• by Tameka Kee , March 24, 2008

There's a reason that venture capitalists pumped nearly $70 million in financing into local online advertising firms like ReachLocal and Yodle late last year. Their business models, which include paid and organic search optimization, Internet Yellow Page management and phone-based lead generation, are the magic mix that small and medium businesses (SMBs) need to be successful in the age of Web 2.0, according to a new report by Marchex.

The Seattle-based local online advertising and media company--which culled statistics from resources like eMarketer, The Kelsey Group, comScore and JupiterResearch for its "2008 Perspectives on Local Advertising and Content" white paper--found three key trends that are shaping how SMBs fare when it comes to local advertising on the Internet.

First, there are more players stepping up to the plate to help SMBs market themselves online--and that the increased agency competition is driving innovation in terms of their technology and service offerings. "No one person is going to monolithically own the local space--so it won't look like Google with search," said Matthew Berk, lead search architect at Marchex. "There's room for different players and roles in the ecosystem, including folks that have 'feet on the street' and others that have proprietary technology."

But Berk also said that SMBs could expect some consolidation at the higher levels, as more established firms expand their offerings through acquisitions, and smaller players scale out through mergers. For example, Marchex acquired Philadelphia-based VoiceStar last year as a way to add Web-to-phone call tracking services to the roster, while Los Angeles-based Spot Runner snapped up local online ad firm Weblistic to better target SMBs interested in supplementing their online ads with TV and radio buys.

Still, the most overarching trend is the necessity of phone-based lead generation. "Just because small businesses are advertising on the Web doesn't mean they need clicks all the time," Berk said. "They want phone calls." And they want to be able to track them, follow up on them and even use them (if recorded) as customer service or sales training tools.

As Ari Jacoby, president and founder of VoiceStar, writes in the report: "Advertisers and their agencies are spending good money on quality advertising in order to generate reservations, consultations, demos and service appointments. Call recording reinforces proper phone etiquette."

Meanwhile, using the Web to generate phone leads bridges the gap between the reliable Yellow Pages "that made their phone ring," Berk said, and the less-familiar, but highly accountable Internet. "Being able to drive traffic through the phone and measure it automatically--well that's new to the local business market," Berk said. "And with the combination of clicks, Web exposure and phone calls, they're able to reach consumers wherever they are."