June 30, 2004

The Kelsey Group today is slated to deliver an analysis of the major changes that it predicts will happen in the local search segment.

The market research firm anticipates seeing a flow of advertising dollars from small businesses with very small ad budgets, and little to no Web presence.

The report comes on the heels of Overture's introduction Tuesday of Local Match, the Yahoo! company's local search product for advertisers and Web publishers. Recent initiatives by Google, Overture, FindWhat, and interactive Yellow Pages (IYP) provider InfoSpace have shifted the search spotlight somewhat from paid search to local search.

"Local" is the next major advertising keyword expected to open the online media floodgates.

Local media spending in the United States is over $90 billion annually, according to Robert Coen, Universal McCann's senior VP and director of forecasting.

The Kelsey Group says that $22 billion of that spend comes from small- to-medium-sized enterprises (SMEs). SMEs comprise 98 percent of all U.S. companies--some 22 million enterprises. These are the advertisers that the new report--"'Local Match' Expands the reach of Geotargeted Search"--says will be the most difficult to lure online.

According to Kelsey Group analysts and report authors Greg Sterling and Neal Polachek: "Getting advertisers, especially small businesses, to sign on will be at least as challenging as building the back-end technology and getting distribution partners to make the necessary efforts to show consumers the way to a better local online shopping experience."

Sterling notes that paid search is on track to generate $3.5 billion by 2004. By 2008, TKG projects local paid search to reach $2.5 billion. Other research groups, notably Jupiter Research, are less bullish over the revenue prospects of local search, as an air of uncertainty still hovers around the prospect of monetizing local search.

The TKG report notes that the Local Match feature that enables advertisers to build a paid search campaign without a Web site is "the most innovative aspect of the program," and adds that Ingenio and FindWhat are expected to launch similar product extensions in the third quarter.

However, a key question remains as to whether local--and primarily offline--businesses with small ad budgets will adopt local search because of Overture's new product offering.

TKG notes that history is not on Overture's side.

"In all probability, a business that is ready to undertake a search engine marketing campaign, or at least understands its potential benefits, is already going to have a Web site," the report states.

It also indicates that the adoption curve of Internet advertising suggests that a Web site presupposes a paid search marketing campaign; this was true because it was impossible to run a search campaign without one. Essentially, it remains to be seen whether the new product offering will be effective or not.

However, recent data collected by TKG and ConStat, Inc. from the Local Commerce Monitor shows that 61 percent of small businesses are convinced that the Internet "represents a big opportunity to target and acquire new customers."

But local usage is still far from critical mass, according to local search and IYP industry panelists at TKG's "Drilling Down on Local Search Conference" in March. The report states: "Without exception, the panelists, which included executives from Yahoo!, America Online, AskJeeves, and InfoSpace, said that local search still 'wasn't ready for prime time.'"

Report authors Sterling and Polachek note that "organic" growth for local search will take time, although February 2004 TKG data showed a 44 percent increase year-over-year in consumer searches for local business information.

Meanwhile, Overture, Google, and others face the problem of driving sufficient traffic to local advertisers and educating SMEs about the benefits of local search. The report states emphatically: "TKG believes that at some point, somebody's going to need to do some major marketing around local search."

Source: Mediapost

        

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