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Online ad sellers think local

Ads for mom-and-pop businesses could bring in billions of dollars for Net companies. But can they get the little guy to switch from print?

To many Internet companies, Dwin Ngo represents the future.

The owner of a Los Angeles day spa, Ngo has routinely spent thousands of dollars on print ads, each without concrete results. But recently, she found a better deal with Insider Pages, an online social network and reviewers' guide to services in the L.A. area: Ngo pays only $2 each time someone calls her spa for an appointment from an 800 number set up by the service.

"I would pick the Internet over print in a heartbeat, because of the cost," she said. "People who turn to the Internet are looking for you."


What's new:
Search engines and other Internet companies are working to cash in on the multibillion-dollar ad opportunity represented by small local businesses.

Bottom line:
Getting local businesses to switch from print to online advertising is a tough task.

More stories on this topic

Ngo is the promise and possible meal ticket of throngs of Internet companies that want to bring a chunk of the multibillion-dollar local ad business online. Unfortunately, for the time being, she is an anomaly among millions of U.S. merchants who lack the time or energy to master the game of Internet promotion.

Yet search engines and other Net companies remain committed to the prediction that small businesses are the key to advertising riches. The reason for their optimism is a matter of simple mathematics: They see a $60 billion annual revenue opportunity that could be funneled at least in part to the Internet, a projection based on the local merchant's average marketing budget of $6,000, multiplied by an estimated 10 million small businesses in the United States.

While only theoretical, those prospects have further inspired hopes for the lucrative search-engine marketing business, which is expected to reach between $4 billion and $5 billion this year.

"Once you get these small business customers to advertise online, it's going to be a billions-of-dollars shift," said Stuart McFarlane, chief executive of Pasadena, Calif.-based Insider Pages. "But the real challenge is, how do you bring in yellow-pages customers at a low enough cost to make it affordable?"

Search leaders Google and Yahoo have created largely self-service empires that let marketers bid for and place promotions next to search results, requiring advertisers to pay only when people click. The cost-effectiveness of search ads has attracted pioneering companies for years, but now marketers of all stripes are signing on, including national and international businesses.

Local advertising dollars, however, remain elusive. Google and Yahoo handle only a couple of hundred thousand local merchant ads, compared with the potential for tens of millions of customers, according to industry analysts.

"It's enormously difficult to get these small businesses to adopt Internet advertising," said Greg Sterling, an analyst at the Kelsey Group.

Small and medium-size businesses are typically stretched thin and, unlike national advertisers, rarely can afford to hire agencies to handle ongoing keyword auctions offered by search engines. Many small businesses know that the Internet could help them but have neither the time nor the inclination to go online, because of the medium's perceived complexity.

Still, analysts say, consumer behavior will drive change. Unlike the pervasive hype of the Web boom, Sterling said, "there's a reality now to the Internet that didn't exist before--consumers are doing research to find products and services."

"It's enormously difficult to get these small businesses to adopt Internet advertising."
--Greg Sterling
Analyst, Kelsey Group

Kelsey estimates that total sales of local digital advertising in 2004 were $670 million, with only $162 million coming from targeted search engine ads, $478 million from interactive yellow pages and $30 million from wireless campaigns. By 2009, the total is projected to balloon to $5 billion, with $3.4 billion sold by search engines and $1.3 billion from Internet yellow pages, and another $338 million from wireless carriers.

To take advantage of the opportunity, many companies have sprouted up, selling Internet Yellow Page listings and search traffic. "There's a whole patchwork of companies working to solve this problem that didn't exist a year ago," Sterling said.

Insider Pages, backed by Idealab, is just one of several such companies. It has two salespeople in Los Angeles who call businesses that have received positive customer reviews, offering them a flat rate for a top listing on its site, with the business owner paying only for phone leads. In the coming weeks, the company plans to begin service in San Francisco and Seattle.

Even if small merchants are receptive to advertising online, companies like Insider Pages face internal obstacles within their industry. Among yellow pages directories, for example, the "feet on the street" have long been reluctant to pitch the Web for fear of cannibalizing their print sales and handsome commissions. (Some print salespeople earn six figures annually.)

To counter that thinking, Verizon pays its roughly 3,000-member national sales team larger commissions for landing Web advertisers than for print customers, according to Eric Chandler, vice president of e-commerce marketing for Verizon's

"It's been a long transition to continue to get them focused more and more on the electronic side without impacting the print side. We don't want to pull from one to get the other," Chandler said. has operated since 1996, and Chandler said the division is profitable.

In recent years, local advertising has been touted as one of the most promising growth markets for search. Anticipating the trend, Google, Yahoo, Amazon and CitySearch have built tools to help consumers find local businesses.

Yahoo recently introduced a free Web site service for small businesses, hoping that its initial interaction with local merchants will make it easier to sell search ads and other premium services later. Yahoo has also teamed with SBC Communications, BellSouth and others to harness their local sales forces and promote simple, flat-rate search-engine marketing packages.

"We've made it painless and free," said Paul Levine, an executive who heads up Yahoo's initiatives in this area.

His counterpart at Google, Sukhinder Singh Cassidy, said the search leader is approaching the market by improving automation and tools for small businesses and by partnering with "high touch" companies such as BellSouth, SME Global and, which all have sales forces that encourage adoption of search ads.

"There are two challenges: How to sell to them if they're not coming to the front door and, second, how do you manage them?" she said. sells fixed-price and pay-per-click ads to appeal to a broad range of local advertisers. Chandler said the company tries to make the system as simple as possible, selling categories in which merchants can appear.

"Are you making money from Day One? No," he said. But he remains optimistic: "We feel like you can turn the corner pretty quickly if you can get a critical mass."