• by Jack Loechner , Staff Writer @mp_research, October 23, 2012

According to a new Borrell  report on what SMBs spend on digital marketing services, 51.7% of North American small and medium size business online marketing service dollars are spent on the web presence category. This represents $202 billion in spending in 2012, and includes such services as website design and management, hosting, and social media management.

The executive summary notes that the latest digital marketing buzz is all about how to enhance a businesses’ web or mobile presence. Every business wants to be seen. Suddenly, digital advertising is yielding the spotlight to digital services. The emerging lesson, concludes the study, is that the Internet is actually not much of an advertising medium after all. It’s an advertising utility. And serving that utility function can lead to a gargantuan digital gold mine.

Local advertisers are spending two and a half times more on these online marketing services than they do on things like online banners, pay-per-click keywords, and video ads. Website hosting might cost $10 a month, reputation management $15 a month, or search engine optimization $400 a month, but those services and more add up to an average annual expenditure of $17,000 per business. 

The average U.S. business spends $17,000 on online services, compared with $6,800 on online advertising. There are actually three legs to their online marketing stool: Online services, promotions and advertising. The services portion is the biggest of all.

The Online Marketing Stool

• Online marketing services            72.0%
• Online promotions            15.6
• Online advertising            12.4

Selling these marketing services are divided into four groups, according to the report:

• Media companies, which tend to sell only “advertising” products and have traditionally shunned selling things like host­ing, website design and SEO services, have created divisions that now offer digital services in addition to advertising
• Local Ad Agencies, which manage a variety of marketing needs and typically purchase advertising for local businesses, are now offering an array of digital services tied into the agencies’ creative tendencies
• Services companies, which offer things like printing, small-business loans, or payroll and accounting services, have acquired small Internet pureplays and are now offering digital marketing services to their massive customer bases
• Digital disruptors, which are Internet pureplays typically sell services directly to SMBs through telemarketing or locally placed sales staffs. Some work through alliances with local media companies’ sales staffs who resell the digital services products

The report defines 18 separate online marketing support services purchased externally (vs. in-house employees) to support digital marketing efforts. The five major categories account for 85 cents of every online marketing support dollar that will be spent this year, and are listed as:

• Web Presence including website design and man­agement
• Online public relations to manage and nurture opt-in lists, distribute press releases, and monitor business reputations
• Search engine optimization
• Online online ad production and design of ads, apps, and online contests
• Online consulting and research

Though many businesses that offer online marketing tend to bundle services creating overlapping service definitions, marketing materials from a number of these businesses, financial documents available, the number of businesses offering each service, and available secondary research yields this summary of online marketing services:

Though the average business spends about $17,000 on online marketing services, those with fewer than 50 employees will spend less than $500 a year, while a mid-size business with more than 50 employees will spend an average of $63,000.

Businesses with fewer than 50 employees comprise nearly all locally owned businesses, from plumbers and real estate brokerage firms to dress shops and restaurants. At an average spending level of $461 per employee, the budget can’t go much beyond the basics.

Businesses with 50 to 499 Employees are the larger of the small businesses in local markets. Car dealerships selling multiple brands, big furniture stores, hospitals and banks. The average business in this range will spend more than $63,133 on these services this year.

For local businesses, hosting and design account for three-fourths of all spending on digital marketing service.

The report concludes by noting that, as the web becomes more of a basic marketing tool for business, the importance of online support services will grow as well. The midsize and larger companies are likely to internalize services that they once contracted out. Those larger companies will either assign SEO and social media management tasks to existing staff, or hire fulltime experts in digital marketing.

The smaller companies, are likely to remain very fertile ground for agencies, media outlets and the pureplay Internet companies for the foreseeable future. But, all of this might eventually be seen as a fad with no discernible ROI for smaller businesses that have scant resources to keep up with Tweets, Facebook posts, and their ranking on search engine pages.

To sign up for the Borrell Associates report or executive summary, please visit here.