[Each week, our friend Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of the news business for the Lab.]

We’ll all familiar with the chaos of the moment. Publishers and broadcasters, readers and viewers, search giants and software midgets — they all see that we’re on the verge of the next news and information revolution, as the built-out Internet really begins to power human access to content on an array of digital devices, anytime, anywhere. But it’s not just the media dealing with that revolution. The same chaos of choice that alternatively delights and befuddles envelops businesses as well.

For old-fashioned sellers of newspaper space and broadcast time, it’s been a fitful education, and a reminder that merchants don’t want to buy advertising — they want to find customers, as cheaply and efficiently as possible. The First Amendment didn’t tie merchants to media in a constitutional permanence; it just seemed that way.

Marketing spend — email marketing, social media commerce, search engine marketing and optimization, building and operation of brands’ own websites, events and conferences, among others — is increasing worldwide, while “advertising” stagnates, and that’s due mainly to the increase in digital, increasingly measurable, marketing alternatives for businesses of all kind.

Yet, it’s also clear that we’re at the beginning of this digital marketing revolution, with two numbers convincing me we’re maybe not even a tenth of the way there. I’ll call that the Newsonomics of eight-percent reach, and explain those eight percent in a moment.

Consider first the big picture of marketing spend. Chuck Richard, a fellow information industry analyst at Outsell, has done work showing that marketing ad spend in the U.S. now totals $368 billion, of which 32.5 percent is going to digital and 30.3 percent to print.

It decreased at the rate of only 4.5 percent in the recession-wracked 2009, and should rise about 4.2 percent this year. Spending on advertising alone was down 8.5 percent in 2009 and is forecast to be down 0.8 percent in 2010.

So against those numbers, let’s look at a couple of numbers.

Google reaches about eight percent of the small businesses in the country, estimates Click Z’s Gregg Stewart. That’s 1.5-2 million businesses who use Google’s ad services, contributing to its $27 billion annual revenue run rate. As Stewart points out, Google advertising is a convenience for many harried smaller merchants:

Local businesses face a multitude of challenges daily; servicing customers, generating sales, meeting payroll, and in effect doing what they “do” for a living. Basically, they’ve got their hand in everything and this rarely allows for deep specialization in any one specific facet of their business. Local businesses do not have the time required to research keywords, monitor results, and modify bids and ad creative along with all the additional complexity that is associated with SEM.

Look at that eight percent another way, of course, and we see 92 percent upside, a big opportunity to help merchants make sense of the chaos. Google — along with Yahoo, Yelp, Yellow Pages companies, AOL, and Microsoft — have been plumbing this territory, and so have newspaper companies and a trio of hungry online marketing services companies.

Now Google is making a couple of aggressive moves. It has announced Boost. It’s a product that is built on top of its local listings and Google Maps. Boost — there’s an ironic ambiguity to the name, in that it is intended to boost Google’s revenue and boost some money out of the pockets of local media — adds the ability to put ratings and reviews in place-based ads, and they are sold on a pay-for-performance basis, unlike an earlier similar offering. The Boost test is going forward in more than a dozen cities.

Secondly, Marissa Mayer, Google’s long-time maestro of the search business, is now in charge of the local business. That’s another signal of what an opportunity Google sees in local business, online and on mobile.

How much of the local business market do you think metro newspapers reach? Eight percent, estimates Mike Sacks, VP for operations at Tribune. That’s a number, give or take a couple of points, I’ve heard from other publishers as well. While that total is likely higher for smaller-circulation dailies, its small size is a reflection of the old way of selling, pre-chaos.

Newspapers worked the biggest local merchants for big contracts, concentrating on getting a relatively small number of checks from a small number of deep-pockets advertisers. Now, those advertisers — the likes of Best Buy, Target, and Macy’s — are increasingly going direct to their customers and using all manner of social and engagement media to find and upsell customers (“The Newsonomics of online marketing“).

So, newspaper companies, including Gannett, Hearst, and Tribune, most prominently, are re-strategizing. If the dollars from that eight percent are only half what they were 10 years ago, then we’d better get some revenue from the other 92 percent, they’re saying. They’re doing that three main ways:

• Retraining salesforces, and hiring more commissioned salespeople, to work the territories, selling not only space in their own papers and sites, but Yahoo inventory, Facebook placements, mobile messaging and more.
• Telesales: Think “boiler room” lite; more salespeople calling more prospects.
• Self-service: Sack’s Tribune is one of the companies using the Mediaspectrum platform to enable local merchants to place their own online or print ads. This Orlando Sentinel “Place an Ad” page shows what merchants can choose from. At the sister Sun-Sentinel, in Fort Lauderdale, Sacks says that more than a hundred new advertisers have been added in the year the service has been in place. “Every single cent is a new one…I’d like to see it grow ten-fold,” he says of the prospects of turning an experiment into a line of significant revenue. Sacks says average sized deals come in at about $1,000/$2,000 and also provide lead generation for upselling. Overall, Mediaspectrum’s self-service ad product is in place at almost 100 newspaper titles, including all of the Tribune’s papers (but not broadcast properties), UK’s Trinity Mirror chain, Morris Publications, the Columbus Dispatch, and the Washington Post. Most offer both online and print placements.

As we enter 2011, this new battle for local ad dollars is growing in strength, as merchants aim to make sense of the chaos of marketing choice. This exercise in chaos — and how sellers of marketing services do or don’t take advantage of it — affects more than just newspapers, of course. Locally, commercial broadcasters and Yellow Pages companies — the two other local media with substantial feet-on-the-street sales forces — are sensing the same opportunity to get to smaller businesses, as they, too, lose some of the bigger-business advertising they’ve long held.

Advertising agencies are in the midst of their own identity crises, as their value proposition to businesses is thrown into question, with the advances of pay-for-performance advertising and self-service overall.

The online-only players aren’t just the search giants. ReachLocal, Orange Soda, and Yodle are the companies you hear a lot about when you talk to local site general managers. They are all working the same turf, with ferocity. A recent visitor to the Yodle “sales pit” came away with the impression of “how well trained these guys are” and how their state-of-the-art customer relations management system qualified prospects well.

That 92-percent “open” market — maybe 23 million businesses — tells us how early we are in this digital marketing movement. Commerce change is one thing. For those who care about the news, the big thing to watch is whether those dollars, as they move digitally, move to companies that produce news, distribute news — or have nothing to do with news.

Photo by Leo Reynolds used under a Creative Commons license.