The report also predicts that paid search spending by local businesses will continue to grow for the next several years, climbing to 1.7 billion in 2007 and reaching $4 billion by 2010--at which time it will account for 47 percent of local online advertising.

At the same time, local advertisers are expected to actually decrease spending on banners and listings by 2010. The report predicts that local spending on online display ads and listings will peak at $5.7 billion in 2008 and then fall to $4.5 billion in 2010; last year, such spending totaled an estimated $4 billion, according to Borrell.

This pattern of accelerating local search, but waning local display and listings ads, represents a threat to the online units of traditional media companies--which currently sell banners and listings to local advertisers. "The biggest concern for Web sites run by traditional local media companies is that they face being walloped by something that they should be all too familiar with--targeted media," stated the report.

To analyze the current state of local search advertising, Borrell researchers examined more than 2,100 paid links to appear on Google and Yahoo queries for city-related keywords--such as, for example, "Des Moines real estate." About 36 percent of such pay-per-click links were from local advertisers--up from 5.6 percent 18 months ago.

Search adoption varied by industry, with local real estate agents especially big users of search marketing. Nearly 50 percent of pay-per-click links in the real estate category were from local advertisers--up from 17.5 percent 18 months ago. At the low end of the spectrum, 28 percent of pay-per-click results in the local hotel space came from local advertisers.

This news story is important. I recommend that everyone read it.