• by Mark Walsh  @markfwal, October 11, 2012

A new report from Borrell Associates concludes that the Internet has become more of an advertising utility than an ad medium, given the demand for services to maintain a presence across a wide range of digital platforms and devices.
 
Underscoring that point, the media research firm estimates local businesses are spending two and a half times more on Web marketing services than on online banners, pay-per-click keywords and video ads. That translates into $17,000 spent per small and-medium-sized business annually on online marketing, compared to $6,800 for online advertising.
 
The Borrell report, “What SMBs Spend on Digital Marketing Services,” shows these businesses are dedicating 72% of their total online budgets to marketing services, 15.6% to online promotions, and just 12.4% to online advertising.
 
Drilling down on marketing services, the study estimates maintaining a Web presence accounts for about half (52%) of all spending, or $202 billion this year. The other major categories include online public relations (12%), online marketing support (11.3%), online ad production (12.9%), and online consulting and research (12.1%).
 
While businesses on average lay out $17,000 annually for online marketing services, those with less than 50 employees will spend less than $500 a year -- just enough for Web hosting and email list management. For a mid-sized company with more than 50 employees, that budget shoots up to $63,000 a year, covering other areas like SEO, video production, public relations and social media.
 
*Companies with over 5,000 employees account for the bulk of spending ($226.5 billion) in the $390 billion market for online marketing services. Borrell groups the types of businesses benefiting from this growing spending into four groups:
 
*Media companies: Tend to sell only “advertising” products and include dozens of players, including Yellowpages.com, Supermedia, DexOne, Hearst and Gannett.
 
Local ad agencies: Manage a variety of marketing needs and typically buy advertising for local businesses, but slow to grasp opportunities in digital media.
 
*Services companies: Offer everything from printing (VistaPrint and Deluxe Corp.) to small business loans (American Express) or payroll and accounting services (Intuit/Quicken). All four companies now offer digital marketing services to customers.
 
*Digital disruptors: Internet pure plays like Web.com, Local.com Yodle and Reputation.com. They typically sell services directly to SMBs through telemarketing or locally placed sales staffs.
 
As part of the study, Borrell also looked at online spending in select categories -- auto, hospitals, restaurants -- in three local markets to give a better sense of actual budgets. Car dealers in Atlantic City, for example, are spending $2 million on digital services this year. Nearly $900,000 will go to Web hosting, $665,000 to Web design and maintenance, and $300,000 for online agency or exchange fees.
 
Hospitals in Huntsville, AL have higher budgets -- $4.4 million -- but will also spend about half that for Web hosting, and the next-largest share on site design and maintenance. The same pattern holds true for restaurants in Tucson, even though their annual spending on digital services is only $701,000 on average.
 
Borrell conceded the difficulty in estimating spending for online services overall because vendors tend to bundle services. To deal with that challenge, the firm said it looked at marketing materials from service providers, examined financial documents, counted the number of businesses offering each service, and reviewed available secondary research.