• by Wendy Davis  @wendyndavis, September 21, 2005

Local sponsored search will grow far more quickly than online local advertising overall, according to a new report by research company Borrell Associates, Inc.

The local online ad spend will climb to $4.78 billion next year--up from an estimated $3.73 billion this year, predicts Borrell Associates Inc. But paid local search will nearly triple, climbing to a predicted $907 million next year from $347 million this year, according to the report, "2006 Outlook: Local Online Growth Continues--for Some."

By 2010, predicts Borrell, spending on local search will reach $4.07 billion--accounting for 12 percent of the forecast $34.81 billion online ad market for that year--while local display ads will total just $4.54 billion.

This anticipated shift from display ads to search will surprise many online publishers, said Borrell Associates President Gordon Borrell. "Local banner ads and local listings will start declining to the point that paid search will roughly match it over the next five years. That's going to catch a lot of newspaper and TV Web site operators off guard," he said.

Newspapers currently capture the largest share--41 percent--of the local online media spend, but the report cautions that this situation could quickly change. "Big newspapers ... are accustomed to tracking only a handful of local competitors," states the report. "With the Internet's low barriers to entry, they now face the prospect of being, well, nibbled to death by ducks."

In fact, Internet companies such as Google and Yahoo! already account for 32 percent of the local online ad market, while directories are responsible for 20 percent, according to Borrell Associates.