Clickable’s Max Kalehoff writes about the recent Borrell report on Local SEM churn and the local search ad opportunity in general in MediaPost today:
Finally, according to Borrell, growth in the local search advertising industry will be led primarily by advertising service providers that adopt scalable technology infrastructure and recalibrate their economics to allocate more customer investment to search media spend. The study revealed that it’s not uncommon for local service providers to pocket half or more of their customers’ investments, while applying the rest to poorly optimized media spend. That’s not sustainable.
I have written about the state of “purgatory” that now exists in the local market:
Many SMBs have seen their print YP campaigns become more costly because (in many cases) there are fewer leads/calls being generated . . . However the Local SEM products in some cases have high rates of churn and there’s considerable frustration for many there too. The way these products are positioned and sold is often problematic for publishers and SMBs. There are high expectations created that often go unfulfilled.
So we’re now in a kind of “purgatory,” where the “old” methods aren’t working as well . . . and the “new” methods aren’t delivering as promised. It’s a problem for everyone.
The problems in the local market are now very deep. The simplified products that promised to make search easy for small businesses, to bring greater reach into that market for Google and to bring new revenue streams to traditional publishers while preserving advertiser relationships have failed to deliver for everyone involved.
The higher-spending segments of the SMB market — those that can afford to hire agencies or in-house marketing people to handle online — will find their way to a marketing mix that works eventually. It will include but not be limited to search.
For the very small end of the market, where the volume of SMBs reside, the solution is more elusive. Therein lies the problem for the “local search marketplace.” Consumers have embraced the Internet (and increasingly mobile) for all things local. But very small businesses have no easy response to that.
Firms such as Leads.com (part of Web.com) and ReachLocal adopted a strategy of going after advertisers with more discretionary marketing spend. That’s one of the conclusions of the Borrell report: those who can spend more on media will do better and so will their vendors.
The marketing and online product mix for the low end, those that can or will only spend $50 per month, needs to be quite different than the Local SEM products offered today. And there’s no “scalable” solution out there that works for all parties involved. (Max would argue Clickable has one for the major SMB sales channels.)
We will continue to see the erosion of traditional advertising, but without a corresponding shift of those dollars directly online. Some of that money simply “goes away” or, as I’ve argued before, goes into things that don’t appear as “advertising.”
Mike Blumenthal takes a look at 31 LBC dashboards and 
