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2008 Market for Local Search Engine Ads: $2.5 Billion

Why the Google-BellSouth Yellow Pages Deal Happened

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NEW YORK (AdAge.com) -- Last week's agreement between Google and BellSouth's online Yellow Pages unit, RealPages.com, marks a new era of cooperation between two previously warring advertising competitors.

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Local merchants
The deal for BellSouth to distribute Google's AdWords paid search product to local businesses smoothes the road toward a more efficient Web directory for very local merchants in markets coast to coast. BellSouth will use Google's technology and its already-existing local search service. Google will use BellSouth's broad consumer reach.

Whether the pact will work remains to be seen. But it's well worth the risk, experts say, because the opportunities are massive.

'Search is changing'
There is a growing industry belief that consumers have now become so used to the Web and Google as a daily research tool that they are ready to use it to find what they need from their own local retailers. "It's obvious that the definition of search is changing," said Peter Hershberg, managing partner at search engine marketing firm Reprise Media.

There are 20 million small- and medium-sized businesses in the U.S., but they spend 46% of their advertising budgets on yellow pages advertising, and only 3% on search engine keywords, according to the Kelsey Group, a market research and consulting firm specializing in local advertising. Still, 61% of them see the Internet as an important marketing vehicle. And the local search market is the next great Internet frontier -- expected to grow from $1 billion in 2003 to $2.5 billion by 2008, according to Kelsey's research.

Google gets sales force
For Google, the deal provides a sales force of 1,900 glad-handing BellSouth foot soldiers who have a personal relationship with small companies in the nine states BellSouth services -- something that would take Google years to create on its own. BellSouth benefits from Google's technology to expedite searches. The search engine will provide training for the BellSouth sales people. The phone directory firm also enjoys the fact that Google is a household word and consumers are much more likely to conduct a search at Google's site than at any single yellow pages site.

"This is the perfect product for this market right now," said Greg Sterling, analyst for the Kelsey Group. "They came together and recognized the missing pieces of each other's offering."

Consumers are more than ready to conduct searches for products and services close to home. A BizRate-Kelsey survey of 3,900 consumers sophisticated about online use showed that 20% of them had conducted local searches. Partly because of the growth of broadband, and partly because searching online has become inculcated in the national consciousness, consumers now think of turning to the Internet when they're in the market for just about anything.

Most small businesses, on the other hand, are technologically still in the rotary telephone era. Although 98% of BellSouth's network of 600,000 advertisers know Google, only 50% of them have Web sites, according to Laurie Scholl, director of marketing for Realpages.com. So the yellow pages provider is now offering to build Web sites for those merchants that need them, to take advantage of Google's popularity as a search engine.

Keywords managed for ad clients
BellSouth will also take advantage of its relationship with the local market to provide search strategy advice, even going so far as to write site titles and descriptions, identifying appropriate keywords and managing those keywords each month. That's a far cry from Google's automated template, which Google search clients must manipulate themselves.

Such hand-holding is crucial, search consultants say. "The problem with local search has been that your average plumber or florist in Tuscaloosa doesn't have the Web savvy to reach out to Google," said Andrew Wetzler, president of search engine marketing firm MoreVisibility.

More important, the Google and BellSouth deal changed the payment model so it better suited local shops. The pay-per-click model that Google uses is unpopular with small outfits because it is difficult to predict click-through traffic, so monthly ad expenditures could vary widely. To address that, the partners offer customers a click bundle, allowing them to purchase a maximum number of clicks each month for a set fee ranging from $80 to $400.

"It's being marketed in an easy-to-buy package," said Sukhinder Singh, general manager for local and third-party relationships. "We believe we can reach a further segment we are not reaching today."

New promotional campaigns
Marketing will be handled by BellSouth through its ad agency, WestWayne, and the online agency Breathe Interactive. Google will contribute marketing dollars and lend its brand name, Ms. Singh said. But the general marketing thrust, which is expected to include print, radio, TV, billboards, online and direct, will be to BellSouth customers under the BellSouth brand.

It is wise for BellSouth to seal this deal now, Mr. Sterling said. "Yellow pages usage is either flat or in decline -- there may be a long-term impact on yellow pages revenue. If they don't do [a deal like this], they risk someone else doing it."

For Google, besides reaching a market it couldn't yet touch, the BellSouth deal will help the search engine during this post-IPO period to expand its pool of advertisers. "One good way of doing that is to reach local advertisers," said Gary Stein, senior analyst for online advertising at Jupiter Research.

Google also has to move its brand beyond the clean, quick delivery of results -- providing enough for consumers to do that they will want to spend some time on Google's pages. "So the Google name will connote quality, efficiency and reliability and it's more than search," said Greg Smith, director of media practice at Carat Interactive.

Others jockeying toward same space
Other directories like Dex Media and Verizon are jockeying for position in the local space. And Yahoo's search unit, Overture is in discussion with yellow pages distributors, said Gaude Paez, manager of communications at Overture, although none have signed deals yet.

A lot of the challenge is whether the new-media way of advertising can be translated to buyers of old-media advertising. "The only way you'll ever be successful selling to local businesses is if you can sell it to them over the hood of a car," Mr. Wetzler said.

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