BIA/Kelsey President Neal Polachek and SVP Matt Booth kicked off the ILM:09 conference by presenting BIA/Kelsey’s local revenue forecast and the state of interactive local media. The bottom line is that they continue to predict that local media will fall from $155.3 billion in 2008 to $144.4 billion in 2014, a CAGR of -1.4 percent.

They believe there will continue to be a massive shift from traditional media to digital media with some companies “falling off the cliff.” (An hour later, keynote speaker NBC Universal EVP Brian Buchwald confirmed his belief in this scenario.) The winner in the digital business is search, which has already begun to rebound. Matt and Neal anticipate growth of 15 percent through 2013. Geotargeted display, video, mobile, e-mail and reputation management will meet previously predicted growth expectations. Importantly, the traditional sales forces will be more competitive with each other.

Finally, Neal reiterated that presence, performance and permanence is a strong macro trend that will continue to bolster interactive local media in the short to intermediate term.

Kenshoo Search is the third-generation end-to-end search marketing platform that was “built utilizing the quality management approach.” Its USP is to enable marketers to optimize every aspect of their campaigns to achieve maximum ROI. At ILM:09, Sivan Metzger announced the formation of Kenshoo Local, an initiative for which he is the general manager. “SEM is complicated but enterprise customers are asking for local. The challenge is to crack the SEM nut.” He argues that there is a huge demand in supplying SEM services for SMBs, but the demand for the human touch makes the business model unsustainable.

Metzger believes the keys to local search engine marketing are simplification, automation and optimization.

Few companies have seen the ups and downs of the media industry like R.H. Donnelley. BIA/Kelsey President Neal Polachek asked Directonal Media Strategies Day 2 keynote Speaker Dave Swanson, RHD chairman and CEO, to speak about what’s happened and what’s ahead for his company and the industry. The audience was treated to an honest, passionate and extremely eloquent perspective.

“We are in an industry where the definition of good is doing less bad,” Swanson said. His view is the good news today is that because of how far and fast the industry has fallen, the opportunity is now greater for everyone in the directional media business.

RHD was one of the first media companies to tell analysts in their quarterly reports that the economy was in trouble. There was scoffing at the time, but RHD clearly had identified an unfortunate leading economic indicator. To make his point about the current economy, Swanson referenced a Goldman Sachs report that he said showed the average sales of S&P 500 companies were down 16 percent in the second quarter. That was on top of a 14 percent drop in Q1, according to Swanson.

There were three major bubbles that contributed to our economic woes: the well-known housing bubble, the lesser-known advertising bubble and the all important credit bubble. Nevertheless, “I don’t regret choosing the growth strategy we pursued,” said Swanson, adding that he really didn’t have an alternative if he wanted RHD to survive.

For media companies, it is the downturn of the economy that overshadows any other changes. Besides the economy, secular changes in shopping habits, the growth of print competitors (according to Swanson, the number of books being distributed has doubled) and overall media competition, including a new set of online companies, have combined to hurt the Yellow Pages industry. Every one of these competitors promises to give businesses better results at a significantly lower price. “It’s a darn good thing that our products work as well as they do,” Swanson said.

At that point, he looked at the audience and admitted that as he reread his remarks, he sounded like he was whining, but the fault lies within as well. “The fact is that technology and our execution has been a huge disruptor for us,” he said. Systems conversions are painful both for employees and for customers. To meet competition, we have created a shiny new set of digital offerings where we too often overpromised and underdelivered.

Importantly, Swanson said, “for RHD, the worst is behind us. Our systems are burned in; our cultures are melding together. We are learning how to better execute print, online and local search products.” He said that Yellow Pages will never dominate directional media as we have in the past and that RHD is investing money in those myriad places where consumers begin their search. He reminded the audience that there is a big difference between good and not so good traffic, so RHD is investing in technology that shows how successful leads are.

Finally, RHD is focusing on “how we can help merchants. We are building service-centric models focused on the needs of local businesses. We want to be the No. 1 provider of directional marketing services.” He admitted that we’re in a transition right now, but the model works because there are no incremental sales costs because of the channel and the relationships. RHD is looking at micro strategies for growth and focusing on geo-verticals (i.e., lawyers in Denver).

Swanson was upbeat despite the fact that “main street is not participating in Wall Street’s rally yet.” This is a position that BIA/Kelsey has stated several times in the past. The recession has a way to go before we start to see job, housing, advertising and credit growth. Swanson has been on a wild ride since he became CEO of RHD in 2002, but his look at what happened was honest and his perspective of what’s ahead sounded reasonable and doable.

Here is a valuable marketing lesson for Yellow Pages, newspapers and broadcasters.

You probably remember Victor Kiam’s famous commercials for Remington shavers from 1979 when he said on camera, “I liked the shaver so much, I bought the company.” It got your attention because here was a guy who was putting everything on the line for his new company. The commercial convinced a lot of people to try an electric razor and their sales ballooned.

Now Ed Whitacre, who by all rights has earned retirement after working for the Bell System since 1963, is becoming the new public face of General Motors. Whitacre rose to head SBC in 1990 and after a series of acquisitions including AT&T (whose name the company took) was the driving force that made it the largest telecommunications company in the world. He was successful in great measure because he was willing to take risks as the leader of an organization that was not known for going out on a limb. In July, he accepted the job of chairman of GM as the automaker came out of bankruptcy 60 percent owned by the government. Unlike Kiam, he may not have his own money on the line, but he certainly has his reputation at stake.

Those stakes just got a lot bigger when he agreed to take a page out of Lee Iacocca’s playbook and be the chief spokesman for the new GM. Here’s a 1984 TV ad where Iacocca tries to convince people to go into a Chrysler showroom and says “if you can find a better car, buy it.”

What Whitacre is offering is a much bigger deal than Iacocca’s selling quality, hard work and ambition of American workers. GM is trying to get people into showrooms by offering a 60-day money-back guarantee. Here’s one of the ads. Notice that Whitacre’s approach is much the same. “Put us to the test. Put us up against anyone and may the best car win.” Meanwhile Whitacre is walking through a design studio much as Iacocca wandered through a plant.

Kiam and Iacocca took huge risks when their backs were against the wall, and they succeeded. Arguably, Whitacre’s challenge is even greater, but GM is going where no automobile company has ever gone before by offering the 60-day money-back satisfaction guarantee. I asked Chip Perry, CEO of AutoTrader, how big a deal this was. He said “in this environment anything that helps remove uncertainty, reduces risk and encourages people to come into a General Motors’ showroom is bringing a new level of benefits to consumers in the car buying business.” I agree and believe this is a game changer. If it works, other companies will be forced to copy it. And even if it doesn’t, it will attract attention. Personally, I love the offer.

An article in the current issue of The Atlantic by Jonathan Knee, Bruce Greenwald and Ava Seave argues that media companies have been underperforming other industries long before the Internet. Newspapers, Yellow Pages, broadcasters and other media companies that are in trouble need to try new things. Importantly, they need to get everyone in the company fired up, enthusiastic and believing in the opportunities that the new initiatives involve. Where do you look first? At your core business.

Too many people don’t understand that some products have to be sold while others are bought. Whitacre is putting a successful 45-year career at stake to get people into showrooms where good salespeople can help people buy. Media companies, whether B2C or B2B, need to try dramatic new offers to attract new buyers. The place to start is with the business they know best.

My colleague Michael Boland released a new Advisory today on The Kelsey Group forecast for Western Europe mobile search and display. The bottom line is that TKG analysts forecast mobile search ad revenues will grow at a compound annual growth rate of more than 125 percent with display ad revenues anticipated to increase by a CAGR exceeding 138 percent. Growing even faster will be mobile local search advertising revenues, which are predicted to grow to 1.4 billion euros.

The reason for the hockey stick growth is the relatively low levels today: Mobile display revenues are 14 million euros and local search ads are 18 million euros. The major drivers to this hockey stock growth are: a) rapid proliferation of smartphones from 6.5 percent penetration today to 26 percent in 2013; and b) ”a combination of local search volume increases, ad performance and premium ad rates associated with locally targeted ads.”

I spoke with Michael to ask a simple question that I knew had a complex answer. Do you really think Western Europe will enjoy this kind of growth? After all, our estimates for Internet advertising, in general, and e-commerce in particular, turned out to be overly optimistic. Michael stuck to his forecast (which he had developed with TKG SVP and Senior Analyst Matt Booth) because he said all the pieces are in place. If anything, the tremendous growth of applications for smartphones has greatly exceeded what few have anticipated. Consumers (particularly the young) are quickly adapting the new apps and are likely to accept advertising as a way to save money. The devices keep getting more sophisticated on the one hand and yet easier to use on the other.

So the only other player that is a potential question mark is the advertiser. An article in today’s NY Times (”Mom and Pop Operators Turn to Social Media“) reinforces how even the smallest of companies (in this case a crème brûlée cart in San Francisco) has grown rapidly using Twitter as a promotional vehicle. No, there’s no advertising money associated here … yet. The old saw “where there’s a will, there’s a way” comes to mind. If a growing number of (young) people are using smartphones, advertisers will find them. The money is not likely to be new advertiser dollars, but rather expenditures coming from other media that are looking for the most efficient way to drive conversions within geotargeted areas.

In today’s eMarketer, the first story is titled “Interactive Marketers Lean on Search.” The item reports that “digital advertising has been the bright spot in many ad spending forecasts, and that trend is slated to continue.” The basis for the report is an interactive marketing forecast by Forrester Research, which predicted in a recent blog that search marketing would grow from $15.4 billion to $27.8 billion in 2013. Interestingly, this is close to The Kelsey Group’s March search forecast of $26.7 billion in 2013. (Because of our interest in local search, we also predict that local will account for $8.1B, or just over 30 percent, of total search revenues.)

EMarketer’s second story today has a headline that seemingly contradicts the first article: “Companies that Spend on Search are Frustrated.” EMarketer reports that more than 65 percent of “senior level SEM executives plan to spend at least as much on SEM in 2009 as they did in 2008.” However, a majority of executives do not believe search marketing is working very well. According to the authors of the report, [x+1], “clearly, while digital marketing professionals and decision makers find value and look for performance gains in online marketing and advertising through the use of SEM, the reality is not matching expectation levels.”

There are some recommendations to improve results, but the bottom line is that a) digital advertising will grow rapidly (Forrester estimates it will account for 19 percent of total ad spending in 2013 b) search marketing accounts for by far the greatest amount of interactive marketing spending, despite the fact that c) U.S. senior-level search engine marketing executives overwhelmingly believe that search marketing is performing poorly.

I’m sure there is an obvious explanation, but I don’t see it.

Today is Herb Gordon’s last day as a consultant to the Association of Directory Marketing, Inc., although he will continue to edit ADM Flash. Flash, the newsletter of the ADM, is sent to more than 1,500 people, and its stories, factoids and tidbits provide direction to those of us in the Yellow Pages industry. Herb is a prolific reader and using both offline and online sources, ADM Flash will advise you that “Yellow Pages Group launched a new local guide for living green and recycling” (press release), that Verizon ranked first in ad spending at $2.2 billion in the U.S. in 2008 (AdAge) and that “SmartPhone rises fast from gadget to necessity” (NY Times). It is one of those pleasant reads that is valuable, interesting and fun.

I called Herb to wish him well. In my view, Herb has had a very positive impact on the industry. He has been a constant in the middle of continuing change, and he has helped guide the industry with a steady hand. (Some of the other leaders with similar credentials include Jim Logan, Elmer Smith and Marilyn Neal … although there are many more.) Not surprisingly, Herb is positive about Yellow Pages. “As a member of all three industry boards — ADM, ADP and YPA — I am convinced the industry has the top management to weather the economic storm and be stronger for it.”

Before joining the ADM as president and CEO in 1991, he was the president of the Yellow Pages division of Ketchum (where he had worked since 1965) and had also been president of a division that encompassed direct marketing, sales promotion and a medical unit. “This experience prepared me well for my responsibilities at ADM. I came with an appreciation of quality research and marketing, the importance of good communications and a sensitivity to responding quickly to clients.” Herb is quick to give credit where it is due. “Any manager knows that he is only as good as the people on his staff. I’ve been blessed in that regard and particularly that Nancy Augustine has worked with me in three different assignments over 30 years. She is one of the most effective executives I’ve ever known.”

In response to a question about what stands out during his career, Herb said “the resounding success of Yellow Pages’ call measurement programs, such as Marketing the Medium and Measurement and Accountability Partnership. Return on Investment is the backbone of these initiatives.” Because the industry “can readily prove it delivers customers with positive ROI,” Herb believes that “the Yellow Pages industry is very well positioned for the future. It has good Internet products. While print references have dipped, the effect is moderate compared to other traditional media. The print product still delivers cost-effective leads for advertisers. There is a strong local and national sales force. Publishers, CMRs and suppliers are willing to invest. I’m very optimistic about the future.”

Don’t take The Kelsey Group’s word for the fact that more marketers are switching some of their advertising dollars into the Internet. Here’s what eMarketer wrote a week ago. “In the wake of the global economic downturn, marketers worldwide are shifting more of their budgets into cheaper, more-measurable categories.” The fact that eMarketer actually put those words into an article can only be traced to the fact that it got some hard numbers from the Society of Digital Agencies. It is no surprise that “81 percent of respondents said they plan to invest at least as much in digital marketing in 2009 as in the previous year.”

Happily, eMarketer backs up these figures with another study by Ad Media Partners. The research shows that marketing executives are planning to increase digital spending in social media marketing (77 percent), search marketing (76 percent), mobile marketing (75 percent), behavioral marketing (70 percent), lead generation (63 percent), video advertising (60 percent) and e-mail marketing (58 percent).

EMarketer sums all this up by pointing out that “the combination of accountability, conversion and the infusion of digital media into every facet of life makes the future look bright — for marketers making the move to digital.”

Anyone in the radio or television broadcasting industry who needs to understand how to best take advantage of digital media needs to be at the Winning Media Strategies conference to be held May 20-22 at the Marriott Wardman Park in Washington, D.C. The Kelsey Group and BIA Advisory Services have put together an event that will pay incredible dividends to those broadcasters willing to make the small investment of time and money.

Recently the company that delivers Idearc Yellow Pages in the Princeton, NJ, area brought our office a few copies of the most recent edition. I imagine that most people do what I did when the book came, which was to check to make sure both my residential and business listings were in the directory. (They were!)

The next thing I did is probably relatively unusual. I quizzed the guy who delivered the telephone directories. I asked him if he delivers books to the inside of businesses, and he said when the door was open, yes. How many businesses tell him that they do not want a Yellow Pages, I inquired. He gave me sort of a strange look and he said almost no one. In fact, he couldn’t remember anyone recently telling him to take it back. If the door is locked, he leaves a few directories based on a rough estimate of what similar-sized businesses say they want. He did not know the term “opt-out,” and he told me he delivers to everyone.

I couldn’t resist the next question: Do you use the Yellow Pages? He shirked and said no, his wife does, but he himself prefers the computer for local search.

The New York Times publishes separate sports and business sections on Saturday, Sunday and Monday. It may soon move away from separate sections altogether. This past Saturday, there was not a single display ad in either the sports or the news sections of the paper. There was less than a quarter page of classified advertising.