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Overture tests local service

The Web search company experiments with a service that lets people type in a keyword along with city, state, street address or ZIP code to find businesses in their neighborhoods.

Commercial and Web search company Overture Services is zeroing in on its next conquest: local advertising.

The Pasadena, Calif.-based company is testing a local search service that lets people type in a keyword, along with city, state, street address or ZIP code, to receive sponsored and general search results for businesses located in their neighborhood. Overture unveiled the demo Web site last week. The local commercial ads are also being incorporated into Overture's search property, AltaVista.

Overture, which Yahoo will acquire later this year for about $1.7 billion, plans to launch the service in the fourth quarter, spokesman Jim Olson said.

"We think that local is a natural evolution of our traditional strength in the pay-for-performance search space by helping bring more powerful ways for local business and consumers to connect," Olson said.

Localized advertising is just one facet of Overture's strategy to generate more sales opportunities and compete against archrival Google. Overture estimates that local search Web advertising will be a $1 billion market by 2008. Still, that's a fraction of the $15 billion it projects for the overall pay-for-performance search market. The company has already introduced a contextual ad service, and it is working on a set of tools to analyze the effectiveness of search-related advertising, to debut later this year.

Google has not said whether it is developing local search advertising technology, but sources have said it is working on ways to personalize search that could include pinpointing a visitor's whereabouts. Google already lets people type in a query term with street address or ZIP code to get local results, but it has not incorporated local advertising.

Mountain View, Calif.-based Google is also building partnerships to get into local search advertising. In mid-July, Google teamed with Switchboard, a telephone directory site, in one of the first local ad deals for a major search player. Switchboard licensed Google's text-based ad service, AdSense, to serve up promotions that are tailored to specific pages. For example, an ad for a national pizza chain might appear to the side of a Web page that displays results for a local trattoria.

Yahoo, AltaVista and others have long catered to the local market with yellow pages directories, but they have yet to tap the enormous local advertising sector. Search companies often use technology to home in on a visitor's location by looking at his or her Internet Protocol address, from which they can usually determine country or region of origin. For example, a search company can detect that a visitor is located in the United Kingdom and deliver different results for the term "football" than it would if he were in the United States.

Safa Rashtchy, an analyst at U.S. Bancorp Piper Jaffray, said local advertising represents a big opportunity and a big challenge. Many local merchants have yet to come online, Rashtchy said, and a large sales force would be needed to educate and encourage retailers to advertise on the Net. "Convincing Joe's pizza to advertise online" is a tall order, Rashtchy said. "You have to get the word out, you have to be able to give incentives, and it will take some time."

Overture's Olson said the company is testing its local product with commercial promotions from among its 95,000 advertisers in pay-for-performance search. In these searches, advertisers bid for placement that's related to keywords. The advertiser with the highest bid appears at the top of a list of sponsored search results that relate to those queries. Advertisers pay only when visitors click on the link.

On a separate front, Overture is growing fast internationally. The company began operations in the Netherlands on Tuesday, and it plans to introduce search services in Scandinavia, Austria, Switzerland, Spain and Australia by the end of the year.