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Via Advertising Age:

Local ad spending online may be the nexus of traditional publishers’ greatest hopes for future growth, but the anticipated spoils have already generated fierce competition, according to a new report from Borrell Associates.

Local ad revenue online looks likely to grow by 50% this year to $13.1 billion from $8.7 billion in 2007, Borrell said. The expansion can’t sustain that pace much longer, though; its compound annual growth over the next four years is likely to fall to 15% from 48% over the last four years.

Local advertising offers many opportunities to both pure web companies and “traditional” media companies that are now extending their offerings to the Internet. But looking at different types of ads, some ads are better for local marketing than others, in my opinion.

CPM advertising, as still offered mostly by websites of newspapers and by the bigger online portals, doesn’t offer as much value to advertisers as contextual sponsored links, individual flat-fee advertising deals and classified ads. This is because most CPM advertising campaigns are still untargeted and they do not offer any incentives for publishers to offer related quality content. Instead, CPM advertising might induce publishers to simply concentrate on the number of pageviews their site generates. PPC ads, flat-fee ads and classifieds, on the other hand, rely very much on traffic quality and high conversion rates. Thus these types of ads offer publishers an incentive for creating quality content and attracting quality traffic that will convert well into actual leads and sales for their clients.

That is why I think both publishers and advertisers should try to make more use of contextual advertising and classified ads, especially in local marketing, as it should result in more value being created in the long run.