Local Search Growing, but Small Biz Advertisers Cautious

Local search is a hot topic, but both search providers and small business owners face significant challenges before location based finding services gain broad acceptance.

Users Embracing Search for Local Information

Last November, The Kelsey Group and ComStat, Inc. conducted a telephone study of 1,006 people among a representative sample of U.S. households. Among other things, it sought to determine what specific sources consumers and business owners were using to find local product/service providers and whether Internet penetration had changed local shopping behavior.

The survey found that 81% of users had Internet access either at work or home and about 40% had high-speed access at home. Despite these penetration rates, the survey also found that the top methods used for local shopping were still traditional, “offline” sources: printed yellow pages and local newspapers.

Among the “media used in the past year,” yellow pages was first (75%), followed by newspapers (73%), white pages (58%) and search engines (47%). These numbers were largely unchanged if the population was limited to Internet users. The only significant difference was that the number using search jumped 10 points to 57%. However, the frequency of monthly usage was highest for search engines among all media.

More recently, in early February of this year, The Kelsey Group and BizRate.com jointly conducted an online survey of more than 5,000 online buyers-people who had made at least one purchase in the previous year. Search behavior was divided into non-commercial (“not looking for anything to buy”) and commercial (“looking for a business, shopping or doing research before buying”).

The survey results showed that 25.1% of commercial searches were local. The data also showed:

  • 44% of respondents were performing more local commercial searches than one year ago.
  • Google was cited as the most frequently used search engine by 56% of respondents. That was followed by Yahoo (21%) and MSN (13%). This compares with new Nielsen data showing that 39% use Google, 30% use Yahoo and 30% use MSN.
  • 71% of respondents used search engines seven or more times per week and 25% used search engines 30 or more times a week.
  • 64% of people said that search engines were the “main way” they find things on the Internet and 6% percent said search engines were “the only way” they find things online.
  • Commercial search results were rated as “good” or “excellent” by 80 percent of respondents.
  • 64% said “search engines are better” than printed yellow pages for finding commercial information. And 52% said search engines are better than other “offline” sources such as newspapers, magazines and direct mail.

Search engines were, however, not rated better by a majority in comparison with the following: Internet Yellow Pages, online vertical directories or telephone directory assistance.

These recent findings appear to contradict those of the November study, but they don’t represent an “apples to apples” comparison.

Beyond indicating the need for additional research, the difference in the two surveys can be partly accounted for by the fact there were two different survey populations: a representative sample of the U.S. population as a whole vs. a self-selected population of users who are somewhat more “Internet savvy” or sophisticated than the general U.S. population. The November study also revealed that people are increasingly using multiple sources for local shopping/business information.

Despite the fact that the quality of local search results is still very mixed, local search is clearly gaining traction with users.

Small Businesses Still Cautious and Confused

The other side of local search, of course, is geo-targeted advertising. And the biggest potential market is small business. As I discussed in Local Search: The Hybrid Future, the U.S. has roughly 10 million small businesses, the majority of which have fewer than nine employees and conduct most of their business within 50 miles of their physical locations.

There are lots of dollars at stake in the local market. Depending on whose numbers you choose, local advertising is worth somewhere between $22 billion and $94 billion. That includes all forms of advertising and marketing, from yellow pages and newspapers to direct mail, magazines and local TV and radio. And the larger number includes national advertisers targeting local markets.

Yet beyond the large numbers, there’s also something of an imperative for search-based advertising to “go local” (and international). Last week eMarketer issued a report that projected paid search advertising growth would drop to 22.5% in the U.S. in 2004 and 17% in 2005, down from 123% in 2003. The Kelsey Group has estimated that local search revenues will be approximately $2.5 billion by 2008.

To achieve any sizeable revenues from the local market, paid search needs to gain small business advertiser adoption. But how much of the small business market will pay-per-click (PPC) be able to penetrate? There are some very practical challenges, which include:

  • The complexity and time involved in keyword bid-campaign management
  • Limited ad inventory and competition between national and small business advertisers for that inventory
  • The absence of local sales channels to “push” PPC to small business advertisers
  • The lack of websites among as much as 70% of small businesses

These are not insurmountable by any means, though they should not be minimized. It’s also important to point out that many small businesses are currently users of paid search advertising. But for the great majority of small business, there may be considerable ignorance and even skepticism about PPC.

The Kelsey Group is currently in the field with two separate surveys about small business attitudes toward and experiences with paid search. Those are expected to be completed by mid-March. However, to kick off these surveys, we brought together a focus group in San Francisco to discuss PPC in early February.

The focus group included 11 people who were either small business owners or marketing professionals. The companies ranged in size from one to 100 employees, though most were fewer than 20 and three were sole proprietorships. The companies included two software vendors, a caterer, an art gallery, a realty company, an architectural firm, a surf clothing manufacturer and a non-profit organizational consultant.

All of the businesses had websites and all of the focus group participants were heavy Internet and search users themselves. What was noteworthy-and this is purely anecdotal-was the confusion and surprising skepticism among this group toward paid search. Here are some of the important “takeaways”:

  • The participants liked the idea that PPC would enable them to calculate return-on-investment. They also liked the idea that PPC could be a cost-effective or low-cost method of customer acquisition. However, they were skeptical of the accuracy of this claim.
  • Participants were uncertain about how the auction process worked and how to determine appropriate price levels for their keywords/ads. They were uncertain about how much they might wind up spending, especially in view of the need to spend more than competitors to achieve desirable placement on search results pages. This was a significant concern despite being told they could “cap their spend.”
  • Participants were also skeptical about the kinds of leads they would get. While most of them wanted more traffic to their websites, they didn’t want “insomniacs who are just doing random searches and click-throughs.” All the participants were concerned about getting qualified or quality leads and didn’t want “traffic for traffic’s sake” or “a lot of junky calls.”
  • These businesses would be inclined to try PPC if it was “simple” and they could get a “free trial.” They also liked the idea of an “independent consultant” rather than a “salesman” who could be available to help them with set up and support.
  • Despite many appealing aspects, participants generally believed that PPC was best suited to large, e-commerce businesses rather than to small businesses.

One must be cautious about drawing broad conclusions from this anecdotal information. What it indicates, however, is that beyond the “structural” challenges mentioned (e.g., absence of local sales channels and small business websites), when it comes to small businesses, paid search providers clearly have a sales job cut out for them.

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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