Despite all the hoopla about online ads and coupons, most of America still advertises in amazingly archaic ways: a sign in a shop window, a business card on a bulletin board, a flier under the windshield wiper.
It's not only cheap – printed fliers and a few pushpins – it's also effective. "I've never paid for advertising," says Jeanne Pinsof Nolan, owner of The Organic Gardener in Glencoe, Ill. Five years ago, she posted a flier on a grocery store bulletin board and now has some 150 clients. "My advertising is my flier," she says.
This tranquil corner of the advertising world is huge – by one estimate 90 percent of ads are not digitized – and increasingly under scrutiny by online ad companies. One reason national ad giant Google was willing to pay a whopping $6 billion for online coupon company Groupon was the latter's ability to bring local businesses onto the Internet.
Now, Google is reported to be testing its own local ad service, dubbed Google Offers. By bringing mom and pop stores online, Google, Groupon, and all the other group coupon sites hope to reap a bonanza.
"The percentage of local advertising that is not digital – and that's most of it – will change because the cost of advertising online is really low," says Frank Mulhern, associate dean of research at Northwestern's Medill School of Journalism in Evanston, Ill.
How quickly the online companies will succeed is another matter. Local online ad spending will grow nearly 18 percent this year, according to Borrell Associates Inc., a research and consulting firm in Williamsburg, Va. That's a little faster than the almost 14 percent rise forecast for total online ad spending. Online coupons are growing faster – up 50 percent between 2009 and 2010 – and worth more than $10 billion, Gordon Borrell says.
Still, Internet ad salespeople will have to convince people like Peter Sykes. Laid off from a hunting store, he now rides his bike around Riverwoods, Ill., stuffing fliers into mailboxes to promote his fly fishing and hunting instruction. Would he offer a big discount on Groupon to generate more traffic? "I'm not a techie," he says.
Small businesses represent a special challenge for online ad companies. Groupon and other daily-deal sites advertise discounts to millions of subscribers, via e-mail – everything from tanning salons to Holocaust museums. The site keeps up to 50 percent of the coupon and the business gets a surge of customers, sometimes an onslaught.
"The sites offer great deals to the consumers at the expense of the small businesses," says Utpal Dholakia, a marketing professor at Rice University's business school in Houston, and author of a recent study on Groupon. He found that 32 percent of the businesses surveyed said their Groupon promotion was unprofitable. More than 40 percent of the respondents said they would not run the promotion again.
"It's like dynamite," says Jay Goltz, a Chicago business owner and blogger for The New York Times. He had 900 customers respond to his Groupon ad, but is unsure how many were already customers. In addition, he questions how many people will return to his stores as repeat customers. "It's a great invention, but it could blow up your house," he adds. "I wouldn't predict the end of the bulletin board."