Editor’s note: With more consumers starting their home search on the Internet, online lead generation and management has morphed into a sophisticated business as agents, brokers and real estate companies scramble to adopt the new channel. This three-part series examines the changing nature of online lead generation as local Internet search becomes more relevant, more brokers get involved in lead systems, and more technologies emerge.

Editor’s note: With more consumers starting their home search on the Internet, online lead generation and management has morphed into a sophisticated business as agents, brokers and real estate companies scramble to adopt the new channel. This three-part series examines the changing nature of online lead generation as local Internet search becomes more relevant, more brokers get involved in lead systems, and more technologies emerge. (See Part 2: Brokers emerge in online lead scene and Part 3: Lead management technology grows up.)

Enough talk about the Internet as a tool for global information exchange – that is so 1990s. These days it’s all about going local – consumers who are searching online for local goods and services and the businesses who want to be the first to greet them.

Search engines are driving to connect these consumers and businesses while remaining relevant as information on-ramps. And the success is measurable by the billions.

Links that are paid for by advertisers and show up in search results pages as sponsored links – will account for an estimated 42 percent of the total online ad revenue this year, or about $3.9 billion of the projected $9.4 billion total, according to eMarketer, a company that tracks online marketing statistics. By 2008, eMarketer predicts that total U.S. online ad spending will nearly double to $17.5 billion. And experts say local search is quickly gaining in popularity, growing about 50 percent faster than general search.

EMarketer reported that there are 121 million searchers in America who conduct an average of 35 searches per month. Also, about 95 million Americans buy online and 115 million use the Internet to shop and browse products. The company also reported that consumers who researched and compared products online drove $180.7 billion in offline spending and $106.5 billion in direct online spending.

Online leads generated at search-engine sites can be an important source of future business, and real estate companies and professionals are climbing aboard in growing numbers.

Real estate is a perfect fit for the surge in local and regional searches, said Jim Delli-Santi, a product director for Overture, a Yahoo! company that offers marketing services and products to help businesses connect with consumers online. “If a person searches for real estate, it implies locality,” he said. “Buying a home is implicitly a local shopping intent, and we’re seeing that reflected in the amount of advertisers we see in our database and in the amount of searches they see.”

Real estate and real estate professionals is a consistently higher-performing advertising category than many other areas in terms of the click-through rates, number of advertisers and the number of searches, Delli-Santi said.

Overture offers one product that allows businesses to buy an ad that is displayed when a specific word or term is entered in a search. Another product offers the opportunity for the sponsored link to be displayed when the search topic is within a half mile to 30 miles of the business. Overture also offers a training program that helps get business professionals up to speed on local-search advertising.

“Real estate professionals are experimenting with a lot of different lead-generation strategies. It is important to get educated and try it out and see how it works,” he said.

Greg Sterling, program director with The Kelsey Group, a research company that monitors yellow pages companies, electronic directories and local media, said that real estate professionals’ online advertising is fueled by the knowledge that many consumers use the Internet to search for homes.

“There’s a bunch of research about how consumer behavior is really driving Realtor adoption of the Internet as a marketing tool. This is a microcosm of a larger trend,” he said. The vast majority of buying and selling happens within a 50-mile radius of where a consumer lives, Sterling said, and consumer behavior is behind the push for local search. “Consumers have driven the agents online. A lot of agents would like to ignore the complexity of the Internet but they can’t – they can’t afford to.”

The Kelsey Group conducted a recent survey with Bizrate.com of about 3,900 online consumers. About 74 percent of participants had conducted local searches on the Internet, and 27 percent of their searches were local in nature, according to the study.

While local searches are becoming more popular, many small businesses are still somewhat confused about how to reach this online audience. Sterling said a telephone survey of small businesses, conducted in August, found that about 75 percent of respondents had some degree of confusion about Internet marketing. And experts generally agree that local companies may benefit by building up their Web presence as they look to increase their spending on locally focused online advertising.

“What we have is a gap between the growing demand among local businesses for exposure on the Internet and a confusion or lack of understanding about the best way to do that,” Sterling said. Web advertising has complicated the overall marketing picture for real estate professionals, adding another layer to the business of being seen, he said.

While there is a big online buzz about paid-search advertising these days, eMarketer reported that its leaps-and-bounds growth will slow within the next four years, to 11.5 percent annually by 2008.

Behavioral targeting and contextual targeting, which place ads based on Web-users’ search behavior and individual Web site content, and local-search advertising, meanwhile, are expected to grow dramatically. Spending on behavioral targeting will rise an estimated 50 percent, from $627 million in 2004 to $934 million in 2005, eMarketer reported, while the Kelsey Group estimates that local online advertising will grow from $1 billion in 2003 to $2.5 billion by 2008.

In addition to pay-per-click advertising at search sites, which has a cost formula that is based at least partly on the number of clicks by consumers on paid links, there are also companies that have developed pay-per-call technologies that base the cost of advertising on the number of consumer phone calls to the advertiser. Ingenio is one company in this arena.

Randy Kempenich, founder of CondoBuzz.com, a national network of Web sites formed focusing on condos, lofts and town homes, said his company’s marketing plan is focused entirely on paid-search. “We market mainly with Google and Overture,” Kempenich said. The company purchases sponsored links based on specific keyword searches.

“It’s all about paid placement now. That’s all we’re doing is paying for placement. The only people who are going to show up on the top of search engine results are going to be people like us,” he said. In Kempenich’s experience, he said consumers seem to prefer Web sites that appear to be neutral ground, and so he deemphasizes individual agents in the Web network. He said his company’s model will have “a high lead-capture (rate) because of our focus and niche marketing.”

Many companies have sprung up that promise to increase the “optimization” of Web sites, or to improve the search-page ranking of unpaid links or sponsored links. The search engines regularly change their algorithms, or search formulas, though. “

David Hallerman, a senior analyst at eMarketer, said he hasn’t seen any solid statistics on the amount of money and time companies are spending to boost their link rankings on search sites. He said search-engines often provide few details of changes to search algorithms that can impact the rank of natural, or unpaid links. “They do change that. That’s their trade secret. They don’t tell you exactly what the changes are. It puts a little more burden on the Web site trying to improve its search-engine optimization.”

Hallerman said that search engines are beginning to partner more with yellow pages sites.

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Google is the most popular search engine among consumers, according to a study by the Pew Internet & American Life Project conducted this year. About 47 percent of a group of about 1,400 Internet users said they most often use Google in searches, followed by Yahoo! with 26 percent, MSN with 7 percent, and AOL with 5 percent.

Hallerman said Google has about 50 percent of the paid-search market at this point, and Yahoo!/Overture has about 35 percent. Google offers a paid-search product called AdWords that bases sponsored-ad rankings on click-through rates and a maximum cost-per-click amount, so that “the most relevant ads rise to the top” of the paid search results.

Microsoft is working on a beta version of a new search engine that features local search capabilities, and Hallerman said it will be interesting to watch how that effort develops.

A Microsoft spokesman said that the company has redesigned its search results “to ensure people clearly understand which results are advertisements,” and all links paid for by advertisers are displayed in shaded boxes “that clearly identify them with a ‘sponsored sites’ heading.”

Another development, said Hallerman, is a move by search engines to become a fixture on the screens of PCs. Yahoo! and Google now offer thin, streamlined search toolbars that can be used to conduct searches even when the computer’s browser software is not open.

Tomorrow: The emergence of real estate brokers in the online lead world.

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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