Web sites launch search party to target local advertisers.

Remember the Yellow Pages?

Back when the Internet was a playground for Defense Department researchers, consumers looking for a nearby pizzeria or tire shop would often turn to the thick yellow book.

Many people now turn to the Web for those quick look-ups, and large advertisers have discovered sponsored listings that appear alongside Web search results. But the book still gets most of the local ad dollars.

In a bid to gain local advertisers, the three largest search engines, Google Inc., Yahoo Inc. and Ask Jeeves Inc. have taken a page from the past by launching "local search" sites. Meanwhile, America Online Inc. just forged a deal with Pasadena-based Yellowpages.com, a joint venture of SBC Communications and BellSouth Corp., to bring local listings to the AOL search engine. And Amazon.com Inc. beefed up its fledgling search engine, A9, in January by providing GPS-generated photos of storefronts with search results.

All these moves are attempts to dip into the local advertising market, estimated at more than $22 billion nationwide, where 98 percent of businesses do their advertising off-line. "A small business only has a certain budget to go around, and if a (search engine Web site) doesn't have enough local traffic, they're not interested," said Michael Kline, co-founder and chief operating officer of ReachLocal Inc., an Encino-based Internet marketing agency.

The search engines are trying to aggregate as many businesses as they can in one place, in a quest to become the dominant local Rolodex. They all start by buying the same listings from a third-party database--typically Omaha, Neb.-based InfoUSA Inc. or Little Rock, Ark.-based Acxiom Corp. They then face the dual challenge of making the data searchable and coaxing paid ads from those listed.

"Some of the search engines have built a great business off of national advertisers, but getting local advertisers is a lot harder than people realize," said Charles Stubbs, chief executive of Yellowpages.com.

Stubbs claims his company's listings are better than the other databases because Yellowpages.com gets a dynamic feed of information from its phone company parents, SBC and BellSouth.

"Other players do a good job of aggregating consumers, but it's unclear if they can aggregate hundreds of thousands of small businesses," he said.

Google has between 300,000 and 500,000 local advertisers on its site, out of an estimated 12 million to 24 million local businesses in the U.S.

Morgan Stanley estimated that local advertisers spent $10 billion on Yellow Pages ads last year, compared with just $700 million on web search-related ads. "Most small businesses spend most, if not all, of their advertising budget in the Yellow Pages," Stubbs said.

Online, though, the Yellow Pages have gotten a slow start. Stubbs is trying to grow through partnerships, like the one announced with AOL in June. YellowPages.com's SBC parent already had an existing deal with Yahoo, and BellSouth had deals with both Google Inc. and Yahoo for listings in Southeastern states. But Stubbs' ultimate goal is to get people to look to his company first, before going to a search engine.

New challenges

One challenge is overcoming the difference between selling an ad that appears in a phone book and one that may only be seen by someone who typed in a particular key word.

Yahoo offers assistance to help local advertisers pick key words and walk it through the bidding process, said Gaude Paez, senior manager at Yahoo Search Marketing. The service, called FastTrack, is $99 for first-time local advertisers, $100 off the regular price.

Other aspects of search engine advertising--managing bidding, for instance--can be daunting to a small business owner. "That's why we offer some extra help when they sign up," Paez said.

Another issue is the lack of feedback. If a company doesn't have a Web site, and many local businesses don't, it can be difficult to track how a Web ad is doing to determine if the money was spent wisely.

"Most small businesses don't care about clicks. They care about an off-line event," like someone walking into their store, or calling their office to make an appointment, Kline said.

ReachLocal works as an advertising agency for local businesses, placing their ads on Google, Yahoo and Verizon's Superpages.com and tracking the click-throughs. To keep track of phone calls, ReachLocal creates a new phone number for an ad which automatically redirects to the company's business.

All this has been made possible through a technology developed by Google that allowed it to locate users geographically using IP address identification. "IP targeted-technology was one of the biggest developments in opening up local advertising," Kline said.

But the technology has run into privacy issues, and has trouble if users are looking for information in a different region. Paez said Yahoo Search works with a variety of platforms, some of which give ZIP code information, others IP information, all in a quest to hone in on the best approximation of a customer's location. The localized sites allow users to plug in cities or ZIP codes, but there's still some improvements that need to be made.

"We're just hoping that Google and Yahoo figure out the best way to aggregate local content so you can find what you're looking for," Kline said.

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Big Players

Share of Web searches.

Google   47.3%
Yahoo    20.9%
MSN      13.6%
Other    13.7%
AOL       4.5%

Source: March 2005 NetRatings for SearchEngineWatch.com

Note: Table made from pie chart.