Looking online for local customers

The upholstery business was starting to look a little threadbare. Search engines helped restore the luster.

Sales at Michael’s Custom Built Inc. in San Rafael, Calif., were on a steady decline a few years ago. Owner Michael Jimenez blamed the growing popularity of inexpensive furniture that’s cheaper to replace than reupholster. The second-generation craftsman wondered whether he was tethered to a dying profession.

That changed in 2004, when a client suggested that he try “keyword advertising” on search engines. Jimenez signed up with Google Inc., then Yahoo Inc., and ads for his website began appearing alongside search queries for terms related to upholstery in Northern California.

Business was up 20% last year and is expanding at a similar pace in 2006, Jimenez said.

“We’re getting e-mails from the whole Bay Area asking us to bid on work,” he said.

The old-fashioned Yellow Pages are still the most common setting for ads placed by small and medium-sized businesses, according to research firm Kelsey Group. But locally oriented online ads are an increasingly popular tool for plumbers, hair salons, real estate agents and other businesses to land new customers.

Among the competitors to print publications are search engines that offer geographically targeted ads, Internet Yellow Pages sites such as SuperPages, local Web portals such as those operated by Citysearch, and specialty websites such as ServiceMagic.com.

“What the Internet has done is broken the lock that the traditional media had on the consumer,” said Greg Sterling, founding principal of Sterling Market Intelligence, a local-media consulting and research firm.

That’s why small companies are following bigger ones into online advertising, according to research firm Borrell Associates Inc. Revenue from locally focused online ads rose 78% last year to $4.8 billion and is expected to jump to $5.8 billion this year. Twenty percent of last year’s growth came from local advertisers experimenting with search engine ads.

Overall, online advertising generated $12.5 billion in revenue in 2005, according to the Interactive Advertising Bureau. More than $5.1 billion, or 41% of those dollars, paid for search-related ads, up from $3.9 billion in 2004.

The Internet giants see an opportunity in connecting customers with bricks-and-mortar businesses in their local markets.

After all, only 5% of small businesses surveyed by Kelsey Group last year employed search ads targeting specific localities. And only 23% said they were at least somewhat likely to start using them within the next year.

Consumers, however, haven’t held back, with 39% of those surveyed in February saying they used search engines for local shopping. Thirty-six percent said they used print Yellow Pages for local shopping, down from 51% in 2003.

Search engine giants such as Google, Yahoo and Microsoft Corp. are investing heavily in ways to make it easier for small businesses to appear online, in free listings as well as paid ads.

All businesses in local phone directories are included in the search engines’ basic listings at no charge. Marketing experts say a small-business owner should spend a few hours making sure the search engines have up-to-date information on the company, such as its business category, accepted payment methods and Web address.

Some search engines and online directories also offer enhanced listings for a fee. For example, Melanee Thai Restaurant, on West Pico Boulevard, comes up when Yahoo users do queries for “Thai food Beverly Hills.” The restaurant pays Yahoo $9.95 a month to display standard information plus a biography of its chef, a menu, coupons and photos of dishes.

“It used to be you were competing with everyone on the general search engine,” said Thomas Mix, who built the Melanee Thai website. “Now it’s localized, so your nearest competitor got a lot nearer. If they’re in [the search engines] and you’re not, you’re going to lose business.”

The search engines use other ways to figure out where an Internet user is, including registration information and “geolocation” technology, which links the numerical Internet address of the computer to its approximate geographical area.

The more localized the search results, the more “sponsored links” -- ads that appear alongside regular results -- can be sold by the search engine. The advertiser pays only when someone clicks on its sponsored link.

Still, there are problems with search engines.

One concern is “click fraud” -- clicking on competitors’ ads to drain their advertising budgets, or clicking on ads placed by a search engine on one’s own site to artificially boost revenue. Estimates of the extent of click fraud vary widely. A recent study by Click Forensics Inc. estimates that 12% of all advertising clicks on Yahoo and Google are fraudulent.

And compared with print advertising, “the online stuff is a bit more mysterious,” Kelsey Group analyst Neal Polachek said.

A business owner must answer these questions at a minimum: How much should I spend a month? Which search queries should I target? Which sites should I advertise on?

The difficulty has spawned a cottage industry of companies like Encino-based ReachLocal Inc., which helps businesses advertise online more efficiently.

“If you’re a dentist, you’re running your business,” said Michael Kline, ReachLocal’s co-founder and chief operating officer. “You’re not going to have the time to figure out how to do keywords on Google.”

For example, Lewis Co., a Los Angeles copier sales and repair shop founded in 1936, isn’t exactly on the cutting edge. The first time owner Ralph Loeff talked with his ReachLocal account executive, Allison DeFatta, he was tapping away on a typewriter as she explained how search-engine ads work.

But now users of Google and SuperPages.com who type in “copier sales Los Angeles” or similar language will probably see an ad linking to the Lewis site on ReachLocal.

Loeff has stopped advertising in the print Yellow Pages and instead pays about $300 a month for search engine ads.

The bottom line, he said, is that “I’ve got a lot of customers I never would have had if I didn’t have the Internet.”