TCS - The Internet Gets Local

The Internet Gets Local

by Mike Hogan, CEO
ZiXXo Inc.
Local Bargains Online
From the January, 2005 issue of the I/O Port Newsletter

The 'www' in web addresses refers to the World Wide Web, however the hottest market on the Internet today isn't worldwide, it's all about being local. The initial appeal of the Internet was how it enabled anyone with a webserver to establish an instant worldwide presence. Yahoo, Google, Hotmail and a number of other companies took advantage of this, creating worldwide audiences. Now some of the largest Internet companies, and some hot start-ups, are taking a decidedly local focus.

Think Globally, Act Locally

Usually that phrase is applied to environmental issues, yet it also applies to the Internet. If you are looking for information, a worldwide Internet is great. For example, if you need to find the lyrics to that new song that is stuck in your head, a worldwide Internet is great. But if you want to take action, like finding a job, selling your car, finding someone to rideshare with, or even finding that someone special...you want to act locally. In fact, while the vast majority of Internet searches are purely informational, a study by The Kelsey Group and BizRate found that 45% of all local searches are performed by people looking to buy something.

The market for local Internet advertising is currently valued at $1 Billion and it is expected to grow to $5 Billion by 2008. At the same time, newspapers earned $15.8 Billion last year selling local classified ads; and yellow pages vendors earned $14.9 Billion selling local directory ads. Yet classified ads and directories are far more efficient online. This has combined to create a new Internet gold rush to address the burgeoning local markets.

Search Engines Look for Local Gold

Search engine companies such as Google, Yahoo and AskJeeves have begun building geographical awareness into local versions of their search engines. If you're looking for a local business like a bicycle shop in Davis, CA, these local search engines can help. But if you're looking to sell a used bike, or you want to find someone to bicycle with in Davis, you're out of luck.

The search engine companies have taken an outside-in approach. They reside outside of the local communities looking inward to find local information. The search engines hope to sell ads to local vendors that are displayed alongside the search results, just as they have done on a national basis-a process known as search engine marketing.

In their quest to extend their Internet dominance locally, search engine companies face two very significant challenges. First, the small to medium sized businesses that comprise the bulk of these local companies generally have no online presence. Since search engine marketing is built upon redirecting Internet users to the advertiser's website, it simply doesn't work without a web presence; there's no website for the user to click to.

Secondly, these small to medium sized businesses typically don't have the in-house expertise necessary to master the technical and marketing issues behind search engine marketing. As a result, the search engine companies need to establish local representation to sell the concept of paid search and then to help the companies implement these solutions.

Local Communities Complement Search Engine Marketing

While the search engines take an outside-in approach of finding local information, local community websites, like Craigslist, complement this with an inside-out model. These web communities provide local residents with the tools to interact with one another. In the process, these residents create a tremendous amount of valuable information. This is the type of information that the users of localized search engines want. Search engines and local community websites are very complimentary, like peanut butter and chocolate, in addressing local markets.

Craigslist, a popular early implementation of the local community, is now straining under the weight of its popularity. While the largest Internet companies were busy establishing their global dominance, Craigslist evolved into a quirky local free classified ad website in the San Francisco area. It has since grown into a collection of free classified ad websites covering 58 U.S. cities. This local Internet solution, which began as a hobby, has now become a big business. If you need proof of this, consider that eBay recently bought 25% of Craigslist.

Craigslist relies upon a simple posting model. You select a category and post your free classified ad. While this is very simple, it doesn't provide the context necessary to search effectively. For example, searching the cars & trucks section of Craigslist for "1988 Acura Integra" yielded results that included a Mercedes Benz, some used Honda parts and all kinds of things that didn't fit my search criteria.

Without an efficient search mechanism, users are forced to read all of the newest ads to find what they want. This can be very time-consuming. It is also problematic from the advertiser's perspective. There are so many new ads posted each day, that in order to keep your ad fresh and keep it in front of readers, you need to post the same ad every day or two until you sell the item. Craigslist is a simple local community website, but it can be very time-consuming to use.

A new company called ZiXXo has recently launched a similar service in over 100 U.S. cities. The Tulsa site is http://tulsa.zixxo.com/. ZiXXo provides free classified ads that use best-of-breed forms for most of its categories. These forms guide the user in creating their ad, ensuring that it includes all of the relevant information. The buyer can then search by field. To search for a 1988 Acura Integra, simply open the search form for used cars and enter "1988" in the year field, "Acura" in the make field and "Integra" in the model field. This search finds only exact matches.

Unlike other supposedly free classified ad sites, ZiXXo doesn't charge users to make their headlines bold, to ad pictures, or anything like that. There are simply no charges at all. In fact, the company raffles off digital cameras or Apple iPods every week to users of the site. ZiXXo makes money by selling printable coupons to local vendors. Users of the site can find, print and redeem these coupons locally. ZiXXo relies upon local individuals to sell these coupons, paying them a commission for each sale.

The Local Internet Market is Still Young

While the Internet upstarts attempt to redefine local advertising, the demise of the current leaders in local advertising-newspapers and publishers of yellow pages-has been greatly exaggerated. With about $33 Billion in revenue between them, they are developing, buying and partnering to defend their local turf as it moves online. For example, newspapers are offering online classified ads to complement their print editions. Some are also offering local auctions to fend off eBay's encroachment. The yellow pages are also active moving their directories online, so that they too can offer businesses a package that includes both online and offline advertising. In fact, BellSouth, owner of yellow pages publisher RealPages, partnered with Google to combine search engine marketing with online and offline yellow pages advertising.

It will be very interesting to see how the local Internet evolves over the coming years. It's hard to tell now which companies will come out as the big winners, but if the analysts projections hold true and local Internet advertising grows from $1 Billion this year to $5 billion in 2008, there will no doubt be some big winners.



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Tulsa Computer Society 1/01/2005
Don Singleton, President