New Borrell Data on Local

Borrell put out its own new local search projections (covered in MediaPost here):

[P]aid search spending by local businesses will continue to grow for the next several years, climbing to 1.7 billion in 2007 and reaching $4 billion by 2010 — at which time it will account for 47 percent of local online advertising.

Whenever people start talking about local search they need to start with definitions. In fairness it’s difficult for me to comment on the predictions and assumptions because I’m only reading an article on the report. But with that disclaimer … The Kelsey Group local search (geotargeted search, Internet YP and mobile local search) forecast is $6.167 billion by 2010. If you fold in classifieds, (which is part of the same user behavior) our forecast grows to $9.9 billion in 2010. We don’t include geotargeted display ads in this forecast or locally targeted ads that may appear on verticals (although the classifieds aspect does capture a good deal of this).

One of the things many people don’t fully understand is the enormous complexity of the local market "on the ground" and the fragmented and complex consumer behavior patterns associated with local/offline buying.

Here’s an interesting discussion from the MediaPost article:

To analyze the current state of local search advertising, Borrell researchers examined more than 2,100 paid links to appear on Google and Yahoo queries for city-related keywords — such as, for example, "Des Moines real estate." About 36 percent of such pay-per-click links were from local advertisers — up from 5.6 percent 18 months ago.

Search adoption varied by industry, with local real estate agents especially big users of search marketing. Nearly 50 percent of pay-per-click links in the real estate category were from local advertisers — up from 17.5 percent 18 months ago. At the low end of the spectrum, 28 percent of pay-per-click results in the local hotel space came from local advertisers.

I’m going to assume the accuracy of what the article says. Real estate is an especially interesting category for local businesses and is something of a leading indicator of future trends. But real estate may also be exceptional. It’s a truly local business with limited "national" competition. And generally speaking you’re not going to see a phenomenon of local businesses going straight to Google, Yahoo! or MSN in large numbers in the near future (over the long term all bets are off). You may see it in pockets and there are verticals and local markets in which the sophisticated local advertiser has the money and incentive to outbid a national aggregator or competitor.

Most of the search volume is at the "category level," which doesn’t permit local advertisers to compete because the nationals will gobble up the meaningful, available inventory (which is quite limited). In the "tail," locals can compete more effectively for inventory — and those clicks convert better too. But most local small businesses will need to rely on third-party "enablers" (e.g., YP, newspapers, verticals, Web hosts) to get them into search results (whether organic or paid). They can’t, won’t or don’t want to become search-engine marketers. Certainly we can point to exceptions — the upholsterer who pores over his site analytics — but this statement is true in the aggregate.

So while you may see lots more local ads on Google, Yahoo! and MSN (because they’re more targeted and convert better) don’t expect those ads to be dominated by small businesses any time soon.