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Though this year has been dismal for advertising overall, local online advertising is expected to hit $14.2 billion by year’s end, a 12% increase over 2008, according to a report and five-year forecast from Borrell Associates.

Despite this growth, however, Borrell predicts that things will get tougher in 2010, when local online sales will hit only $14.9 billion, or 5% higher than 2009 figures. This slowdown will likely occur because the market is approaching saturation and "the wave many locally focused media companies have been riding for the past several years has peaked,” the report said.

Local online advertising will only reach $16.4 billion by 2014.

Hyperlocal Competition Heats Up

In addition to this overall slowdown as the market starts to shake out next year, Borrell Associates also predicts increasing pressure on existing players as a host of new competitors rush into the market to “become purveyors of hyperlocal everything.” For example, PBS, ESPN, AOL, Huffington Post, The Knot, Microsoft (NASDAQ:MSFT), Yahoo (NASDAQ:YHOO) and numerous others have announced plans to immerse themselves in local ad sales, the report said.

“The game in 2010 will center more around stealing market share than growing the market. Local advertisers have had plenty of time to assess the effectiveness of banner ads, search, streaming video and e-mail advertising peddled to them over the past decade,” the report said. “They will abandon programs that just do not work, and embrace those that produce measurable results.”

Online media buys currently hold a 13.8% share of all local advertising. Borrell Associates predicts it will peak at a 16% share by 2013.

Mobile, Online Promotions on Horizon

In terms of the next waves of growth for the local online industry, the report said that online promotions and mobile advertising are expected to be the next big things.

Though mobile is not likely to play a significant role on the media landscape in 2010 (the firm estimates that local buys will comprise only 20% of all mobile advertising, or $500 million), Borrell said it is a category worth watching because couponing, mobile directory advertising and sponsored text messages will become increasingly viable applications for local marketers as the audience grows.

In terms of online promotions, smaller locally focused companies will continue to follow a few years behind the spending patterns of national advertisers by expanding their use of online promotions, which give them more direct access to their customers and prospects - without having to rely as heavily on media companies to help reach them.

Source: Growth in Local Online Advertising Expected to Slow