Local Online Ad Biz Needs Scale

NEW YORK Consumers and advertisers face the same challenge when trying to navigate local content on the Web: an intensifying level of fragmentation. Media companies that can aggregate large-scale local audiences will ultimately be the ones that score with users and advertisers.

That’s the general assessment of a new report issued yesterday by Marchex, a company that specializes in both local online advertising and local content. The report, “Unlocking the Potential of the Local Internet,” found that local online media is still in its infancy, and as a result is very much untapped by advertising. According to Marchex estimates, brands will allocate $100 billion to local ad spending, but only 5 percent of those dollars will go to local Internet advertising.

Holding up advertisers, in part, is the fact that few publishers have been able to satisfy consumer demand entirely, despite the proliferation of local content. “There is no shortage of local content on the Internet,” said the report. “The problem for consumers is that this content is usually highly fragmented across a myriad of sites and is not optimized for decision making.”

Marchex found that both traditional local media powers such as YellowPages.com, as well as Web giants like Google and Yahoo! are making progress on this front —i.e., better organizing local content for users. Interestingly, the tactic that is proving the most effective for these media companies is tasking their audiences—readers and business—with helping to manage a local site’s content. “The best approach to data accuracy is to engage a community of users and merchants who will contribute to, correct and improve the data on an ongoing basis,” said the report. “To this end, most local search sites allow business owners to claim their listings and update any inaccurate information.”

That audience-driven approach can even apply to search, found the report. Several successful local sites are allowing users to determine the relevancy of certain search results, rather than solely relying on algorithms.

As for local online advertising, the key attribute for building a substantial business mirror what is working for the general Internet: scale. “The best blueprint for a profitable local search business model can be taken from general search,” said Marchex. “In the general search market, Google and Yahoo! emerged from the pack in large part because they were able to build a critical mass of traffic and advertisers.”