Piper Jaffrey recently put out a comprehensive paper on many things search and internet related entitled “The User Revolution: The New Advertising Ecosystem and The Rise of the Internet as a Mass Medium“. This 425 page report covers a wide variety of topics, but I’m going to concentrate here on those related to local search, and IYP.

Firstly the basics, 70% of Americans are now using the internet, with usage growing 18% per annum. The internet is now the second leading medium at home, behind TV, and is easily the leading medium at work. 82% of users are over 18, and they spend 88% of the total online minutes.

How pervasive is local search? Well, in response to how often users used different services, email came in at 100%, local search actually came in 2nd at 57.6%, ahead of Instant Messaging, online purchases, music downloads, blog reading / publishing, social networking, and the rest. Quite an amazing number really if it’s accurate, but does that mean that there isn’t that much room for growth? If the potential usage increase that can be had is slightly less than double, then is the market fairly saturated? Not by long shot, unlike a service such as IM, there is a large offline equivalent to local search, that can be migrated online and monetized (once a winning monetization strategy has been arrived at). So what do they consider to be the potential market for local search? Well, they have the current total local ad market (local search, IYP, and classifieds) at $4.489 billion dollars, which makes it 12% of the current offline spend of $37 billion. In their opinion online dollars in this area has the potential to reach 70% of offline spend, so the total potential that they show stands at around 2.59 bilion dollars. This shows that there’s clearly a lot of room for growth in this sector. Of course the next question is that of canibalization. Many offline publishers expressed concerns that moving online would chip away at their core offline business. According to this graphic, that isn’t happening. Instead the IYPs are expanding the overall market, without negatively affecting the print market which has remained fairly static.

So who are the top players in local search? Well, this paper has the answer to that too (and unfortunately none of the sites I work with are listed here… yet…). The interesting thing in this graphic is how far ahead of the rest Mapquest still is. When people talk about local search it tends to be forgotten, but it’s the clear leader right now. Idearc’s Superpages.com occupies third place, but they’ve been expanding their reach through deals with Google Maps, and more recently local.com.



What about different monetization methods for local? What does the report have to say about that?

The pay-per-call feature also offers a more familiar way for some local businesses to pay for search listings. We believe call-based interaction and tracking could ultimately account for 30%-50% of total local search listings.

Well, that’s good news for the company that I work for, given our current business model.

Now for the part of the report that I don’t agree with. They show a table that displays the effect of localization on search keyword process. In virtually every case, they show the price for the general nationwide term being less than that of the ‘local term’ version of the same keyword. They don’t define exactly what this means. This could be a national campaign that used “Chicago Dentist”, a campaign targeted to Chicago that targets “Dentist”, or a campaign targeted to Chicago that targets “Chicago Dentist”. To make the claim that this shows that localization is going to drive more revenue for the search engines because of this actually contradicts a statement made on the same page that the longer the tail of the search term, the lower the CPC. Surely “Chicago Dentist” is a longer tail phrase than “Dentist”? Plus, I can guarantee that once you get out of the top MSA’s, the CPC is going to be less than that for the ‘general term’, so to make a blanket statement based on data for 5 of the top MSA’s is misleading.

The data for the above was provided by Yahoo Search Marketing on January 26th, 2007, which means that it wasn’t too long before it was invalid, as one week later YSM implemented quality scores on their Panama engine, which changed the pricing scale on their system from a straight auction style to the Google-like system. Also if the data is to be believed, there’s a fantastic opportunity in that the top position for one of the most searched on terms on the internet for the last few years, as well as that for one of the most searched on terms so far this year, can apparently be purchased exceedingly cheaply…

(thanks to Greg Sterling for pointing the Piper Jaffrey paper out).