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Right now, newspaper bosses might be celebrating the BBC’s promise to rein in its internet offerings, but they face a much bigger fight with more fearsome foes just around the corner.

The regional press has already stared down online challengers to its lucrative classifieds business, retaining market share despite the success of auctions giant eBay and recruitment sites such as Monster.

But now, with cashed-up competitors Google, Yahoo! and Microsoft committing to local search, regional newspapers risk losing millions of pounds-worth of advertising from small businesses such as restaurants and plumbers. Not only are the search giants reaching new audiences, they are also offering more measurable return on investment for advertisers, according to some agencies.

New battle for advertising A US report by the Neil Budde Group and Advanced Interactive Media Group, titled The GeoGoogle Threat, argues that local search poses a “new battle for advertising that may make the Monster.com versus newspapers fight look like a relatively minor skirmish”.

Earlier this month, BBC Online announced it would axe five websites in response to the Graf report, which instructed the broadcaster to increase its collaboration with regional publishers. But there is little that newspaper bosses can do about global internet players using technology to encroach on local markets.

Paid search advertising – the text-based sponsored links down the side of search result pages – has grown 174% to more than $2.5bn in 2003, according to the Budde report. Now the internet giants are taking their search functions local and are likely to upset established business models with powerful search technology and pay-per-click payment options.

Yahoo! UK is expanding its local search capabilities through a partnership with directories business Thomson and plans to add more functionality, such as map access, in the near future.

Meanwhile, Google’s local search offering, while still in beta, has shifted from an obscure area of the Google Labs site to the main Google site.

Locally, there is Yell.com which has added a new keywordbased tool called “super search” that matches search terms to advertisers’ products as well as their websites.

But potentially the biggest threat of all is Microsoft, which, although late to the search game, is making up for lost time with a $100m investment. For now, its focus is general search but a local search offering is likely not far away.

Threat and an opportunity

Researcher Neil Budde told Media Week that the rise of local search was “both a threat and an opportunity” for regional newspapers.

“There is a threat that people are turning to local search engines to find local businesses in increasing numbers and, as those services get better, more advertisers are going to migrate to those kind of services and away from more generalised content, like news,” Budde says.

“Part of what’s a threat to newspapers in this kind of market is that more of it is based on performance, either on clicks or on other forms of measuring how someone responds to an ad.”

The opportunity lay in the ability of newspapers to use local knowledge to attract an online audience to their own brands.

Patrik Oqvist, head of marketing search for Yahoo! in Europe, says the company considers local search a growth area and has dedicated a team of editors and surfers to ensuring the best possible UK experience.

The relationship with Thomson means that typing in “plumber” and “Guildford” generates local listings for plumbers in Guildford.

“I guess it’s natural that we want to draw battle lines, but in actual fact, what we’re seeing is potentially a whole new audience that tends perhaps to read less local newspapers,” Oqvist says.

“Perhaps it’s not such a direct plus and minus equation.”

He argues that the ability to directly measure return on investment from online spending will make advertisers comfortable to increase their marketing budgets, thus growing the pie for both newspapers and online companies.

But PHD Spacestation media director John Prentice says search is already taking money from other areas and there was little evidence to suggest the pie was growing.

“By and large, we don’t see it at such micro-level – these are the guys that would be dealing direct with their local newspaper,” Prentice says.

“However, advertising budgets as a whole have been impacted for our larger national clients in that money has been taken out of other media to go into search, but I wouldn’t say it’s specifically been taken out of local press.”

Prentice says online advertising offers much greater accountability, in terms of measuring return on investment, than traditional media.

“You can do as much testing as you like but it’s often very difficult to isolate the impacts of different media, whereas with online it’s a key advantage,” he says.

Budde says the performancebased model will permeate all forms of advertising. He notes that while the internet is used for branding campaigns as well as direct response advertising, clients still use the technology to measure the response rate.

But newspapers are committed to competing on the web and they won’t take the challenge lying down.

Partly as a defensive move, regional press bosses have invested heavily in the internet in recent years, with some impressive results.

For example, in web-based recruitment, online specialists hold about 65% of the market, according to 2003 figures from the Advertising Association. But regional newspapers enjoyed 48.2% growth in revenue to £24m, finishing the year with a respectable 30% of the market, excluding revenue from regional press-owned jobs site Fish4jobs, which is lumped in with the online specialists. Meanwhile, national newspapers hold only 5% of the online recruitment market.

Fish4 is a joint venture between four of the UK’s largest regional newspaper groups, Newsquest Media Group, Northcliffe Newspapers Group, Trinity Mirror and Guardian Media Group Regional Newspapers.

Fish4 chief executive Jonathan Turpin says the site combines classified advertising for jobs, cars and homes for about 60% of the circulation of UK regional newspapers.

He says search engines and directory businesses such as Yellow Pages are great for people actively searching for a product or a service, but there is a complementary role for the online offerings of regional newspapers.

“Take the job marketplace,” Turpin says. “What our newspaper groups do is put jobs advertising on their local news and information sites and it reaches an audience that isn’t necessarily looking for a job.

“But we get very good response to those ads because it’s in front of the right local audience and they attract people who might be quite happy in their job and not actually actively searching but who are absolutely a good passive target market for the advertisers.”

Turpin says people are using the web instead of newspapers for some things – certain types of classified advertising, for example – but the print product will ultimately survive because it is a more flexible format.

Manchester Evening News managing director David Benjamin agrees, arguing that newspapers are both more convenient and more credible than many online alternatives.

Benjamin concedes that the print media is fragmenting due to the additional competition but says the challenge for his company is to remain front of mind for its target audience, whether online or off.

“We’re very much embracing the concept of online audience and online content because we believe it’s complementary to a newspaper,” Benjamin says.

Budde says it remains to be seen whether the global internet giants will win the battle for local search. Google and Yahoo! have the advantage of customer loyalty – in a US survey by IProspect, 57% of users reported using the same search engine or directory.

Only 13% said they used different search engines for different types of searches.

Up in the air

But Budde says regional newspapers and Yellow Pages directories have the advantage of local knowledge.

“I think it’s still a little bit up in the air as to what users are going to prefer,” Budde says. “If they get comfortable going to Google, Yahoo! or MSN and they come along and offer something that’s good and also solves a problem in finding a local merchant, it’s going to be hard to beat.

“On the other hand, if you build something that really helps people find what they’re looking for in a local community and uses local knowledge, I don’t think you’re ever going to get that from the big players.”

Local search is clearly a reality and newspapers need to respond if they are to remain relevant and viable in the coming age.

As revenues for the print product shrink, newspapers need to morph into multimedia businesses and fight the internet specialists on their own ground.

It will take a great deal of strength and cunning to take on the likes of Google, Microsoft and Yahoo! but, with the right technology, the right partnerships, and the right business models, it can be done.

The rise of the search giants

What the big search players are throwing at local competitors:

Yahoo!

Purchased search specialist Overture in July last year, positioning itself as the largest internet advertising company in the world Signed deal with directory business Thomson for local search in the UK at end of last year and plans to add more functionality, such as maps Yahoo!’s marketing services revenue (which includes search) has grown 215% year on year

Google

Preparing for an initial public offering, which could raise $2.7bn more Promoted Google Local to main website but still in beta Has enormous customer loyalty

Microsoft

Has invested $100m in search, but is focusing on overall search and personalisation