• BusinessWeek, Tuesday, February 17, 2009 11:45 AM

In aggregate, small businesses like attorneys, lawyers, doctors, dentists, shoe shops, restaurants and others account for a large chunk of the advertising pie. And while the newspaper industry collapses, the theory--among many Web watchers, anyway--was that that local advertisers would plug the spending hole by shifting their budgets to the Web. As BusinessWeek's Sarah Lacy explains, that isn't really happening. In fact, according to Borrell Associates, local advertising is headed for a big slowdown this year. In a November report, the researcher said the market would grow just 4.7% to $13.3 billion, following 50% growth in 2008. And it shows "no sign of improving quickly, irrespective of upward movement in the nation's economy."

Lacy cites from high profile examples, too. OpenTable, the online restaurant reservation company that filed to go public in late January, squeezed out an operating profit of just $261,000 on sales of $41.3 million in the first nine months of 2008. Craigslist, the online classifieds leader, still monetizes less than 1% of its users. And Yelp, the peer review site, concedes that the past year or so hasn't been easy.

As Lacy points out, increasingly, Web 2.0 companies like Facebook are bringing disparate groups of people together, uniting them through common interests. So if you're a local advertiser wanting to reach a particular geographic region, you might be out of luck. Targeting groups of like-minded people is far easier on the Web than finding groups of people from the same part of the country. Online, everyone is scattered.

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