Can small businesses be persuaded to pay for online advertising even if they do not sell their products or services on the Web?
That is a big question for Internet companies like Google and Yahoo, as well as Yellow Pages publishers like Verizon and SBC, which are stepping up their efforts to sell online ads to plumbers, dry cleaners and other small businesses, most of which do not have Web sites.
A survey released last week suggests that small businesses may not be able to ignore online advertising for long, because potential customers are looking for them on the Internet.
The Kelsey Group, a research and advisory firm, and BizRate.com, a shopping comparison service, queried more than 5,500 online shoppers and found that 25 percent of their searches were for merchants located near their homes or workplaces. The figure, more than twice what the Kelsey Group had estimated last year, is particularly striking because search engines and Yellow Pages Web sites have done little until recently to give Internet users easy ways to find local businesses.
Type the phrase "plumbers and 10036" into a Google search box, for example, and the search results yield not a single listing or text advertisement for plumbers in Midtown Manhattan. (The top listing on the search page is for plumbers in Woodlyn, Pa., which has a population of 10,036.)
But the dearth of local search advertising is likely to change soon, Internet advertising analysts said. According to a report released last week by eMarketer, a technology research firm, online search advertising revenues in the United States will reach $2.5 billion this year and $3 billion next, and local search advertising will capture at least 15 percent of that market. As money moves into that segment of Internet advertising, Internet companies are quickly improving their services.
Google, which according to comScore Networks, a research firm, executes 35 percent of all Internet searches, last year introduced a test version of a localized search engine (http://labs.google.com/location). When users type "plumbers and 10036" into the search box on that site, they receive a list of plumbers in Midtown and a map of their locations.
The service occasionally returns puzzling results, as when the "plumbers" search returned listings for a Brazilian dinner-dance club and a photocopy business. Salar Kamangar, Google's director for product development, said the company was continually tweaking the service and would not place it on Google's main site until it worked properly.
In October, Google also began allowing advertisers to aim their ads at users in specific geographical areas. With that program, Google estimates the user's general location by checking the Internet Protocol address assigned to the user's computer, and then serves local ads that are related to the search terms entered. "We've had strong demand from advertisers right off the bat for that," Mr. Kamangar said. He would not disclose actual sales figures or number of advertisers.
Yahoo's Overture unit, which pioneered the business of selling advertising spots atop search listings, will also begin offering a new localized search service within the next few months, said Geoff Stevens, Overture's general manager for local search advertising efforts. With Overture, as with Google, advertisers bid to have their ad placed near or on top of search listings. When a user clicks on their ad, businesses pay the amount they bid.
Mr. Stevens said Overture's local search service would identify potentially local search queries, like "dentist," then ask users if they would like to type in a ZIP code or other location modifier to get geographically targeted results. The feature is likely to appear on Yahoo and MSN, two sites for which Overture provides paid search results.
Overture currently allows dentists in Stamford, Conn., for example, to bid for the placement of a link at the top of search listings when someone types the phrase "Stamford dentists" into the search box. But Mr. Stevens said that service would not help dentists in nearby towns reach those users.
With the new approach, users who type the phrase "Stamford dentists" will see advertisers within 15 miles of Stamford. For advertisers that have no Web page to link to, clicking on the ad would send users to a "landing page" that includes information like hours of operation, phone numbers, maps and directions, Mr. Stevens said.
Neal Polachek, an analyst at the Kelsey Group, said that although Google and Overture have sophisticated paid search functions, they do not hold a firm advantage over their online Yellow Pages competitors in local search advertising because they all face the same challenges. First, the search sites need a significant number of monthly visitors. Second, they need technological expertise. Third, they need effective ways to gather information on the roughly 15 million small businesses in the United States. And finally, they need sales agents to reach those business owners.
While Google and Overture have the Web traffic, they may lack the ability to attract small business owners, Mr. Polachek said, because they require most advertisers to create their own search ads and monitor their placement. Verizon, SBC and other Yellow Pages publishers have millions of small advertisers already buying their services - and have sales forces to help those businesses with their online advertising - but their Web divisions lack the online traffic of the search giants.
Of those who are closest to putting all the pieces together, Mr. Polachek said Verizon "is moving in that direction."
The company's SuperPages.com site leads all online Yellow Pages sites, including the Yellow Pages directories of Yahoo and Time Warner's AOL.com in traffic, according to comScore.
Starting March 1, users of SuperPages will be able to perform general searches by typing in any keyword or phrase, rather than being limited to the precise business categories created by SuperPages.
According to Lester Chu, a Verizon vice president overseeing SuperPages.com, the company will also offer to let advertisers bid for placement and pay only for the ads that are clicked on. For $10 a month, SuperPages will monitor and automatically adjust an advertiser's bid like a proxy on a listing to ensure that the placement remains high on the search page. The SuperPages changes follow similar upgrades at Switchboard, an Internet Yellow Pages company, that earlier this month abandoned the category search in favor of keyword search. SBC's SmartPages.com site will follow suit in coming months, according to company executives.
Traditional Yellow Pages providers express doubt that local search advertising will take away from their traditional print business revenues. But Mr. Polachek of the Kelsey Group said those businesses may have good reason for worry.
"Publishers for a long time were skeptical that the Internet could hurt them," Mr. Polachek said. "But in the past year in particular, they've realized that if the Googles and Yahoos can pull it off, they're really at risk."
Posted on aef.com: February 19, 2004
Bob Tedeschi, The New York Times. February 16, 2004
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