Small Businesses Likely To Stick With What They Know

Recession Likely to Slow Shift to Online Ad Spending

Posted by Greg Sterling on 12.16.08 @ 04:14 PM

Greg Sterling

Much is being written in Ad Age and elsewhere about the recession's impact on major brands and their ad spending. Are they shifting marketing online? Are they freezing budgets? Are they cutting media?

But what about the other end of the spectrum: U.S. small businesses. What are they doing and how has the economy impacted their marketing and ad spending? Does their world parallel the Fortune 500 or is it altogether different?

Like their larger counterparts, small marketers have recently begun to shift ad dollars online. But the recession is likely to instigate a retrenchment into what this group knows -- and that's not the web. Before we get to the discussion, let's understand the small business market.

According to the most recent available U.S. government data (from 2004) there are slightly more than 25 million businesses in the US, employing just over 115 million people. Almost 20 million people are self-employed.

Of the total 25 million businesses, including those self-employed, about 99% qualify as small businesses (SMBs), with fewer than 99 employees. And 91% have four or fewer people working for them.

SMBs spend many billions of dollars on advertising and marketing annually. It's difficult to get at the numbers with any precision because much of it is happening under the radar. But we can safely say that it's in excess of $40 billion annually. Small business software vendor Intuit has argued that the number exceeds $100 billion, when all forms of marketing are taken into account.

Are You Currently Advertising Online?

Are You Currently Advertising Online?

SMBs have historically contributed billions in ad revenues to the yellow pages industry, newspapers, direct mail, radio, spot cable TV and, to some degree, outdoor. And vanguard SMBs "built" the Google empire long before brands and major agencies decided to include paid search in their ad budgets.

So what's happening right now in the trenches of SMB ad spending?

Like brands, mainstream SMBs have been making the transition to online advertising over the past several years. They have been slowly shifting more of their marketing dollars from traditional media to the Internet -- but it has been an incremental process with many fits and starts.

An online survey conducted this August by Opus Research, among more than 1,000 US small businesses, took a snapshot of SMB advertisers and their thinking about the next 12 months.

SMB Ad Spending Intentions: Next 12 Months

SMB Ad Spending Intentions: Next 12 Months

As with larger enterprises, these findings show an intention among SMBs to shift more of their marketing spend online. This survey was taken, however, before the bottom dropped out of the economy. Indeed, an American Express survey of 602 small businesses in early October found that 79% of respondents reported decreasing sales and that 52% were "cutting back or delaying marketing initiatives" as a reaction.

Inertia and resistance to "experimental" platforms or programs are holding brands back from social networks or mobile for example. In a similar way, the recession has caused many small businesses to "stay put," hesitate and not try anything new. For a large number of SMBs that includes online advertising.

Small businesses are time starved and face budget and personnel constraints not experienced by larger enterprises. In addition, unlike brands and agencies, SMBs are also (still) very confused about all their online options and what precisely they should be doing with their limited marketing budgets.

Main Reason for No Online Marketing Today

Main Reason for No Online Marketing Today

Whether you're a CMO of a major brand or a small business owner with two employees, the seemingly "rational" response to this recession would be to take dollars from less efficient or underperforming media and shift them online. However that's only happening here and there; though there are more aggressive examples like the US auto industry, which is being driven by dire necessity to cut traditional media spending.

The hesitation to more fully embrace the internet and digital media may be based on somewhat different factors for brands and SMBs but the result is similar: limited movement of ad budgets online.

If we step back, however, the shift is taking place. But the recession is generally proving to be barrier rather than an accelerant of internet ad spending, as we might have expected. It appears to be delaying online spending adoption or increases at both ends of the spectrum.

Yet when the recovery finally comes we're likely to see internet advertising dramatically pick up steam among brands and SMBs alike.

11 Comments

By JOSEPH | HARRISVILLE, RI December 17, 2008 08:39:43 am:

Has Opus Research ever had a press release about this report?

Permalink

By Steve | Fredonia, NY December 17, 2008 08:44:30 am:

nice graph. Now it's obvious that we need to educate them about WHY to spend online (benefits), more then how and where to begin. ...and not just sending yahoo and msn postcards in the mail, promising $100 of free ads to get started. started doing what? more smb see thata s a waste of money becuase they don't understand it. They don't even know why they would want to get started, much less how to get started. we need some major success stories of smb that made it big using online advertising in a simple way.

Permalink

By tac379 | Cambridge, MA December 17, 2008 09:31:15 am:

The AMEX data points you cite have to do with overall budgets and spend. It's not shocking that, a month into a huge economic collapse, small companies reported decreases in sales and cutting of budgets. But you've posted absolutely no evidence for the fact that SMBs won't SHIFT marketing budgets (even if those budgets are smaller) into the online/interactive world in 2009...even if those budgets happen to be smaller.

Also, your graphs don't support your hypothesis, but you include them anyway, and then mention a quick line about them being out-of-date because they were done in August? Then why show them if they're not to be believed?

Permalink

By sureshgps | Coimbatore December 17, 2008 09:48:05 am:

Due to recession most of the people sitting simply in their home.... and "THEY ARE ONLINE"... but what are they doing online...?? Am telling in my point of view... If am jobless i'll surely read online news... like in yahoo, cnn or some other news portals.. Marketers can now target on these news portals to advertise... Most of these guys who read online news must have savings to buy products. Otherwise they will be doing something else to make some bucks other than being online. So I hope advertising in such sites will give better results.

http://dezignportal.blogspot.com/

Permalink

By TIMOTHY | OKLAHOMA CITY, OK December 17, 2008 10:16:30 am:

The fact of the matter is that the shift to online advertising is driven by media habits shifting online. We'll always go where the consumer is. So, while there may be a brief pause in the momentum towards online, it won't have a lasting effect. I think that the largest hesitation will be with social networks, which has a fraction of successful case studies compared to other online and digital tools.

Permalink

By stevexw | Fairfield, CT December 17, 2008 11:33:43 am:

There is a very good reason why SMBs aren't marketing online in higher numbers. They don't understand how to make it effective. They DO understand how to place an ad - especially on Google AdWords or Yahoo, but that doesn't mean that they will be effective. With the complexity of bidding, writing clear/compelling ads, and having a website that convinces prospective customers to buy a service or product, it's no wonder that businesses don't get it. Lawyers, Plumbers, and Accountants don't have dedicated marketing departments like big businesses. Instead, they use their limited resources to focus on what they know best - law, plumbing, and accounting.

Our company, Zoomnia, let's businesses market by using their professional expertise rather than their marketing savvy. It gets them customers because customers prefer experts to marketers. Here's an example: http://www.zoomnia.com/Answers/Q20840.html

To get more SMBs interested in online, the vehicle needs to be easy to be effective.

Steven Wolk
Zoomnia
www.zoomnia.com

Permalink

By gsterling | Oakland, CA December 17, 2008 11:41:58 am:

Tom:

"But you've posted absolutely no evidence for the fact that SMBs won't SHIFT marketing budgets (even if those budgets are smaller) into the online/interactive world in 2009...even if those budgets happen to be smaller.

Also, your graphs don't support your hypothesis, but you include them anyway, and then mention a quick line about them being out-of-date because they were done in August?"

I'm trying to make several complex points -- spending is shifting but the anticipated shift during a recession isn't happening in the way that might have been expected. That's partly because SMBs are confused about online marketing (chart 3), which is holding them back.

Re the August mention: trying to provide appropriate context and caveats; the directional findings are correct but the economy has changed radically since that time.

Permalink

By REX | NASHVILLE, TN December 17, 2008 12:25:55 pm:

After re-reading the article, I too, fail to find any evidence here that backs up the premise of this story's headline and lede. It includes some some mash-up references to random surveys and factoids, but nothing that convinces anyone who actually reads the article or knows anything about the small business "market" that small businesses are "sticking to what they know." Small businesses cut across ever industry in the U.S. economy. They are retailers and wholesalers. They provide services and manufacture products. They market to one zip code or to the world. They invent high-tech devices and even still make buggy whips. There's no way to lump them all together and suggest there's a universal truth regarding whether or not they'll be shifting marketing dollars to the web. The only thing you can do is use common sense and talk to anyone who actually sells advertising to small businesses. And they'll tell you: Small businesses are shifting more and more marketing dollars to the web.

Permalink

By vtmiller | Richmond, VA December 17, 2008 02:17:36 pm:

To reload this page, to view my video bubble comment click link:
http://www.bubblecomment.com/id/qv90 (no downloads/installs)

What a great article. I commend Advertising age for focusing on the small business of America. Small businesses are just following their instincts in tough times. Media groups themselves (newspapers, radio station groups, etc.) are to blame for initially raping the small business owner of millions of dollars in 'online advertising' sales. Why? Simply put they joined the hype, without the skill sets to deliver the promised results or return on investment.

Permalink

By witzm | St. Louis, MO December 17, 2008 03:33:54 pm:

Suggesting that SMBs will simply do more of the same is hardly different that saying that larger businesses will cut back on innovative marketing efforts in tough times.

SMBs will however, spend more time online and invest in sites, SEO, advertising and other activities which demonstrate measurable ROI versus less measurable traditional means. See quick comment concerning ROI of online ads vs. phone book advtg. at
http://marketingwitz.blogspot.com/2008/10/yellow-pages-romi-versus-online.html
Business owners want results, and in difficult times, measurable results will garner investment. www.marketingwitz.com call this phenomenon "Facts Find Funding".

Grouping all of SMB into one behavior group fails to recognize the diverisity of the group. Check out www.sbtv.com to see the range of issues facing these businesses. Marketing is a challenge for all businesses, and to say that recession will slow the shift to online spending is not a clear conclusion. Some segments may stay with traditional activities. Most are likely to seek haven in measurable marketing investments.

MWitzling
www.sbtv.com

Permalink

By dongreen2000 | New York, NY December 18, 2008 09:23:58 pm:

We can set it up for you at no cost if you have strong interest in this field or work-at-home business. You can pick the site name for your own Age Gap dating site, own the domain and brand. We take care of all the backend and engineering work. Also customer service work.

You don't have to worry that no one exists at your dating site at the beginning. Your site will share hundreds of thousands of users with other age gap dating site we have already set up. (Cougarmingle.com) Your users can immediately contact our users once they register at your dating site.

Also, we will pay you $30 for each sale or $2 for each profile you drive to the site.

If you feel interests, please reply me at afcougarmingle@gmail.com or check af.cougarmingle.com to get more details.

Permalink