One of the key premises of my presentation at Kelsey’s Interactive Local Marketplaces conference is that we are experiencing a shift in the modularity of local media that is an inevitable by-product of the expansive period that we have just exited.
Over the past five years, as local marketing budgets have grown in pace with the increase in consumer consumption, marketers had more money to try more things. But they also had enough money to market in all the conventional ways. So, while entrepreneurs and venture capitalist were investing time and energy in new technology and ways of organizing the local marketplace, most marketers were plowing the majority of their dollars into traditional media, like newspapers, yellow pages, direct mail and other outlets.
With the current sharp drop in consumer consumption, local marketers don’t have the luxury of advertising everywhere. In fact, they don’t have the confidence to advertise anywhere. They want to spend as little as possible; ideally, they will spend nothing at all, but still keep enough activity around their business so they can make some sales.
Long term, not advertising at all isn’t a sustainable strategy. But, in the meantime, the relative value of media is shifting markedly in the local marketplace. Advertisers are drawn inexorably to low cost; recent new media launches supply attractive, low-cost alternatives. Share is shifting because resources are shrinking, and new business models — often still operating at a loss or a minimal profit — provide increasingly effective alternatives.
I’ve reproduced here the slide from my presentation that refers to relative value of different local media. I focused on the real estate category in my talk because this sector is two years into the housing contraction, and the behavior that I believe is going to play out in other local media sectors has already happened here. For illustration purposes, I have intersected the X and Y axes of the slide with a downward sloping diagonal line, which roughly replicates the trajectory of agent commission earnings over the past three years.
My point during the talk was that during the boom yea
rs, when realtors had a surplus of money, they were comfortable focusing their marketing energies toward the top half of the square. As a result, media in the upper right quadrant had a large pool of willing advertisers. Revenue rose as a result.
As resources for marketing have been cut, advertisers are focusing their attention on the bottom half of the 
square, looking for marketing options that preferably will cost them nothing. The second chart reproduced here shows the shift in the pool of potential customers. This shift helps to explain the increased time and energy that many real estate agents are making in social media and blogging: these are options that have no hard cash cost, and that give the agent comfort that they are working to keep their name and reputation out in the market.
I do not want to give the impression that I believe the relative value of all the media on the matrix has changed. You can look at this chart and conclude that there isn’t a role for traditional media. In fact, my company is highly invested in multi-platform media based on a traditional specialty magazine brand, The Real Estate Book.
My point is two-fold. First, advertisers will invest more time in low-cost or alternative options in bad times than they will in good. This will lead to a shift in the way that they get leads. Second, as advertisers get more leads from alternative sources, they will put price pressure on traditional media. This is bad news for high-priced media like newspapers. For more efficiently priced media, like specialty magazines, price will be an issue when advertisers feel like their income is consistently at risk.
There is a long-term role for traditional advertising — that was a key point in my talk. The challenge will be to survive through a very dark winter, while the market adjusts and begins to recover.
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