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Local Search: The Hybrid Future

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Last year at this time there was really no such thing as "local search." Fast forward twelve months and local is one of the hottest topics in search.

Local search has recently been the subject of a series of articles by SearchEngineWatch.com editor Danny Sullivan. Search localization is simultaneously the focus of aggressive attention and effort at Google, Yahoo/Overture, AOL and MSN, among others. All of this leads to the fundamental question: why local?

Local Advertiser Volume and Potential Revenue

The answer, as one might expect, is revenue-or more precisely, potential revenue. When you add up the number of all the paid search advertisers in the world right now, the total is approximately 380,000. Yet, there is substantial overlap among the advertisers of the different paid search networks. (It's rare a company that uses Google but not Overture and vice versa.) So, as a rough estimate, the figure is probably closer to 250,000 paid search advertisers on a global basis.

By contrast, the U.S. alone has about 10 million small- and medium-sized enterprises (SMEs), and there may be as many as 30 million more such businesses in developed countries around the world. In the U.S., most of those SMEs, the bulk of which have fewer than nine employees, conduct the majority of their business within 50 miles of their locations.

The Yellow Pages have built an enormously profitable industry servicing that local market. In 2003, North American print Yellow Pages were worth roughly US$15.6 billion in annual revenues.

All of this is not to say that the market for Yellow Pages and local search are one and the same. There are serious, practical obstacles that paid search must address-the complexity of keyword bidding, limited ad inventory and the challenge of sales-if the industry is to more than superficially penetrate the SME market.

Currently about 17 percent of local SMEs that advertise use paid search (40 percent of small businesses do not advertise). Further, The Kelsey Group has estimated that the current addressable (not actual) market for local paid search is between US$1.16 and US$1.2 billion. Overture contends that local search revenues will be about US$1 billion by 2008.

Those numbers are obviously quite a bit less than the current value of print Yellow Pages. Paradoxically, only about 35 percent of local SMEs advertise in the Yellow Pages, which makes he conceivable advertiser base for local paid search potentially much broader.

Local Search and YP Moving Toward One Another

What's interesting about paid search and the Yellow Pages is the way in which these seemingly unrelated industries have been moving toward one another. At last August's SES conference in San Jose, I heard a panel of search engine executives liken paid search to Yellow Pages. And like Yellow Pages, paid search is in fact a "directional medium," which delivers qualified leads (consumers who are "ready to buy") to businesses that are ready to sell. This has been the value proposition of print Yellow Pages since the dawn of time.

However, one of the problems from a consumer standpoint, as Danny Sullivan has repeatedly pointed out, is that local search has provided a relatively poor user experience to date. Yet despite this, search engine data reflect that anywhere from 5 percent to 30 percent of searches have a local or geotargeted dimension and somewhere in the neighborhood of 10 percent are local "commercial" searches-people using search to find information that will ultimately lead to a buying decision. That means something on the order of 80 million weekly local commercial searches are taking place in the U.S.

Those looking for local pizza restaurants or dentists or hair salons on search engines have to date had to confront the limitations of unstructured Web search and wade though link after irrelevant link. Internet Yellow Pages, by comparison, offer more relevant local business information because they are built on structured, local data. But they too have been hampered by a less-than-optimal user experience based on different factors (i.e., non-intuitive organization and the absence of genuine keyword search functionality).

What search engines such as Google and portals such as Yahoo and AOL are doing to address these local search deficiencies is integrating more structured content (ala Yellow Pages) into Web search results. For example, Google has very recently added structured Yellow Pages data (business names and phone numbers) to its Search by Location beta test. Formerly, search results were based exclusively on Google's algorithm. However, the inclusion of the new structured data, together with some additional enhancements, have tremendously improved the usability of the application.

Yahoo began several months ago to include Yellow Pages listings in certain types of search results and point users to its Yellow Pages and city guides in response to explicit or "implicit" local searches (e.g., "restaurants"). More recently, AOL created an "In Your Area" tab and began aggregating and integrating structured local content from its Yellow Pages, Digital City and Moviefone properties under that tab and into search results. The Dulles, VA-based company also introduced "SmartBox," offering suggestions via a drop-down menu from the search field, in order to "disambiguate" local searches and drive users directly to specific content areas such as Yellow Pages.

Citysearch Points the Way

For their part, Internet Yellow Pages have started working on improved usability and begun to partner with search providers to offer pay-per-click advertising to their local Yellow Pages advertisers. For example, print Yellow Pages publishers BellSouth and Verizon announced deals late last quarter with LookSmart (and others to be named) and FindWhat, respectively. More such deals are no doubt in the works.

Another emerging trend for Internet Yellow Pages is the use of keyword search as a primary navigational tool. As the first of what will probably be many more such developments, Sacramento, CA-based SureWest Directories just launched a newly upgraded Internet yellow and white pages product, which prominently features keyword search. And Laguna Hills, CA-based Interchange Corp. is offering a similar, search driven platform for online Yellow Pages.

Yet in many ways, Citysearch is already the model of search and directory convergence. While not perfect, Citysearch presents a hybrid approach that combines pay-per-click advertising for local businesses, with a keyword search-driven interface over a structured local database. That provides the ease of use of search with the reliable structured data offered by Yellow Pages.

This is not to say that all "local search" will ape Citysearch, but conceptually this is where the market is heading. By the end of 2004 or early 2005 all Internet Yellow Pages will look and operate lot more like "local search engines" than they do now. Similarly, there will be a lot more Yellow Pages-like structured data behind search engines' localization efforts going forward. This is what I mean by "the hybrid future."

Greg Sterling is the managing editor of The Kelsey Group, which covers local and small business advertising, Yellow Pages and digital directories.

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