Street smart: the internet's search engines find the highest value lies in going local

By Richard Waters
Published: July 27 2005 03:00 | Last updated: July 27 2005 03:00

The Yellow Pages were never like this. Starting from space, you zoom in for a bird's eye view of your neighbourhood. Enter a request - to find a pizzeria, say - and the satellite photograph becomes an interactive map showing choices nearby.

Find out online what your friends (and their friends) thought of a restaurant. Look at today's menu and find the easiest way to drive there. One more click confirms the reservation - unless an advertisement from a rival eatery has drawn your attention elsewhere. The internet is going local.

City by city, street by street, the world wide web is being turned into an interactive repository of the sort of deep local knowledge it once took a lifetime to amass. In the process, it is starting to pose a threat to one of the biggest and most fragmented media markets in the world.

"The goal is to provide a much more comprehensive experience than has historically been possible," says Sukhinder Singh, the executive in charge of Google Local, one of the ­latest ventures by the search engine company. "We've only just begun."

Typically, when people have wanted to find out what is going on in their neighbourhood, they have relied on personal contacts or turned to one of two sources: the Yellow Pages or the local newspaper. That impulse has supported an advertising market that looks remarkably similar in nature the world over.

In the US alone, advertising in the Yellow Pages amounted to $15bn last year, according to The Kelsey Group, a US research company. Classified advertising in newspapers came to another $16.6bn. Add in local newspaper display advertising and these print media drew more than half the $92bn spent on advertising local goods and services.

As in many other corners of the media business, these strongholds of revenue are under attack. The biggest internet companies are luring local residents and merchants with powerful, often free, technologies that are in effect turning their websites into giant online community centres. "We're really focused on gearing up our website as a platform, a stage, for consumers and merchants and [software] developers to build on," says Paul Levine, general manager of Yahoo Local.

An estimated one in every four queries made on internet search engines involves a hunt for local information - a proportion that is expected to grow. Searches for local commercial information are likely to increase by around 33 per cent a year for the rest of this decade, while use of the printed Yellow Pages dwindles by 4 per cent annually, according to Kelsey. Where consumers go, advertisers are sure to follow.

More than a decade after browsers turned the web into a tool for ordinary users, many people have become familiar with looking online when making buying decisions. The biggest categories of local advertising - jobs, cars and housing - already support a host of specialised, or "vertical", websites, many of them catering to limited ­geographical areas.

The web, however, is undergoing a big overhaul. As broadband and wireless networks make internet access more immediate, browsers, e-mail and instant messaging are being supplemented by a new range of technologies. The local media markets are the focus of some of the most intense innovation.

Part of this is due to the advertising market created by the Google and Yahoo search engines. This is prompting the biggest internet companies to pour money into creating the better algorithms, broader indexes of "content" and more appealing user interfaces needed to win a larger share of the local audience. A technology race is under way that is bringing unexpected visual treats for web users (see below).

As with much else on today's internet, this has a lot to do with searching. The rise of Google - and, in its wake, Yahoo and Microsoft's MSN - has turned the simple search box into the gateway through which users expect everything to be available. A rising tide of local information sources on the web, from newspapers to institutions such as schools, has played to the strength of the search engines. "When people are unfamiliar with the sources of information, they tend to go to a search engine first," says Greg Sterling, an analyst at Kelsey.

The power of search to stimulate local commerce has been amply demonstrated by eBay. While the auction site remains mainly national in scope, users are buying and selling cars - largely a local market - at a worldwide rate of more than $1bn a month. Across the range of products on offer, eBay has more listings on its site than all the printed newspapers in the US combined, according to Morgan Stanley, and has produced a search engine of its own to point buyers to the right goods. Meg Whitman, chief executive, said last week that the number of searches carried out on eBay's site "puts us on a par with Google".

The world's local information is part of the internet's "long tail" - the vast body of highly specialised products or information for which demand is limited but which in aggregate makes up a large share of all online activity. This specialised information is more highly valued than any other, producing the internet's clearest measure of commercial success: the "click-throughs" by people looking at related ads. "The more specific the search query, the higher the conversion rate," says Mr Sterling. Searches for a restaurant or a doctor in a particular neighbourhood "are proxies for user intent", he adds:

a clear sign of what a consumer plans to do.

While search engines have become the focus of much of the wave of innovation that is taking place on the web, they are only part of the story. Another familiar characteristic of the internet - its ability to create communities out of groups of people with shared interests - is also being subjected to a burst of innovation with big implications for local media. This is largely the product of two tools - blogging and social networking.

The number of web log authors in the US alone is almost 14m, according to Technorati, a blog search engine. What better, or cheaper, source of expertise on any given local matter than the online ruminations of people with the most direct experience of it? "A user's opinion of a hospital, a school or a hiking trail" can be invaluable to others online, says Ms Singh at Google.

Adding to this "user-generated content" are the photo-sharing sites where people make their personal pictures available for all to see - and for search engines to scan. Provided that the pictures have been labelled with a geographic location, they could become part of a vast online visual archive.

Social networking technology, meanwhile, creates online links among groups of friends and, through them, friends of friends. By tapping an online network such as this, it may become easier to draw on the knowledge and opinions of a wider group while still having some assurance that the sources are trustworthy.

"Next time you're searching for a good seafood restaurant, you could see what anyone in your extended network thinks about it," says Mr Levine at Yahoo. "People are experts on any number of things - but so much of that is in people's heads and word-of-mouth, not written down."

How to encourage users to commit more of their personal knowledge to the internet, and how to capture it in a form that makes it searchable by a wider audience, are the subject of scrutiny at the big internet companies. Little of the personal and local "content" yet exists in searchable form. Experimental online tools designed to harness this information are just starting to become available.

Yahoo 360, for instance, is a kind of online scrapbook where users can store much of their personal information, communicate with friends and tap into wider social networks. By connecting tools like this with the power of web search, Yahoo and others hope to ­create databases of local expertise and information that only an interactive medium such as the internet could ­produce.

That interactivity applies to advertisers too. Google and Yahoo, which run the biggest online ad networks, have created a self-service system that lets advertisers bid over the web for advertising space on their search engine sites. For the small businesses that account for a large slice of local advertising, however, this requires close involvement in a new and sometimes confusing medium - something that Yellow Pages companies, which maintain large sales forces and personal links with small businesses, are quick to point out.

"Most of our customers have an eight-to-six job already," says Eddie Cheng, president of Yell.com, the online arm of the UK's Yell, a Yellow Pages company. "They have no interest in sitting in front of a PC managing their advertising budget."

While use of the printed Yellow Pages has slipped, the directory companies' main asset remains intact: what Justin Osmer, product manager of MSN's local search service, calls

"their unique relationships with local merchants". The strong cash flow from those advertising relationships has made Yellow Pages companies a favourite target of corporate acquisition, with Yell expanding across the US and private equity firms last year ­buying the global directories business of VNU, the Dutch information and media group.

Still, the fast-growing online traffic figures - particularly for search engines - and the rapid growth of search engine advertising suggest that the benefits to consumers and merchants alike are real. This has led to an uneasy partnership between the old and new media.

Local newspaper and Yellow Pages companies have in general been prepared to make news and listings available to the search engines, tapping into a potentially big source of online traffic. "They're trying to give their advertisers wider reach and more leads," says Ms Singh, who calls the relationship natural. "Yell.com is happy to supply the listings for Google's search service in the UK, says Mr Cheng: this brings some Google visitors to Yell's website and is preferable to the sort of pay-for-traffic deals that characterised earlier days of the internet, when his company paid portals for the users they generated.

At the same time, though, local media have invested in their own web tools in an attempt to draw visitors directly. In some cases, this has led to outright competition. Telstra, the Australian telecommunications company, does not make its listings publicly searchable: instead, it reserves the information for its own search engine, called Sensis.

Specialised search services such as this may not have the brand power of the biggest names on the internet but make up for it by giving users a more tailored experience and advertisers higher returns, according to a Sensis executive.

"Most of the search engines are being run out of California," adds Mr Cheng at Yell.com. "They're building something that's global: we specialise in the UK." Success in the local media business, he says, "isn't just having the algorithms to crawl more and more tera­bytes of data". The Yellow Pages groups, Mr Levine at Yahoo responds, "have a good sales force but relatively weak brand and presence" on the web.

For now, that points to a partnership of convenience between old and new media. But as the global brand power and technological resources of the leading US internet companies are brought to bear on local media markets around the world, deciding where to go for dinner may not be the same again.