This article made the rounds on Friday (ClickZ). The thrust of this Kevin Newcomb piece is that the paid search auction model is flawed and inefficient for less sophisticated marketers:
"We want to educate advertisers about the fact that in some sense they are being taken advantage of," Ostrovsky said in a statement. "Under the current mechanism, if they don't think carefully about their bidding strategies, they can end up paying a lot more to the search engines than they need to."
This critique of general paid search may be especially true for local. Here's what an A-list search marketing firm said about local keyword prices/buying:
Geographic-qualified keywords have less inventory than generic words and phrases, which drives the bid landscape higher and forces all advertisers to bid more aggressively. This happens a lot with major metropolitan areas like NYC & San Francsico.
There's less competition on a national level. There are a lot of regional advertisers that bid aggressively using geo-qualified keywords only without any nationwide initiatives. In addition, a lot of these advertisers are not as educated on the space and many times end up creating extremely artificially-inflated markets for these keywords.
So this is pretty consistent with what we've been hearing directly from the people on the front lines: people are bidding more for local because it converts better and for some of these "irrational" reasons also.