Local Search Primed for Growth

All search is local.

That twist on the famous political rule of thumb soon will become reality for search, the fastest-growing online marketing activity. Estimates claim that 40 percent of all search queries are for local services or products and 92 percent of local searches convert offline.

“[But] there's really no one player that's nailed local search,” Dana Todd, principal of interactive marketing agency SiteLab, said last month at Ad:tech05 San Francisco.

Search engine marketing has grown from a tiny spend in 1999 to $5 billion forecast for this year and nearly $9 billion by 2009, JupiterResearch claims. Search accounts for 36 percent of U.S. online advertising and will grow 24 percent yearly in the next five years.

Fueling such growth is the pay-per-click model where advertisers pay the search engine for each time a consumer clicks on the rented keyword. Yet this model may not suit small businesses and entrepreneurs, including doctors, lawyers, caterers, Realtors, plumbers and corner stores.

Kelsey Group research shows the number of companies using pay-per-click advertising is about 350,000 versus 7 million listed in the yellow pages and 13 million that don't own an e-commerce-enabled site but advertise locally.

These small firms or entrepreneurs “don't own or operate transactional Web sites, but advertise locally,” a new paper from pay-per-call search technology provider Ingenio Inc. said. “The question then becomes: how does the industry grow the paid search advertiser base?”

U.S. businesses spend $90 billion yearly on local advertising, according to Kelsey. But only a fraction of that amount, which is hard to break out separately with accuracy, is spent on local performance-based search marketing.

About $10 billion last year was spent on Internet advertising and marketing, including e-mail, banners, affiliate marketing and search. However, most of the spenders had something to sell online. But most businesses nationwide are providers of local services.

The U.S. Chamber of Commerce estimates the nation's 23 million small businesses represent more than 99 percent of all employers, account for more than 50 percent of all private-sector workers and generate three out of four jobs. Small companies account for one-third of all American exports and more than half of the U.S. GDP.

Ingenio's pitch for pay-per-call advertising could become an alternative to, or even complement, the pay-per-click model. What most local, service-based businesses have in common is the telephone. A survey from Ingenio and JupiterResearch showed that most vertically aligned businesses prefer phone leads over Web site clicks by a 2:1 ratio. The respondents, it seems, would pay as much as five to 15 times more for a phone call than a click to a site.

Using Ingenio's system, the highest-bidding advertiser in a specific category is shown at the top of the search listings. The ad shows basic business information and a toll-free number unique to the advertiser-publisher pairing. Advertisers pay only when they get a live phone lead.

“As paid search advertising continues to mature, the emergence of new models only means more marketing options for the advertiser,” Ingenio said in its local-search analysis. “The one-size-fits-all mentality won't work. In some cases a particular advertiser might opt for clicks, another for calls and even another might choose to leverage both.”

Industry players like Google, Yahoo Search and Ask Jeeves are focused on national advertisers. But that may change with the number of innovations in development. And they may have no choice but to focus on local advertising, not with Amazon's A9.com search engine operating.

The Internet retailer in September launched A9 with a mandate to innovate search, which it did. The site has taken 26 million pictures of shops, streets and storefronts in 15 cities with details of the establishments included.

“It's a new way of searching — you can search visually,” Barnaby Dorfman, vice president of search at A9, said at Ad:tech05 San Francisco.

Match A9's ability with Amazon's influence. Nearly 48 million consumers spent more than $7 billion last year through the Amazon interface. Also, 850,000 people sold something last year through the Amazon platform.

“People come to Amazon just for one thing: They are there to spend money,” Dorfman said.

The Yellow Pages Association sees a natural fit for what its members do with local search online. A study conducted for the association by comScore Networks claims that Internet yellow pages offer a more efficient local marketing opportunity. The study examined local search behavior in financial services, healthcare, home services, automotive products and services and restaurant dining. It had three key findings:

· Web search engines accounted for 66 percent of consumers searching for local information while Internet yellow pages had a 34 percent share. But consumers using online yellow pages found local information faster: an average of 4.6 clicks versus 7.6 clicks for search engine users.

· Local searchers who use Internet yellow pages spend 4 percent to 22 percent more per buyer than local search engine users in the automotive, health and beauty, home and garden and general services categories. Internet yellow pages users spend 4 percent to 17 percent more per buyer for offline purchases in the drugstore, automotive, restaurants and home and garden categories than local search engine consumers.

· Internet yellow pages users are an attractive demographic market for advertisers. They are 71 percent more likely than the average online user to have an annual income surpassing $100,000. They are also likelier to have a broadband Internet connection.

Given its legacy offline, local search online is the yellow pages' market to lose. But Internet-only players are tweaking their algorithms and tailoring offerings to local markets.

“Slowly over this year, you'll see everyone carve local search out of national search,” Zorik Gordon, president/CEO of ReachLocal.com, said at Ad:tech05 San Francisco.

ReachLocal's Internet marketing platform uses search engines to help local businesses advertise online. Gordon stressed that small business behavior must be taken into account for local search advertising to become more appealing.

Local advertisers, he said, value a call more than a click. Local businesses are uncomfortable with the self-service nature of search advertising. And it is too complex for this audience. They would rather cut a check and have someone do the rest of the work.

“These businesses need to be sold,” Gordon said. “They will not buy.”

Mickey Alam Khan covers Internet marketing campaigns and e-commerce, agency news as well as circulation for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters

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