• by Ross Fadner , November 3, 2004

Small and mid-sized businesses are still not advertising online, although most say they believe the Internet presents big advertising opportunities, according to a new report presented Wednesday by local market research firm The Kelsey Group.

The report, presented at The Kelsey Group's interactive local media conference, concluded that 61 percent of small and mid-sized enterprises believe the Internet is a significant advertising medium, but that only 14 percent of local advertisers have made online media buys in the last year. The tally was even less for sponsored listings: only 5 percent of small or mid-sized businesses purchased search listings; and 5 percent reported interactive Yellow Pages buys in the last year.

These tepid local spending numbers set the tone for The Kelsey Group's interactive local media conference, where advertisers, search engine providers, search engine marketing firms, interactive and print Yellow Pages directory and sponsored listings providers, interactive newspaper providers, and advertising technology and platform providers convene this week to discuss the future of the local market on the Internet.

Greg Sterling, The Kelsey Group program director, said the main challenge facing the industry is convincing small and mid-sized businesses to respond to growing local search usage. He said that business-owner confusion is one of the main reasons for under-spending in the online local market. For that reason, Sterling believes the new package deals offered by Yellow Pages providers Dex Media and BellSouth--which already have a large database of local advertisers through their print Yellow Pages deals--hold promise because they offer a simplified way of marketing the Internet to small businesses.

Sterling added that simplified search products like Ingenio/FindWhat's pay-per-call--which involves advertisers paying only for the phone calls they receive as a direct result of a viewer seeing their sponsored listing--are "equally, if not more accessible" to small business advertisers.

Sterling also presented local search consumer data showing that 75 percent of Internet-savvy consumers believe the quality of local search results has somewhat or significantly improved compared to a year ago. This sentiment is reflected by their overall search behavior: twenty-seven percent of the searches conducted by the survey sample group were local in nature. Furthermore, 61 percent of respondents said local business information online is as good or better than in offline print Yellow Pages.

Consumers also showed greater loyalty to Yellow Pages providers than search engines when looking for local information. The results showed that 52 percent of Yellow Pages users claimed allegiance to one provider, while 42 percent said they use two or three. By contrast, 35 percent of respondents said they use only one search engine, while 53 percent said they use two to three.

The Kelsey Group consumer study, commissioned by BizRate.com, polled 3,887 BizRate.com users on topics ranging from local search to online shopping behavior. Respondents were 64 percent female and 36 percent male, with an average age of 44 and an average income of $64,000. Seventy-two percent access the Internet with a high-speed connection; seventy-nine percent have used the Internet for more than five years.