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eMarketer projects that local online advertising spending in the US will reach $2.9 billion in 2007, up 38% over last year’s $2.1 billion, but still only 13.4% of the total Internet market. Internet advertising exceeded $17 billion in 2005. It has now surpassed billboards, magazines and cable in spending. On its current growth path, it will pass radio advertising in less than two years. The Interactive Advertising Bureau (IAB) has pointed to this growth as proof of how the Web, in addition to being a call-to-action medium, has come into its own as a branding medium.

While local online advertising is only 2.9 percent of all local ad spending, the pressure to pony up local ad dollars online is building as an increasing number of consumers use the Internet instead of a printed phone directory to find local businesses and services.

“As audiences continue migrating to the Web and away from traditional local media such as newspapers and radio, it’s only a matter of time before online local ad spend catches up with today’s reality,” said David Hallerman, senior analyst for eMarketer.

Paid search represented 40% of the total US online ad spending market, whereas paid search for local online advertising represented 55% of the local total. These are notable figures, especially when you factor in the relative immaturity of the local search market.

Local advertising is the fastest-growing portion of the online market. Since 2000, it has enjoyed a compound annual growth rate of 23.1 percent. In 2005, growth skyrocketed to 51.5 percent - and it may be just the beginning. Even at $4.1 billion for 2005, local online advertising represents only 3.1 percent of the nearly $130 billion that local businesses will spend on all media advertising. Borrell Associates projects that over the next four years local online advertising will swell to $8.6 billion - and still be less than 6 percent of all local ad spending.

With fast-paced growth comes a greater danger of incumbents losing market share. Operators who get lost in the bliss of a 40 percent gain wind up marveling at how fast their feet are moving while competitors zip past them. In this environment, market share becomes a more important goal than growth rate alone.

Interactive advertising has created an interesting phenomenon at the local level, where the competition may no longer have a local face. In the analog world, media companies based inside the market were the clear choice to deliver locally targeted advertising in the form of radio or TV commercials, newspaper ads, auto magazine listings, or direct-mail coupons. In the digital world, out-of-town companies do not need a broadcast license, delivery trucks or shelf space at 7-Eleven. In fact, out-of-town pure-play Internet firms have already captured close to 32 percent of the local market and are likely to claim even more with their foothold in the fastest-growing segments: local paid search and e-mail advertising.

More than contextual advertising or paid inclusion, local search promises to be the next major contributor to search marketing spending growth. Local advertising is big business, reaching $97.7 billion across all media in 2005, according to Universal McCann. However, only about 1% of that amount, or $1 billion, is spent online.

The main local advertising players are SMEs (Small to Medium Enterprises), which make up 98% of the approximate 22 million businesses in the US, according to the Kelsey Group, a Princeton, NJ-based market research firm. Most SME business is local, too; Kelsey Group research indicates that "80% of SMEs make 75% of their product buys and/or sales within a 50-mile radius of their location," as reported by MediaPost.

Even with 21.5 million SMEs in the US alone, the Kelsey Group says that only 350,000 companies of all sizes participate in paid search advertising worldwide. Several roadblocks hold back the growth of local search:

No Web site: Since 70% of SMEs don't have a Web site, paid search is irrelevant for most of them.

Established habits: Many businesses have been buying ads in the yellow pages and local newspapers for years and see little reason to change. "They spend 46% of their advertising budgets on yellow pages advertising, and only 3% on search engine keywords, according to Kelsey," writes Advertising Age.

Online ad confusion: When Kelsey "asked 500 SMEs to rate themselves on a 10-point scale according to their grasp of Internet marketing, almost 60% indicated fairly high levels of confusion about online advertising."

Sales force help: While dedicated sales teams reach out to SMEs to sell yellow pages and newspaper print ads, search engine advertising is basically self-service.

Phone call primacy: SMEs "don't want click-throughs or online leads; they want phone calls and foot traffic," according to JupiterResearch. "Until search engines can deliver offline leads, local search marketing doesn't appear very attractive to these advertisers."

User and local search: Another problem is chicken-and-egg, where not enough local search results mean not enough users conduct local-based searches. Estimates here include 10% of Ask Jeeves's users adding a location to their search terms, and about 5% of Yahoo! search queries having a locale attached, as reported by CNET News.

Local search not demanded: A further perspective on the local user comes from JupiterResearch's Nate Elliott, writing in ClickZ: "Only 4% of searchers say local search availability attracts them to a search engine, ranking it among the least-demanded search engine features. When consumers do use local search, it's mostly to find known merchants, not discover new ones."

Frustrating results: Additionally, Keynote Systems reported in January 2005 that the "quality of local search results is a major frustration to many search engine users. Across all search sites, 22% of users complain that the local results are not what they are looking for or are not ranked appropriately."

A BizRate-Kelsey survey of 3,900 consumers paints a far different picture of search engine users and local search. Writing in Search Engine Watch, Kelsey analyst Greg Sterling wrote about a survey of 3,887 online consumers conducted in September 2004.

Furthermore, Sterling wrote, "comScore found, in February, that 61% of Internet users conduct local searches, but that local search constitutes 6% of total search activity."

63% of U.S. Internet users performed a local search in July, a 43% increase from July 2005, according to comScore Networks Inc. ComScore defines local searches as those conducted by consumers on the local or directory sections of leading search sites and other searches identified as having local content.

Google sites and Yahoo sites captured the largest share of local searches in July (30% and 29%, respectively), comScore says. Microsoft sites accounted for 12% of local searches and the Time Warner Network for 7%.

“Local search is experiencing strong growth as more consumers adapt to the ‘always on’ nature of their broadband connection, which enables them to quickly find information on local businesses,” says Jack Flanagan, executive vice president of comScore Media Metrix. “With approximately 849 million local searches conducted by Americans in July, local advertisers have a sizeable market that can be reached through leading search sites.”

The comScore study also found that performing a local search drives consumers to take action. During the second quarter, 47% of local searchers visited a local merchant as a result of their search. 41% made contact offline while 37% made contact online.

In addition, 41% of those conducting local searchers were searching for something in their home area, as opposed to searching for businesses in locales they intended to visit, comScore says. Of those searching in their home area, 59% said they were looking for a restaurant or entertainment venue, 52% were looking for a business phone number or address, and 41% were looking for information on a local service in their home area, including a car rental office, dry cleaner or lawyer.

Local Search Continues to Grow

comScore Networks just released new data on the growth of of the local search market.

According to the study, 63 percent of U.S. Internet users (or approximately 109 million people) performed a local search online in July, a 43-percent increase versus July of 2005. Google Sites (30 percent) and Yahoo! Sites (29 percent) garnered the largest share of local searches in July. Microsoft Sites captured 12 percent of local searches, followed by the Time Warner Network with 7 percent.

It’s interesting to note what people are searching for:
59% were searching for a restaurant or other entertainment venues
52% were searching for business phone numbers
Even more interesting is that these local searchers take action:
47% visited a local merchant after searching
41% made contact offline
37% made contact online
Local search is growing at a fast clip with more than 849 million local searches conducted in the US in July.

DUBLIN, Ireland -- Research and Markets (http://www.researchandmarkets.com/reports/c50849) has announced the addition of the Borrell Associates Inc report: Local Online Video Advertising to their offering.

This new Report from Borrell Associates Inc looks at local online video advertising which was a $161 million market segment in 2006 and will more than double this year. Long-form "infomercials," not the traditional 15-second commercial, are driving most of the growth which will reach $5 billion by 2012.

In 2006, newspaper-run Web sites captured about $81 million in locally spent streaming-video advertising, while local TV broadcasters captured about $32 million. Although it is small potatoes in the $280 billion U.S. advertising industry, it spotlights a fascinating phenomenon: Print media are using the Internet as a crossover platform to tap traditional TV advertisers, just as TV stations (and others) are trying to use the Internet to tap traditional print advertisers.

Nearly all local broadcast TV Web sites now feature classified ads, and almost half of all newspaper sites offer video. This print/video crossover is also taking place on sites operated by local cable multi-system operators (MSOs), radio stations and yellow pages directories.