With display and search leading the way, local online advertising spending will increase 82 percent in the next five years, according to a new study by JupiterResearch.
Lead analyst Barry Parr attributed the robust growth to the migration of newspapers and yellow-page listings to the Web.
He also cited as the continued improvements major search engines are making to their local services.
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By 2012, advertisers will spend $8.9 billion on local online ad placements, consisting of display, search and classified ads, Parr reported. That's up from $4.9 billion in 2007.
By Jupiter's prediction, local online ad spending will enjoy a robust compound annual growth rate (CAGR) of 13 percent from 2007 to 2012.
The local sector will slightly outpace total online ad spending, which is projected to demonstrate a CAGR of 12 percent for the same period.
Display and search will see the sharpest growth, posting respective CAGRs of 18 percent and 12 percent. Classified ads, the most mature segment of the local advertising market, will show a CAGR of 10 percent, Parr predicted.
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Yet certain subsectors of the online classified market, such as real estate listings, remain underdeveloped, the report found.
If the housing slump worsens, more realtors are likely to rethink their marketing strategies, and move more of their promotion to emerging online services such as Zillow and Trulia, Parr said.
The findings offer a rosy outlook for newspapers struggling to recoup losses from declining print subscriptions. Despite the challenges to their business models, traditional media outlets will continue to draw substantial revenue from local advertising, Parr wrote.
Job listings, one of the largest components of classified advertising, are also undergoing a transformation, as Web services like Yahoo HotJobs and Monster are increasingly striking deals with local newspapers.
Parr also found that online yellow pages are becoming legitimate rivals to their print counterparts, particularly among younger consumers.
Respondents under the age of 35 said that online yellow pages were generally more helpful than print versions, while older consumers continue to rely on the big book.
The major search engines for some time have been a key driver of local ad spending, and are working to beef up their expertise in the area. Microsoft, Google and Yahoo have all been working to improve their local search offerings, tying in their business listings with mapping services, for instance.
Also looking to seize on the local advertising opportunity, startups such as Grayboxx are building business models around local search.
The local search market is already crowded, but if JupiterResearch's projected growth rate holds, these startups may well find themselves a place at the table.
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Local Online Ad Spend to Hit $9 Billion by 2012