• by Shankar Gupta , March 7, 2007

Advertising from online directories is expected to climb 22.3% every year for the next five years, topping $11.1 billion in 2011--up from $4.1 billion in 2006, according to a local advertising forecast released today by the Kelsey Group.

Online local directories--comprising Internet Yellow Pages, mobile directories, and local search--are drastically outpacing the growth of their offline counterparts, with the forecast predicting a .9% compound annual growth rate over the next five years for offline directories, from $26.5 billion in 2006 to $27.8 billion in 2011.

"While [small and medium businesses] continue to utilize traditional media, they are increasingly turning to targeted, vertical electronic media," said Kelsey Group Senior Vice President Neal Polachek.

Local search ads are set to grow 23.2% annually, according to the Kelsey Group, from $922 million in 2006 to $2.6 billion by 2010. Internet Yellow Pages are predicted to grow as quickly, with 29.9% annual growth, reaching $2.3 billion in 2011--up from $624 million in 2006.

The forecast, however, predicted somewhat slower growth than the group's local ad forecast released a year ago. In February 2006, the Kelsey Group projected that revenue from local search and online directories would reach $13 billion by 2010.

Polachek said that the estimate was revised down in part because larger, national advertisers are crowding small business advertisers out of the local search marketplace, slowing ad revenue growth.

"The small guy can't get in there, and as a consequence, if you do florists, everything is 1-800-Flowers," he said. "You don't get any local retailers there. What we think has happened is these local guys have been shoved out of the way."

Polachek also said the delay of Yahoo's Panama upgrade to its search ad system, which incorporated geographic targeting, has moved back the growth timetable for local search.