Google Local Search: $31 billion risky business

Last month I underscored the local advertising opportunity is currently wide open, putting forth “Google: $31 billion local dilemma”: 

High-profile, venture capital backed, locally-focused, online start-ups that launched with much fanfare and support are in critical condition—Judy’s Book, Backfence, InsiderPages—, unable to gain sufficient traction within local communities or with local advertisers, and management ranks in disarray.

Google and Yahoo offer local mapping wizardry and the promise of local content and user-friendly tools, but are still used primarily as general search engines for online navigation.

Yelp is an up and coming, trendy, social networking style local review site, but has had to resort to paid local “fans” to bolster its traction (see “Diggers Digg cash? So do many other ‘users’”)”

Less than a year after start-up Insider Pages received a fresh venture capital infusion of $8.5 million, it is rumored to be near closing on a distress takeover of the company. 

What inspired top tier VCs to back Insider Pages eleven months ago?

"Insider Pages creates an easy way for people to share recommendations with their neighbors and friends to help them find great local merchants," said Roelof Botha, managing director, Sequoia Capital. "The Insider Pages reviewer community has posted almost one million reviews for merchants across the country. The site's millions of monthly visitors are a testament to how beneficial this content is to people trying find the right kennel, auto glass installer and other local services."

"Local search is a multi-billion dollar opportunity," said Eric Hippeau, managing partner, Softbank Capital. "Insider Pages has found a unique way to combine word-of-mouth advertising and pay per call marketing to create a fantastic program for small businesses to market themselves on the Web. In a very short period, the company has built up one of the largest bases of truly local pay per call advertisers in the world, and is now generating a great deal of value for its clients and partners."

Founding Insider Pages investor Idealab also participated in the round.

Stu MacFarlane, CEO, on Insider Pages’ potential at the time:

This is a tremendous opportunity to establish Insider Pages as a major player in local search. Our new investment partners bring an incredible depth of knowledge of what it takes to build a successful online search business and we're excited to leverage that expertise and experience.

What went wrong?

Did the new investment partners “know what it takes to build a successful (local) online search business?” Does anyone really know?

Insider Pages proudly undersocred:

Between them, Insider Pages' three investors are responsible for funding Google, Yahoo!, and Overture (now Yahoo Search Marketing) among many other search related companies. Sequoia's Roelof Botha and Softbank's Eric Hippeau have joined the company's board of directors.

Google continues to fiddle with its local formula, most recently taking over prime Google,com SERP real estate in an effort to position itself as the go-to “local destination,” as I present and analyze in “Google Local at Google.com.”

By strengthening its own direct local search platform, however, Google risks hurting its local search AdWords business.

Google’s new local strategy at Google.com puts Google in direct competition with key local aggregators AdWords accounts: Citysearch, AOL, Zagat…The new enhanced local listings in Google.com appear below and next to Google “Sponsored Links” for local listings directories (see“Google Local at Google.com”).

Not only do the new enhanced local listings come before the standard PageRank algorithm derived results, they are more prominent and may be perceived by searchers as Google recommendations for the local businesses.

Top Google placement combined with enhanced presentation means Google's new local listings slots will be highly prized by local businesses. Google may once again find itself in a position of Google: Multi-billion dollar self-dealer?

For Google, local search is not only a $31 billion opportunity, it is $31 billion risky business.