Not to sound like a broken record, but the fundamental problem with quantifying “local search” is first defining what that means. I won’t rant on about local search being a broader category than what many “in the industry” says it is. For now, let’s work with the recent comScore data for December 2006.
comScore basically defines “local search” as Internet yellow pages, the queries on the local products of search engines (e.g., Yahoo! Local) and searches on general engines with geographic modifiers (e.g., “Denver Attorneys”). comScore (7/06) estimated local search to be 13% of overall Internet search volumes. I would argue and can document that the percentage is higher but let’s use this number to be consistent.
comScore reported 6.7 billion searches in December. Using the comScore 13% figure, that would mean about 871 million searches were local (as opposed to those that have a “local intent” but may not be visible to comScore because of its methodology).
A low consensus figure is that Google makes about $.12 in revenue per search. That’s a crude, general number that flattens the dramatic variability in keyword prices by category and search term. (Verticals and others can charge a great deal more for clicks.) But using that monetization figure, it would mean that on an industry wide basis “local search” is today hypothetically worth just over $104 million per month or in excess of $1.2 billion per year.
The local ad market (all media) is worth roughly $100 billion (Universal McCann). US SMBs spend in excess of $30 billion annually on advertising and marketing across media. And among them, the yellow pages ad spend (not all SMBs) is almost $15 billion (Kelsey Group) and the US classifieds ad spend (not all SMBs) is about $18 billion (NAA). But the majority of that spending is from SMBs. And most of the truly small businesses are service businesses that fulfill locally/offline.
So one would reasonably expect many billions in SMB and other locally targeted ad buying will flow online, given consumer adoption of the Internet. But the picture is quite complex. Putting aside all the well-known challenges of getting SMBs signed up, there’s an inventory problem — at least in search.
There are lots of places to put geotargeted ads online: newspapers, verticals, portals, ad networks, shopping and pseudo shopping sites, blogs, etc. Exactly how much available inventory is unclear. But in search in order to capture more of these local dollars there need to be more local searches or those with “local intent” need to be better monetized.
IP targeting helps to some degree by enabling ads to be served against searches that may not carry a local modifier. (Recall the WebVisible-Nielsen research that found 51% of searchers looking for service businesses didn’t use a geographic modifier in their queries.) But, fundamentally, if you’re Google, Yahoo! or MSFT and want to get more local money into search, you have to build more inventory: local searches.
Therein lies the challenge.