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Classifieds dominate local ads growth online

Online local ad spending is expected to rise 26 percent this year, but much of it will come from classifieds, Jupiter says.

Online local ad spending in the U.S. is expected to see steady growth in 2005, but will be dominated by classifieds, a new study has shown.

Local ad sales on the Net will rise 26 percent to $3.2 billion in 2005, according to a JupiterResearch report released Wednesday. The rest of the decade should see 11 percent compound annual growth, up to $5.3 billion. Approximately 70 percent of that revenue will come from classifieds.

"Outside of classifieds, local ad spending online remains relatively immature," JupiterResearch analyst David Card said in a statement. For online publishers and networks, better opportunities lie in national advertisers that target local audiences rather than local businesses, Card said.

Many online giants such as Microsoft's MSN and Google are betting their money on local search services, which has been a limited market so far, JupiterResearch says. According to the market researcher, the segment accounted for 16 percent of the total market in 2004, followed by local display ads, which had 5 percent share.

Microsoft, Google and others have been testing new features to bolster that market, including satellite image tools that can link the local ads they display on Web sites to satellite maps so that a customer can be easily directed to the doorstep of a listed business.

But it will still be an uphill battle for those services that aim to sell online ads to local businesses. The pay-per-click model may not make much sense for smaller businesses, and online local services will need to find ad models that are more in tune with those needs, Jupiter said.