"National advertisers were the first to recognize the opportunity with the Internet," said Colby Atwood, a vice president and partner at Borrell. "Now that the technology has improved, and individual business owners are using it at home, it's a natural progression" to advertise more, said Atwood. While Borrell defines local advertising as ad dollars spent by businesses of any size--ranging from multinational corporations to sole proprietorships--to reach a local audience, much local advertising is actually placed by local players, said Atwood.

Internet-only sites will likely benefit from the uptick more than the Web sites of newspapers and TV stations, predicted Colby Atwood, a vice president and partner at Borrell. "We are seeing a certain amount of recruitment, real estate, and automotive advertising migrating out of newspaper package deals and onto pure-play sites, including free local sites like Craigslist," said Atwood.

Paid search will represent only $329.5 million--around 8 percent--of the 2005 local online ad spend, forecast Borrell. But that figure is smaller than at least one other industry estimate: The Kelsey Group predicts that local search will leap to $418 million this year--up from $162 million in 2004, according to Neal Polachek, senior vice president, research and consulting, at the company.

Rich media ads are slowly cropping up on the local level, said Atwood. For example, a local dealer association placed a streaming video ad for a Ford automobile on a Web site. But for the most part, he said, newspapers can't handle streaming video. Atwood estimated that 20 percent of the several hundred newspapers that Borrell advises are capable of running rich media

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