As Local Paid Search Grows, Local Media to Battle Big Search Engines

Paid search advertising by local advertisers is poised to more than double this year to $987 million, and nearly double again in ’07. That’s according to the “2006 Local Search Advertising” report from research firm Borrell Associates, which indicates local advertising could have a transformative effect on the overall search engine landscape.

Despite localized ventures by the largest national search engines, local paid search accounted for a relatively meager $420 million last year, “a tiny spot on the wall,” as the report puts it. The report projects, however, local paid search will go from representing barely 10 percent of all local online advertising today to 47 percent in 2010, reaching over $4 billion.

The experimentation stage is over for local advertisers, the report declares, showing that although just 5.6 percent of sponsored links on the major search engines were bought by local advertisers 18 months ago, today they’re purchasing 36 percent of all such ads.

In addition to tracking over 2,000 online search ads on Yahoo and Google, the study compiles the predictions of 400 ad “experts.” Over 60 percent of the panel believe search engines will morph with the online yellow pages model in the next two years, contributing to the eventual demise of the print yellow pages in many major US markets. Another interesting prognostication: “More than three-fourths of the Borrell panel agrees that within the next five years, yellow pages books will evolve into directories of local Web site addresses. Eighty-five percent of respondents think this will happen within five years.”

Real estate agents lead the local search ad pack. Real estate and mortgage advertisers are “usually right up there,” said Borrell Associates president, Gordon Borrell. “They’re the leading spenders on all [local Internet advertising”, not just the search engines.” Search ads for individual local agents have leaped from 17.5 percent of local search ads 18 months ago, to 23.9 percent a year later, to 49.6 percent of listings on keyword searches across 10 different cities.

Borrell chalks this up to the fact real estate agents want to drive traffic to their sites, which feature real estate listings more and more. Real estate agents tend to drive up keyword bid rates in their industry since, according to Borrell, they’re typically a ego-driven, and cringe when their listings don’t make the number one spot. “When we talk to the agents, a lot of them will tell us in whispered tones that they’re doing all this search engine advertising, and it’s double and tripled their businesses.”

To be sure, local media outlets are feeling the squeeze as dollars are siphoned towards search spending from newspaper ads and local print yellow pages buys. The report provides some hope, though, if local online media play their cards right. According to the report, about half the panelists believe local search engines will replace national search engines like Yahoo, Google and MSN when it comes to specific market needs. Two-thirds of the panelists say it could happen within five years, “If dominant local search engines emerge.”

The report looks at a variety of vendors offering private-label paid search products to enable regional media outlets to sharpen their search claws, such as MIVA Media, Quigo, and Interchange Corp.’s Borrell singles out, likening the service to a large TV network with multiple local affiliates that could more readily establish a strong foothold in individual communities than nationwide players. “Google doesn’t have that,” commented Borrell.

Local media outlets and search firms that work from a truly local level, contended Borrell, “would relegate everybody else to mere content providers.”

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