Local search may not be growing as quickly as Google, Yahoo!, and Yellow Pages publishers anticipate, according to a new Jupiter Research report, "Local Search: Growing Revenue in a Transitional
Market." The report, issued Wednesday, found that while paid search grew 50 percent in 2003, the expected compound annual growth rate (CAGR) for local search is pegged at 15 percent over the next
four years.
The 15 percent CAGR for local search comes in lower than online advertising's expected 19 percent CAGR. By contrast, paid search grew from a $250-million to a $1.6-billion business
in only four years. The Jupiter report notes that local search will not achieve the same kind of success, principally because publishers are selling to a completely different type of advertiser.
Physicians, restaurants, and automotive services, for example--the three leading print Yellow Pages spenders--are also the slowest in allocating advertising spending online. This can be attributed
to the fact that the vast majority of print Yellow Pages advertisers are service-based industries--i.e., consumers can't click-through to get their car serviced or have their teeth cleaned.
Traditional pay-per-click models, which often lead to direct sales for product-based advertisers, are impractical for such service-based businesses because clicks are not perceived as meaningful.
For local advertisers, print Yellow Pages represent an easy-to-use, widely circulated, and established medium.
"The largest myth surrounding local search is that it's a new opportunity for
advertisers, when [interactive] Yellow Pages publishers have been doing this for eight years," says Niki Scevak, Lead Analyst for the Jupiter Research report. He adds that the "meteoric rise in paid
search" is seen as the catalyst for this "new" search platform, but advertisers and publishers should note that "the current market exuberance around local search stems from expectations that
performance-based advertising" models will cross over effortlessly to the "new" ad medium. "These expectations will largely go unfulfilled," Scevak deadpans. "Local search is not the silver bullet
that will keep the hockey stick going up."
However, Jupiter does say that targeted local search inventory with a performance-based pricing model will appeal to a subset of Yellow Pages
advertisers, most notably the travel industry. Scevak says that travel still represents the best opportunity for Yellow Pages publishers, noting that local advertisers are beginning to roll out
pay-for-performance pricing models, and travel advertisers usually allocate a good portion of their media spend to the Internet.
The report mentions that consumers currently use local search
primarily to look up known merchants, rather than to select new ones. Scevak notes that local search providers generally only provide their users with bare-bones content, namely contact
information.
To provide further value to consumers, Scevak says that "the user experience needs to change. After this improvement, more people will use local search directories, and then
advertisers will start to migrate spending online." However, he says that this kind of progress is five years--rather than five months--away.