On the Yahoo! (NASDAQ:YHOO) search engine, advertisers pay about $1.25 for the "flowers" keyword. For "flowers Irvine," I've been led to believe advertisers are willing to pay $6. This is no fluke; advertisers will generally pay search engines a higher price every time a user clicks on a local keyword. So it's no surprise that Interchange (NASDAQ:INCX), which has struggled in the national search market, wants a piece of the local market through its marquee site, Local.com.
Despite the buzz, Interchange remains a laggard. In the fourth quarter, revenues were $3.4 million, down from $5.9 million in the year-ago period. Much of the revenue decline came from national search, which fell to $2.8 million for the fourth quarter; local search tallied $600,000 in revenues. The company posted a net loss of $3 million.
Partnerships with companies such as ShopLocal, Insider Pages, and Morris Digital are a critical part of Interchange's local strategy. In December, Local.com had 6.9 million monthly unique visitors and 33 million page views.
According to Interchange, 2005 was a "transitional year," in which the company built its local business. Local search may be a niche for now, but according to the Interchange conference call, the market is expected to grow 43% to $6.2 billion by 2010. It's too important a market for the big search players to ignore; indeed, each offers its own local search service.
For Interchange, the same question applies to local search as it did with national search: What makes the company particularly capable of executing on its marketing? For all the progress Interchange has made with Local.com, it's still ranked only No. 6 in the market. Meanwhile, Google (NASDAQ:GOOG), Yahoo!, and Motley Fool Inside Value pick Microsoft (NASDAQ:MSFT) are investing aggressively in the local market. If these companies won the national search war, what's to stop them from conquering local search as well?
Moreover, Interchange burned more than $3 million in the fourth quarter, and it expects to do the same in the first quarter of 2006. With $14.3 million left in the bank, the company may need rapid and significant success to keep its local search business going.
Fool contributor Tom Taulli does not own shares mentioned in this article.
