February 25, 2011 10:08 pm

Silicon Valley goes local as it pursues small business

When Google employee Kiley McEvoy realised that the owner of his favourite coffee shop in San Francisco did not have an e-mail address – let alone understand how to buy ads on Google – he offered to walk her through it. He and a couple of colleagues then did the same for an Italian restaurant, a hair salon, and two dozen other small, local businesses that had otherwise ignored Google’s complicated self-service advertising system.

That started a year and a half ago, when most average people still were not bothering with online advertising, and big internet groups such as Google and Facebook were too busy with national clients to talk them into it. But the recent craze in daily deals websites, such as Groupon and LivingSocial, and the rise of mobile applications, has proved to small businesses that an online presence does drive in-store traffic. And now that the little guys are willing to spend, the big guys in Silicon Valley are competing for their attention.

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“They see small business as a vast sea of opportunity,” says Greg Sterling, senior analyst with Opus Research. “But they want to align what they’re offering with the needs and capabilities of small businesses.”

While Google, Facebook, local review site Yelp, and even Virgin, have launched their own daily deal offerings, they are scrambling to revamp their local advertising efforts, developing tools that simplify the online purchasing system and building sales teams that will market to local shops.

“Local merchants don’t come to you, you have to go get them,” says Zorik Gordon, chief executive at ReachLocal, a group that helps small businesses navigate and manage the web of online advertising options.

Just a few years ago, small businesses spent $96bn on local advertising – only 4 per cent of that was for online advertising, the rest went to TV and radio spots and print ads, despite the fact that 50 per cent of media consumption was done online, according to a 2009 report from Forrester Research. Now analysts estimate the local online ads market could be worth more than $35bn by 2014, according to the Kelsey Group.

“We are and will start experimenting with reaching out to smaller businesses,” says Emily White, Facebook’s director of local strategy. She says the company will make it easier to buy ads, create business profiles and develop new functions that blend social connections with local commerce.

“You can potentially walk into a bar, and the bartender knows you’re there and automatically serves up your favourite drink, then tells you three of your friends are there playing pool in the back,” she says. “It’s a hyper-personalised, hyper-localised view of the world that, frankly, is not that far away.”

Google has made significant advances in the local ad market with new tools such as Boost, launched in January, which simplifies the ad-buying process, and Tags, launched last summer, which allows businesses to attach a short message, link, or coupon to their Google Maps listing. The company is also using its new consumer review feature, Hotpot, to court small, local businesses.

Starting in Portland, Oregon, in December and then Austin, Texas, this month, Google is delivering marketing kits to local businesses, including “Recommended on Google” stickers for shop windows. The stickers include an NFC chip (near field communication is a short-range wireless technology that allows data to be swapped between devices) or a 2-D barcode that shoppers can scan with their smartphone for immediate access to the business’s Hotpot reviews.

The hope, says Carter Maslan, Google’s director of local search, is that the effort will not only improve local search results for users, but will also demonstrate the value of Google search metrics so small businesses will eventually sign up for Places, Boost, Tags, and the AdWords service, where they pay for their information to appear in search results. “We’re hoping to turn them into stat-tracking businesses,” Mr Maslan says.

Silicon Valley companies are also taking advantage of mobile capabilities to expand deeper into local markets. In January, Yelp introduced the ability to make restaurant reservations directly through its mobile app. Google’s Android system can generate local results to product searches that match the GPS location of the phone.

Last December, Ebay, the online auction site, acquired local shopping engine Milo and its collection of inventory data from local merchants without an online presence, and combined that with Red Laser, a smartphone app Ebay bought last year that allows users to scan bar codes to bring up prices for the same product at nearby retailers.

NFC chips in mobile phones are expected to play a growing role in local payments and loyalty deals. And, as the battle over local marketing intensifies, companies will continue to develop new tools that highlight their products.

Mark Carges, Ebay’s chief technology officer, highlights consumers’ tendency to spend more and buy impulsively when using mobile and tablet apps on the move. “People will buy Ferraris with a thumb on their phone.”

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