Search engines are aggressively trying to entice local advertisers with new initiatives. The findings in a new report from research firm Borrell Associates shed some light on the reason for that urgency. While local businesses as a whole are increasing their search-advertising spending, they are nevertheless largely unhappy with that option, the research firm says. Roughly half of the local businesses that buy search advertising direct from search engines abandon campaigns after a year. Churn rates among resellers and affiliates that buy search advertising on behalf of local businesses are even higher. (The WSJ puts the statistics in perspective, noting that churn rates for cellphone and cable companies are “a few percentage points per quarter.”)
It’s not that search engines haven’t been trying. Just last week, Google (NSDQ: GOOG) introduced an analytics dashboard that gives small businesses a better read on their local search traffic. But “the quick emergence of the multibillion-dollar paid-search industry has spawned unrealistic expectations among local businesses eager to turn the Web into a cash register,” the Borrell analysts write. Many small businesses don’t see return on investments from their ad spend, while others think that they are being ripped off by resellers. It’s unclear though just how much cash is being left behind. Borrell Associates, for instance, still expects search advertising spending by local businesses to reach $5.3 billion in 2013, up from $4.1 billion last year. But for search engines — and even sites like MySpace and MSN — that see local advertising as a still largely untapped market, the findings have to be cause for concern, considering that they imply that many businesses that might initially purchase ads won’t be in for the long haul.