Has Mobile Local Search Finally Arrived?

The 3G iPhone‘s opening weekend saw 1 million units sold and 10,000 downloads from the new App Store. But 1 million isn’t much in the mobile device world — the iPhone represents less than 1 percent of the mobile device market, and total units sold to date fall short of the 10 million phones that Nokia sells each week.

The real story with the iPhone isn’t market penetration, but the standards it sets for mobile search. New features, lowered price tag, and easy availability of mobile applications have brought new mobile search standards to the market for the first time.

Meanwhile, the App Store creates a developer-friendly distribution venue; and open standards that step away from the carrier control that has traditionally prevented good applications from reaching the market.

Leave it to Apple to finally knock down this barrier: the App Store will do for mobile search what the iTunes store did for digital music. The iPhone as a medium — and a social phenomenon — will likewise drive mobile application downloads in the way that the iPod drove digital music distribution.

This should all serve to drag mobile search out of the early adopter phase where it’s been stuck for years. Through this, mobile search volume should increase; advertiser interest will follow; and more pervasive ad networks and mobile marketing firms will develop (last week, search marketing firm Outrider spun out a dedicated mobile marketing group).

We’re already seeing steep traffic growth from iPhone searches, and comScore reports that 88 percent of iPhone owners use the mobile browser regularly, compared with 14 percent for the rest of the market.

Location, Location, Location

A strong correlation between mobile and local, combined with the iPhone’s location awareness, will cause a great deal of this application development to happen around local search.

In addition to the fusion of mobile and local, a third element has come into play in early iPhone apps: social media. A great deal of innovation could lie at this three way intersection, as a consumer use case is starting to develop around finding things to do and buy locally, while connecting with friends (e.g., Yelp, Loopt, WHERE, etc.).

These early-stage apps will seek to build an audience before moving into monetization phases. But when they arrive, these strategies will involve opportunities for large and small businesses to target mobile users more effectively, based on where they are and what they’re looking for locally.

Here, mobile marketing could rely heavily on local directional advertising similar to that we’ve seen work online. Google’s mobile adjunct to AdWords, for instance, could allow advertisers to target mobile users based on location, and serve text ads or mobile coupons (more on that in a minute).

This would follow Google’s pattern of bundling local ad mediums with search such as newspapers, radio, and television. Co-founder Sergey Brin said as much during the company’s recent Q2 earnings call.

“I think it will be a more fluid experience for advertisers in terms of [selecting” ‘please run on mobile too,’ or ‘don’t,’ rather than trying to have completely separate worlds,” he said. His point is taken, though there will still be complexity in serving ads across different mobile platforms and standards (even if rumors of a Symbian/Android merger pan out).

Another medium making moves toward cross-channel bundling — yellow pages — also has an opportunity to be the one to resell this capability to SMBs at greater scale. Using their valued local sales forces, directory publishers are positioned to add mobile to the evolving local marketing bundle that includes print, IYP, search and video.

Getting Down To Business

As these ad-serving models develop, we’ll see experimentation around ad tracking and reporting. Since the device is, after all, a phone, call tracking and pay-per-call ad models are likely.

Here, some yellow pages companies have an advantage with systems in place for call tracking and reporting. AT&T’s acquisition of Ingenio allows it to sell business leads to advertisers across various media. This should soon include mobile searches performed on its YPMobile, which has shown early popularity among local iPhone apps out of the gate.

Given the social elements of many iPhone apps mentioned above, ability to track and report incidents of saving and sharing local listing could also emerge as important analytics in mobile marketing.

Lastly, given that a mobile device is often present at a local point of purchase, we could see CPA-based promotions and trackable coupons served with mobile search results. The mobile device could, as a result, become the missing link to bridge the online/offline gap — a longstanding source of uncertainty in local online campaign reporting.

Getting There

But there’s still a ways to go. Mobile devices have well known inventory constraints and limited screen real estate, which makes ad insertion difficult. Search volume meanwhile — though it can be highly targeted — isn’t yet substantial enough to attract most local and national advertisers.

Can the iPhone (along with Google’s Android) change this? It won’t just be its own penetration, but its influence on mobile search standards that will cause next-generation features (i.e. location-aware search, mapping, and social networking) to become standard issue for the mobile mainstream.

It could take a couple years for this to really get moving, but after a long period of being rusted shut, the wheels are finally starting to creak forward on local mobile search.

A recent Kelsey Group report profiled 25 local apps. Five of these will be demoed during a SES San Jose session, so join us from August 18-22 at the San Jose Convention Center.

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