Insider Chatter by Donna Bogatin

Google wants a (very) big chunk of the projected $39 billion local ad spend, so does Yahoo, AND so does MerchantCircle. What are they doing about it?

MerchantCircle founder and CEO Ben Smith, flush from celebrating a $10 million in Series B funding milestone, told me today in a telephone interview the key barrier to success in online advertising sales of the local kind remains the high cost of local merchant customer acquisition and a mainstream local mindset whereby local merchants are stuck in old ways of advertising.

Smith, however, believes he has the formula that will successfully accelerate a large scale local merchant move from traditional print advertising to Web-based marketing. Moreover, MerchantCircle’s new capital raised from Rustic Canyon Partners, Scale Venture Partners, Steamboat Ventures (VC arm of Walt Disney company), IAC and Square 1 Bank, “validates” MerchantCircle’s “merchant-first” business model, Smith hails.

Smith and MerchantCircle investors are aiming to “completely change the way local businesses reach customers.” They will do that by changing the way local merchants adopt Web marketing and interact online, Smith indicated.

Historically, barriers to “local taking off online” were threefold, Smith told me: 1) Dearth of local online ad inventory on a zip code basis, 2) Lack of online advertising networks with critical mass and 3) Inefficient local merchant customer acqusition strategies.

While the local ecosystem online now supports meaningful local ad inventory and scalable ad network platforms, labor-intensive, high-cost local merchant sales efforts continue to hamper the growth of local advertising online, according to Smith.

The Google and Yahoo local advertising sales track records support Smith’s contention. Here at InsiderChatter, I have been reporting and analyzing the inability of the leading search engines to “crack” local ad sales. SEE:

Google’s $10 Local Search Pipe Dream: Slave Wages to Squeeze Yellow Pages AND
Why Google Will NEVER Pay For a Local Ad Sales Force AND
Local Ad Sales War: Why Google is a Guaranteed Winner AND
Google, Yahoo CAN’T Crack Local Ad Sales Code AND
Naked Google Maps: NO Local Ads For Hungry Motorists

For Smith, MerchantCircle’s ability to cost-effectively attract and retain local merchants to its platform is one of its core competitive differentiators. The company continuously tests and refines diverse local merchant acquisition methods to hone in on what works, and what doesn’t.

Smith told me he has experimented with more than 60 different local business owner sales approaches before settling on the handful of keeper merchant acquistion strategies.

Smith declined to identify the specific MerchantCircle preferred merchant solicitation methods, citing proprietary “competitive information.” Nevertheless, I asked Smith to comment on public discussion of purported unscrupulous telemarketing tactics used by MerchantCircle.

Smith told me it is not only “ok to let merchants know about what is being written about them online, it is a duty to do so.” A key MerchantCircle value proposition is that the company is there for “the merchants.” Smith underscored to me “we are not a consumer site.”

For Smith, MerchantCircle’s “peer network” of local merchants is its strength, a principal driver of cost-effective merchant acquisition and involvement. Smith told me registered merchants at MerchantCircle engage with each other and communicate value to fellow members via the “social network” foundation of MerchantCircle’s online platform.

In typical Web 2.0 social network fashion, community growth is the main objective of MerchantCircle at present, rather than direct monetization. MecrhantCircle will use its new round of funding to build and/or buy more online functionality aimed at making its platform even more attractive to local merchants.

MerchantCirlcle hosts about 15 million auto-generated local merchant business profiles; More than 250,000 of them have been “claimed” by the merchants via registrations. As MerchantCircle continues to scale its base of local merchant “registered” members, Smith aims to disrupt the $39 billion local advertising projected (by 2011) ad spend, sooner rather than later.

WHAT ELSE IS UP IN LOCAL SEARCH? Learn all about it at the upcoming Kelsey Conference on Interactive Local Media in Los Angeles, where I have the pleasure of speaking on the closing “Big Thinker” panel!

SEE YOU THERE? CONTACT DONNA BOGATIN

PLUS: AnchorFree CEO: Hotspot Local Ad Network Beats Google, Yahoo, INTERVIEW and Stepan Pachikov: EverNote Web 2.0 Perfect Mobile Storm To Hit in 2008, INTERVIEW