Google/Groupon Is Done, 'Local' Is Not

NEW YORK (TheStreet) -- Acquisition talks between Google(GOOG) and Groupon may have ended, but tech watchers should expect interest among local-oriented companies to linger.

Privately-held daily deal sites comprise just a fraction of the local business marketing sector, which includes business search engines, online advertising networks and small-cap local advertising stocks like Local.com(LOCM) and SuperMedia(SPMD).

While less visible than buzzing startups like Groupon rivals LivingSocial and Tippr, these local-oriented companies offer Internet giants Google, Microsoft(MSFT) and Amazon(AMZN) the same thing: Entry into a lucrative market.

"It's been the most dynamic time in terms of the interest in the space from strategic players as well as product innovation from existing players," said Court Cunningham, CEO of Yodle, a local online advertising company based in New York that builds websites and provides marketing services for small businesses.

Although small businesses have traditionally veered away from advertising online in favor of using the Yellow pages and classifieds in local newspapers, this trend is shifting. Local online advertising within the U.S. this year will account for 15% of the total advertising pie, and is expected to jump to 24% of the $145 billion market by 2014, according to consulting firm BIA/Kelsey.

While Google, Microsoft and Yahoo(YHOO) are eager to capture share of this burgeoning market, they lack a fundamental tool that successful local advertising requires: a dedicated sales team that works specifically with small businesses.

"Local requires human interaction," said Ron Burr, CEO of WebVisible, a local online advertising company based in Irvine, Calif. "That files in the face of what the Internet has always been about -- building businesses that reduce employee overhead."

"The people who can get ahold of small businesses and have a relationship with them while they're chopping up onions for Saturday night dinner -- those are the companies that will make money from them," added Peter Krasilovsky, an analyst at BIA/Kelsey.

Google likely wanted Groupon for its massive sales force and existing relationships with mom- and pop-sized shops. The daily coupon site has a sales and customer service team of more than 1,500 employees that deal with places like restaurants, nail salons and spas.

Google also hoped to leverage Groupon's sales team to encourage advertisers to list on its local business directory, Google Places, and have their listings highlighted in search results and maps.

Tech titans like Google are playing catch-up in the local space with social networking king Facebook, whose Places product allows small businesses to advertise their wares and lets users "check in" to nearby locations using their mobile phones, helping to boost awareness for their brand.

Facebook's push towards local, highly-targeted ads will generate more than $1 billion in advertising revenue this year, according to reports.

With so much at stake, investment in the local space isn't likely to die down anytime soon, said Yael Gavish, co-founder of Lifesta, a site that helps consumers sell their unused daily deal coupons. "Companies see the value in gaining a local sales force and growing that market for themselves," she said. "We think the deals we've seen so far are just the first in the game ... it's not over yet."

--Written by Olivia Oran in New York.

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