According to the new eMarketer report, Local Online Advertising: Measuring the Potential, local online advertising remains more promise than fulfillment. With $1.3 billion in spending projected for 2006, only 7.9% of the total $16.7 billion in US Internet ad spending for the year, the sector still has plenty of room to grow.


Even when local online ad spending jumps by nearly 51% next year to $2.0 billion, it won’t be quite 10% of the overall 2007 online advertising spend estimate of $20.3 billion.

It’s true that the local online ad market is developing more slowly than some analysts originally expected, but change is coming.

"When local audiences, search engines and local advertisers fully converge in a union of research needs and marketing desires, the spending figures seen here will look as ancient and insignificant as total Internet ad spending data from the late 1990s now looks," says David Hallerman, eMarketer Senior Analyst and author of the report. "Since the vast majority of local advertising is aimed not at branding, but some kind of conversion (often away from the computer), search marketing could become the ideal channel for uniting individual with merchant."

Where local online ad growth does explode, paid search will be the prime force supporting it. Just as paid search contributes over 40% to the total US online ad spending market, so it is for local online advertising, where paid search provides over 55% of the local total.

"These are notable figures, especially when you factor in the relative immaturity of the local search market," says Mr. Hallerman. "In fact, more locally targeted search ads are served up on the main engines than on their local-tagged counterparts."

The next few years will see much livelier growth due to such factors as a critical mass of Internet users (with 69% now connect via broadband), more web publishers from the traditional media side — newspapers and TV stations — needing to recapture lost ad revenue and enhanced local advertising resources such as mapping from Google, Yahoo! and other providers.

"Still, never underestimate inertia and tradition when trying to gauge future paths for the local online ad market," warns Mr. Hallerman. "From the habits of yellow page directory and newspaper ad salespeople, who look to print’s profits more than the Internet’s, to the small business that has little time for new marketing methods, several concerns continue to check extensive advances of local online ad spending."

More here.