Dan Shipe of Adwords Marketing Tool raised an interesting specter on our blog the other day: could Google’s geo-targeting ultimately hurt the national websites? Might regional ads take precedence to the point that the national ads lose their golden goose?

The answer to this question will boil down to user intent, the perceived value of the ads to brick and mortar retailers, and their ability to manage a search program.

Let’s tackle these one-at-a-time.

• User Intent: When searching for “leather ottoman” what fraction of users are interested in buying one online vs conducting research for an offline purchase? Of the latter group, are users interested in checking what’s available locally, or are they just kicking tires and want to see the broadest selection possible? The answer to these two questions will be a major determinant of who wins the tug-of-war. How much an advertiser can afford to spend on an ad depends on the value of the traffic, and the value of the traffic is largely a function of user intent. If most of the users want to see the national selection and want to buy online, the national retailers will win the bidding wars because value suggests they can pay more.
• Perceived Value of the Ads: Above, we talked about the value of traffic. For the national website, this is fairly easily measured. For the local retailer, not so. Not only is tracking the real value nearly impossible; the local merchant isn’t likely to think in terms of direct marketing. Their principle vehicles for advertising (circulars, print ads, radio, local TV) aren’t trackable to begin with so much of their ad buying tends to be a blend of art, science and instinct. While the true value of the advertising matters; equally important is the perceived value in the mind of the brick and mortar manager. They could conceivably buy up the impressions ‘irrationally’ as some online retailers did in the first years of search and so starve the national players.
• Ability to Act: What may ultimately save the national websites is the economy of scale. For REI to lose impressions materially on a keyword like “hiking boots”, five or six local brick and mortar retailers would have to outbid them — in every locale. Here in Charlottesville, only one local ad is on the first page and it’s actually a geo-targeted ad from a national retailer. While national chains could muster the marketing horsepower to produce targeted, comprehensive keyword lists relevant to each store with smart bidding to manage the economics, small regional chains and one-off stores won’t have the bandwidth to pull this off, I don’t think.

Conceivably, in the major markets, a critical mass of local retailers could find enough value in geo-targeted search to make a go of it, but I get the sense that we’re still a long way from seeing that happen.

I’d love to hear other people’s take on this!

George