• by Douglas Quenqua , September 14, 2007

Local businesses are failing to establish themselves online as quickly as the consumers in search of their services, according to a Marchex report released this week.

"Unlocking the Potential of the Internet" states that regional businesses will spend more than $100 billion on local outreach this year, but only 5% of that will go to the Internet. The rest will be devoted to old-media standbys such as Yellow Page directories, newspapers, television and radio.

To put that in perspective, a recent Piper Jaffray survey showed that local search is now the second most common activity online.

"Historically, local businesses haven't been as fast to move online as others, but the fact remains that people are using the Internet now to make locally focused decisions more than anything other than email," said Mark Peterson, Marchex's vice president of public relations. "So if you're a business trying to reach local customers looking to do business with you, local search should definitely be a part of your marketing mix."

The report goes on to list common strategies being employed by major search engines, Internet Yellow Pages, newspaper sites and local guides, such as Citysearch.com, to help nurture a profitable and user-friendly local search market in the U.S.

Google, Yahoo, Citysearch and NYTimes.com are all combining expert and user reviews with mapping and aggregation features to make local search easier for consumers and cost-effective for local businesses. These sites are also taking aggressive steps to ensure that information on local businesses, such as phone numbers, hours of operation, and even menu items are easily and quickly updated.

However, with so many sites listing local information, consumers are still frequently presented with conflicting information from different sources. This "fragmentation," according to the study, presents one of the greatest barriers to the growth of the online search market.

"The aggregation of locally relevant, credible and authoritative content helps consumers make decisions and provides valuable distribution for content providers," the study states. "We expect this trend to accelerate across local Internet destinations, resulting in more partnerships involving leading vertical content providers."

Despite the challenges, the study cites research showing that the Internet will increase its share of local ad spend in 10 years from 5% to 25%, which would give it the biggest share among all media, trailed by newspapers and local radio.