Today at DMS, an executive interview with VP of Channel Sales Lem Lloyd revealed Yahoo’s strategy to better serve local search and display ads across its network.

Lloyd heads up the famed Yahoo newspaper consortium, which arms local newspaper sales reps with online display advertising on Yahoo properties. It has its own sales channel to tackle the 200 largest accounts, but uses resellers (a la newspaper consortium) to go after the mid-market and small-business segments.

This sales channel optimization also comes down to a distinction between “national-local” (big brands that geotarget), “regional-local” (mid-market geotargeting) and local-local (SMBs). Too often we equate local to the latter category, but Lloyd believes the opportunity lies in the former.

Get What You Pay For

Not only is there larger spend per advertiser (ARPA), but an unmet need to educate the virtues and strategies of local targeting: “They don’t know what to do with local and need help with it,” he said.

For that reason, locally targeted inventory is often undervalued, he believes. Advertisers moving into online will meet cost objectives by buying non-geotargeted run-of-network advertising from ad networks. That will usually result in poor performance and conversions.

“A lot of folks are getting low-cost inventory,” he said. “Especially national advertisers getting over the hump of local digital. Why not give them your best foot forward? Let’s not sell local short; let’s demand a premium and have a good story to sell it.”

Along these lines, Yahoo has recently raised CPM and CPC rates on such inventory — in some cases doubling it. CPMs now average about $15 to $20, he said. To justify this and espouse the virtues of geotargeting, he went back to the education point (also echoing Ken Ray’s points earlier today).

“When we go into agencies, we need to do a better job telling the ‘local story’ in the right way,” he said. “They are very television- centric and ask why they should pay a premium for local advertising, whether it’s contextual or geographically targeted.”

Time to Make the Doughnuts

Verticals that hold the most opportunity, according to Lloyd, include medical services, continuing education and quick service restaurants (QSRs). Through market research, Yahoo has discovered this is where the greatest shift of ad dollars is occurring from traditional to online media.

“We have a bunch of accounts in the high six-figure range,” said Lloyd. “Many hospitals, for example, are moving away from outdoor, TV and print, and are going online.”

This is especially the case for QSRs, he believes — a $3 billion advertising market where only $1.5 billion is spent online (see Dunkin’ Donuts video below). To tap into this segment, Yahoo attends all the major trade shows and lobbies the benefits and strategies of online marketing.

“The question is, how do we get that momentum up to move the industry?” he said. “We’re working with agencies and trade associations, so when we knock on doors to go after those same ad dollars, we can move them online faster.”

Lloyd also commented that Yahoo’s relationships with directory publishers like AT&T Advertising Solutions have evolved in recent years, as publishers are moving into display sales and other products designed to differentiate their offerings.

“Mostly they [publishers] started out buying search keywords. We are starting to see a trend of more folks offering more types of products…to their customers,” Lloyd said. He cited AT&T as an example of a company that is now offering targeted display advertising, “which, incidentally, is driving a lot of the increases in local online advertising estimates.”