The Local Search Conundrum

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.

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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.”

6 Responses to “The Local Search Conundrum”

  1. Max Kalehoff Says:

    Greg,
    Thanks for building these ideas. I left a similar comment with David Mihm, who arrived at a similar, interesting question: What is the viability of very small advertisers to achieve ROI in increasingly competitive PPC categories. Is there a point at which an advertiser and corresponding ad spend is too small?

    The answer for resellers is simple, but the solution requires some sophistication. Importantly, competition across PPC categories and geographic regions vary drastically. For example, keywords for personal injury attorneys in New York City are likely to be far more than in Boise, Idaho. Likewise, competition for keywords around personal injury attorneys will probably always be higher than, say, keywords for local pizza shops, in any location. Therefore, search-marketing lead generation packages sold by resellers must factor in those competitive nuances, and (pardon emphasis) MUST ENFORCE MINIMUM MONTHLY SPENDS, accordingly, in order to radically increase the chance for success. There is no magic minimum threshold because keyword categories vary, and vary by region — indeed, greater sophistication is needed here in the reseller model. (But in most cases, it will be significantly higher than the $50 in monthly spend you mention above.)

    That, of course, is in addition to:
    – Properly managing expectations in the sales process.
    – Delivering value that is easily understood by local businesses — a shift from selling Web site visits to selling quality leads and phone calls.
    – Optimizing reseller economics and performance through scalable technology — which, by aggregating smaller advertisers, enables them to become more competitive than they would be alone.

    But at the end of the day, search advertising works very, very well. It is among the top performing methods of advertising when properly executed — period. We must not forget that. The reseller industry must drive deeper understanding of the challenges and opportunities — and then reform and innovate — to improve the overall performance for local and small advertisers. We’re certainly optimistic.
    Max

  2. Greg Sterling Says:

    Think true local advertisers can only compete PPC toward the “tail” where there are lower-volume, lower-priced keywords. Can’t really compete at the head for local, where verticals and directories outbid the independent businesses. Think ServiceMagic vs. a local contractor bidding on “San Francisco contractors.”

  3. The Transfer of Local Dollars Online « Screenwerk Says:

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    […] the form of “guaranteed clicks,” calls or something similar. As we know there’s a ton of churn in this segment. But the addition of these other services make the entire package more valuable and […]

  5. David Mihm Says:

    “Think ServiceMagic vs. a local contractor bidding on “San Francisco contractors.”

    Greg, I couldn’t agree more. That’s why I think we’ve seen Google moving to take up SO much screen real estate with the 7-pack and Local Listing Ads. They saw that their $$ was going to come from the Service Magics of the world, whose sites tended to rank well organically, making them less likely to buy PPC.

    Now, with the 7-pack only showing brick-and-mortar locations, those guys are forced to spend on PPC, and the consumer still gets to see the moms-and-pops they expect to for those types of searches.

  6. Google Forcing Directories to Buy PPC? « Screenwerk Says:

    […] Forcing Directories to Buy PPC? By Greg Sterling Here’s a comment from David Mihm in response to an earlier post: “Think ServiceMagic vs. a local contractor […]

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