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My friends and former colleagues at Borrell Associates have released a new report projecting $7.7 billion in local online revenues for 2007 — a dramatic jump of 31.6 percent from 2006. But a major chunk comes from paid search and e-mail. Take them out, and the growth rate is just 18 percent.

The report's projections go through 2010 and are based on unique modelling that weights Borrell's extensive surveying of local online companies with government growth data, and geographic and channel considerations.

You can get an executive summary from the Borrell site, but here are some highlights:

• Banners and Listings revenue will fall from 73 percent of local online spending in 2007 to 49 percent in 2010, while paid search will climb from 24 percent in 2007 to 44 percent in 2010. E-mail will similarly climb from 3 percent in 2007 to 7 percent in 2010.
• Fragmentation of local revenues is intense, especially in the largest markets. In Philadelphia, for instance, no single Web site will get more than 15 percent market share.
• On the Web, local advertising doesn’t come close to approximating its traditional 50/50 parity with national advertising. Borrell projects that the local/national ratio of online revenues is currently 25/75 and will move to 30/70 by the end of 2007.
• Local revenues are fairly heavily concentrated in several sectors, especially in Real Estate and Autos. Together, they make up a third of all local online advertising.
• The prospects for Real Estate are especially bullish, with a depressed market forcing higher advertising budgets, and just 39 percent of agents currently advertising online.
• With revenues from local online sales more evident, half the surveyed local Web sites say they have added to their sales forces this year. Already, sales force headcounts are up 37 percent.

"The message for local Web site operators is clear: if you want to continue enjoying high revenue growth, start focusing on email and paid search applications," says Borrell.

Borrell’s findings aren’t written in stone — they are only based on a model, flaws and all. And the flaws are certainly there. To me, the projections are media-centric, and Borrell doesn’t apply the same level of scrutiny to directories and search as it does to local media channels. Also, my gut tells me that the projections are way too high for sites and other local verticals — this often happens in research when you try to add up a lot of players with teeny market share.

But ultimately, this is really valuable research. Does any other source data come close to its richness?

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