• by Joe Mandese  @mp_joemandese, December 21, 2003

Six months after it began benchmarking the fledgling business of local search, The Kelsey Group says it has emerged as one of the hottest new online advertising categories. While the marketplace does face some unique challenges, the Kelsey analysts say the cost effectiveness of local search is so powerful that it ultimately could compete with other forms of advertising used by local businesses and services, including local yellow pages, direct mail, newspapers and radio.

"It has the potential to impact the entire local market. All the media that local businesses use to advertise their products and services can be impacted," notes Greg Sterling, director of Kelsey's Digital Directories: Interactive Local Media Continuous Advisory Service and author of the new report, "A Closer Look at Local Search."

Sterling says the local search industry will need overcome some considerable obstacles before that occurs. Among other things, Sterling predicts a series of alliances are likely to occur between major search providers looking to build a base in local markets and local Yellow Pages publishers looking to develop the kind of technology that could facilitate a local search advertising marketplace.

"It's a very fragmented market. And it's very challenging," says Sterling, suggesting that leading search firms would do well to tap the local sales and marketing resources of printed Yellow Pages directories. Yellow Pages publishers, in turn would do well do align with search partners that could provide enabling technologies and traffic. "These are very logical partnerships," says Sterling.

He notes that such alliances are already occurring, noting that Verizon has teamed with FindWhat.com, while BellSouth has done a deal with LookSmart.

In fact, Sterling says the local search marketplace still has a lot to grow. "We estimate there are some 200,000 to 250,000 paid search advertisers globally right now and 10 million small and medium-sized enterprises in the U.S."

The new Kelsey report, which is scheduled to be released this week, finds that users already are thinking local. Upwards of 60 percent of all search traffic is estimated to be either implicitly or explicitly local in nature, according to data compiled from search company reports by Kelsey.

Percentage Of Search Traffic That Is 'Local'

Search Provider      Traffic From Users 
                   *Seeking Local Content      
AOL                      15% to 30% 
Google                    Up
to 60% 
InfoSpace                10% to 30% 
LookSmart                 8% to 12% 
Lycos                           10% 
Overture                 12% to 40% 
Yahoo!                    5%
to 30% 
WebFinder (U.K.)         10% to 15% 

Source: The Kelsey Group, compiled from 2003 data in company reports. *Explicitly or implicitly.