 major US MSAs). Methodology: Telephone survey. Cosponsor: ConStat.

9. US: 2013 Interactive Ad Market $58.57B(CAGR 15%) Display will grow at a slower rate; major revenue growth will come from targeted “directional media” and mobile.

10. Local Local Spending: The Big Guys Spend Disproportionally More *Base: LCM respondents that have a “web site or homepage”. Source: BIA/Kelsey estimates based on LCM data, Estimates are sensitive to assumptions.

11. Auto Dealer Marketing Spend: Online

12. Use of Media Has Exploded for Both SMBs and Consumers The ratio of media used by Consumers is 2x what SMBs buy. Consumers SMBs *Number of different media used by consumers when shopping for local products or services. Note: Each survey wave typically identifies a larger number of media to choose from, so there is some “longer menu” effect captured in this data. Sources: BIA/Kelsey surveys.

13. Local Use of Social Media Is Widespread Local business SMB usage of various “social media”is already intense. In our research, nearly half reported using Facebook for advertising or promotion. 40% said they have a Facebook page specifically for their business. Use of Social Media Sources: Local Commerce Monitor – Wave 14 (BIA/Kelsey and Constat)

14. New Businesses are Younger; Use More Social Media Twitter versus YP usage tells a story about embrace of social media. While Yellow Pages usage stays at 29%, Twitter use has grown 2X to 19%. Usage levels by SMB age suggests further growth by Twitter and erosion of PYP in most age brackets. Use of Print Yellow Pages vs. Twitter (by Age of Business) Wave 14 (Q4 2010) Twitter: Overall 19% Sources: BIA/Kelsey surveys

15. The Move Away from Horizontal Media Inevitably, there is a move away from Horizontal media (newspapers, Yellow Pages) to specific Vertical media focusing on one segment or theme. Verticalization is a smart move as horizontal media begins to decline. Verticals provide different entry points for consumers, and boast synergies among related categories (i.e. dining, events) The promise of vertical media is: Focused content Higher value search Better leads Better conversion rates

16. Verticals: High CPM Rates CPM rates for verticals are highly attractive. They range from $5 to $60 depending on the vertical. As a general rule, rates are higher when they are more specifically tailored towards high value customers. Sources: Adify, Centro

18. Gen X – Wills & Estates

20. Gen X – 2-4x more likely to have used Craigslist.com

22. Gen X – Least likely to want to talk live

24. Gen X – Independents*AT&T – Compete Vertical Shoppers Study. See slide 5 for limitations. As previously noted, not subject to 3rd party review.

25. Verticals Increase The Size of The Funnel at The Initial Search Level (Awareness)

26. Vertical Users: Greater Tolerance for Advertising When It Is Relevant Vertical sites have a major advantage over other publishers: “Consumers love our advertising.” Mitch Golub, President, Cars.com

27. Increased Vertical Spending is Projected Spend More on Verticals? (Print or Online) Source: BIA/Kelsey LCM survey. Verticals, (“Specialized Directories”) offer more targeted opportunities and often reach new more affluent target audiences

28. Classifieds on WalMart? Deals from AARP? The new marketplace platforms have extended the reach of items and services to be sold. Walmart, MasterCard and AARP are among the non-media brands that are now posting classifieds and offering deals.

29. Group Buying: THIS is ECommerce More than 95 percent of $2.5 billion space is oriented toward local. Daily deal publishers earn ecommerce revenues with a no money down model. Deals represent an alternative to a non-intuitive, search-centric approach. Deal participants can see higher impressions than traditional media. They can be upsold with product add-ons.

30. The Disruptive Potential of Deals The ability to effectively target consumers based on transaction and search is creating an inevitable clash between: Destination deal sites (Groupon and Living Social) Search giants (Google); Sales leaders (AT&T) Financial Institutions (MasterCard, Visa, Amex).

31. Chicago’s Most Subscribed Media The size of Groupon’s base in each market generally follows population size. The exception of Chicago, its headquarters. Although Chicago is the #3 market by population, it is Groupon’s largest market. Groupon’s email subscriber count in Chicago is much larger than both major Chicago papers together.

32. Advertising + ECommerce “They get huge exposure exclusively about their business….300,000 emails (in Chicago)….. It is better than Thrillist and Daily Candy, which have CPMs of $250. That would be about $75,000. But with us, it’s all free.” Andrew Mason, CEO, Groupon

33. BIA/Kelsey Forecast: Deals U.S.Gross Revenues (Sept. 2011) +36.7% CAGR Source: BIA/Kelsey (2011)

34. The New Retail Constellation: Cracking The Code on Impulse Buying

35. Mobile Ad Spend: Local vs. National US$ Millions Note: Numbers are rounded.

36. Intent on Local “Local search on the mobile device indexes higher than the desktop by about 2 to 3 times,” -- Diana Pouliot, Mobile Ad Sales Director for Google

37. Mobile Local Advertising: Evolving Towards Local (Eventually) Majority of the roughly $800 million U.S. mobile ad spend is brand advertisers and agencies. Market evolutions: move toward local Better geotargeting for national brands (national – local) More adoption by SMBs (local – local)

38. Use of Mobile Advertising By SMBs Usage levels of mobile advertising (all formats) by SMBs remains very low – still in the single digits. SMB Use of Mobile Advertising Source: Local Commerce Monitor Wave 14. November 2010.

39. Local Mobile: Not Just Advertising

40. Thank You Questions and Comments Peter Krasilovsky pkrasilovsky@biakelsey.com Personal Blog: www.localonliner.com Company Blog: www.blog.biakelsey.com