Small Business Banner Ads Blog Post

8/3/2019 Small Business Banner Ads Blog Post

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How much banner ad spend is in the long tail of

small business advertisers?

By Myles Younger, co-founder of Canned Banners (www.cannedbanners.com)

My company serves businesses that cant afford or dont have a need for custom banner ad

creative. This puts me in a very specific segment of the online display ad market: low-budget

banner advertisers (banners being distinct from other online display formats such as video,

mobile, etc).

Ive always been curious: exactly how many low-budget banner advertisers are there? How

much money do they spend? How much of the overall banner ad market do they represent?

Being unwilling to shell out $800 for a bunch of hot air from a market research firm, I took a stab

at estimating how much banner ad spend is in the long tail of small business advertisers.

What I found was a $1.1 billion market spread across 5.8 million small businesses. Whereas at

the high end of the market, a small minority of firms spend vast sums, the long tail is the

extreme inverse, encompassing a sea of small firms with modest budgets and entirely different

needs.Separating the long tail from the big guys

To keep the problem manageable, Ill split all banner advertisers into two groups based on how

much they spend. The first group encompasses the large- and medium-sized advertisers that

are able to afford complex and professionally-managed banner ad campaigns.

The second group will be our long tail market. There are literally millions of small businesses in

this group, but each firm by itself does not have very much to spend. These advertisers are only

able to invest in banner advertising if its simple and affordable.

Reaching an estimateA few points to note: this analysis is just one method of estimating the size of the long tail

marketI dont claim that its completely airtight; my data is limited to the US market; Im only

focusing on banner advertising; the complete data tables are available at

blog.cannedbanners.com.


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Now lets attack the problem in five smaller chunks:

1. How many companies exist in the US? About 6.2 million* (I used 2004-2007 data from

the US Economic Census to make an educated guess for 2010).

* Excluding 20+ million firms with no payroll. These firms add noise to the data in various ways. First, we

cant determine the size of firms with no payroll. Second, a single organization can have multiple taxable

entities, thus distorting per-company estimates. Third, these firms account foronly 3.2% of total US firm

revenue.

2. Can companies be categorized by size? Yes! US Economic Census data provides the

distribution of firms and revenue according to number of employees. I used 2004-2007

data to extrapolate how many firms are currently in each size group.

3. How big is the total banner ad market? 2010 estimates seem to fall just under $6

billion. Ill use a $5.73 billion estimate from a July 2010 Piper Jaffray report.

4. How is the banner ad market distributed across company size groups? I had to find a

proxy to help estimate this. Revenue distribution across company size groups should

correlate strongly to the distribution of ad spending (IRS data supports this assumption*).

The next chart allocates the $5.73 billion banner ad market in proportion to the revenue

earned by each company size group.


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*The ratio of advertising expenses across US corporate tax returns is about 1% of receipts; corporations

with revenues exceeding $1 million spend about 1% and corporations with less than $1 million in revenues

spend about 1.3% (i.e., there isnt a huge variance in spending ratios across company sizes).

5. Whats the criteria for separating low-budget and big-budget advertisers? Its

difficult to answer this objectively, so Ill just be subjective. A big-budget advertiser can

afford lots of campaign-related services (custom creative, ad verifiers, etc) and still have

plenty of money left over for media buying. A firm in the long tail market, on the other

hand, has so little money to spend that unless campaign-related services are kept to a

bare minimum, the firm will have no money left over for media buying.

Making this differentiation requires calculating average banner ad spend at a company

level, as shown in the next chart.


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Companies with budgets of $73, $202, and $406 per year all clearly qualify for inclusion

in the long tail market (especially compared to large companies spending $188,027 a

year!).

Its debatable whether companies in the 20-99 employee group, with banner ad budgets

of $1,336, belong in the long tail market. Ill split this group 50/50 so that half its spend

($365 million) counts toward the long tail market.

All the companies with 100 or more employees will sit squarely in the big-budget

category.

Now that we know which companies are small enough to qualify for the long tail market,

we just need to add up their combined spend to find the long tail markets total size.

How big is the long tail market?

Currently, $1.13 billion (19.7%) of banner ad spend is in the long tail market. This $1.13 billion is

spread across 5.8 million firms, so each firm spends, on average, a mere $194 per year (versusnearly $12,000 for big-budget firms).


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Conclusions

At $1.13 billion in banner ad spend, the long tail market is more than large enough to justify its

own specialized services and technologies. However, the 5.8 million businesses in this segment

each have an average banner ad budget of only $194 per year. New technologies that automate

and simplify banner advertising for small businesses will be integral to unlocking economies of

scale and, most importantly, profits.

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Small Business Banner Ads Blog Post