Will Intermediaries Drive Local Search?

Just how fast is the local search market growing?

Jupiter Research last week downplayed local search advertising growth in its report "Local Search: Growing Revenue in a Transitional Market." At roughly the same time, The Kelsey Group offered a more bullish local online ad outlook at its seminar "Drilling Down on Local Search."

Both Jupiter and The Kelsey Group concede that local search will prove to be a more challenging advertising marketplace than paid search, but the bottom line for advertisers is that the user experience will need to improve if online local search is ever to develop into a viable search ad market.

The Kelsey Group says that consumers are beginning to gravitate toward online local search. According to Bizrate.com, 25 percent of all commercial searches are local in nature, and that number will only rise as broadband usage grows: "Our research shows broadband users behave differently from the rest of the population," says Greg Sterling, managing editor, The Kelsey Group. "They tend to consume more information more frequently than the population at large," and therefore, Sterling says, as broadband usage increases, so too will the number of local searches.

Niki Scevak, lead analyst for Jupiter's local search report, says that Jupiter sees local search usage growing at a decent clip. The report cited a 15 percent compound annual growth rate for local search. Scevak maintains that in the near term, providers need to implement and promote a better user experience. "We're just at that stage of market development," he says, but notes that "the translation of usage growth into ad dollars is more complicated." He points out that Google, for example, is still only concentrating on the consumer experience; it has yet to incorporate Google AdWords into local search results, underscoring the fact that this is a very young search market.

"Historically," says Kelsey's Sterling, "[the Yellow Pages] has just been a book of listings, but the online product---this is where the future growth is." Interactive Yellow Pages (IYP) publishers will have to make their interface easier to use and add content features to make up for the traffic disparity between their product and Google and Yahoo!--or, he says, they will have to find a way to work with each other.

Sterling says that "the big guys and the little guys,"--i.e., Google/Yahoo! and IYP publishers/aggregators and classifieds listings providers--will have to work together to develop a healthy ad market for local search. This raises the need for intermediaries, he says--which specialize in a particular vertical category--to step in and provide advertisers with a full-service marketing solution across multiple publishing platforms. He says that Lawyers.com and HomeGain.com, a real estate marketing optimization firm, are two examples of this.

Scevak disagrees: "I don't think [the intermediary model] is a feasible business model for the moment," he says, claiming that "it's hard to survive purely as a search agency." In 2003 alone, the paid search market gained 50 percent, underscoring the notion that if it's hard to survive as a paid search intermediary, it would be much harder to survive as a local search intermediary. Scevak says that currently, the best intermediary for local search is a Yellow Pages sales publisher.

Scevak and Sterling both agree that the current pay-per-click bid model deployed by Verizon SuperPages and other YP listings providers is inappropriate for local search. Scevak says that bidding is more appropriate for product-based advertisers than service-based ones. Early adopters are favored by this model, because initial rates are low, but he notes that at least this way, the ad market will grow organically.

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