Dan Pulcrano closed out Day 2 of Drilling Down on Local ’08 with a presentation to expose attendees to the wild west of the geo-domain space. Pulcrano, owner of numerous city sites such as Seattle.com and SanJose.com, argued that the geo-domain sites are poised to become a much more powerful factor in the local search ecosystem. City sites are the beneficiaries of considerable direct domain traffic and have usually worked with travel partners such as Expedia or Orbitz or Hotels.com to monetize their audience. Increasingly the geo-domain players will move into other relevant areas such as entertainment and nightlife to increase their monetization opportunities.

During yesterday’s afternoon session focused on Auto at Drilling Down on Local ’08, the panelists nearly universally said U.S. automaker giant General Motors was the furthest along in figuring out how to leverage the Web.

Mitch Golub, president of Cars.com, said that has not always been the case — Toyota used to be the leader OEM but has since ceded that post to GM. GM’s leadership on the Web did not do much for driving car sales, as Ward’s Automotive reported that Q1 sales were down more than 16 percent. Ward’s Cliff Banks predicted that there’d be perhaps 1,000 or 1,500 fewer rooftops (auto dealerships) by 2010 as undercapitalized dealers find the economic downturn too difficult to navigate.

As the economy slows, dealerships and OEMs will push even harder to ascertain the true ROI of their media mix, which should ultimately benefit the online sector.

Since our founding, The Kelsey Group has been committed to delivering our unvarnished view of the dynamics of the ever changing and evolving local advertising market. We have been criticized by some in traditional media who suggested we have overstated the rise of the Internet. And we’ve taken shots from those pushing new media suggesting we are too sympathetic to traditional media. Being at the center of this rapidly changing interactive local media space is exhilarating and at times terrifying.

We remain committed to providing a forum through this blog for a spirited debate and exchange of ideas on local media. What we will not do, however, is offer a forum for personal attacks. Therefore, we made a decision this morning to remove our blog post from yesterday that pointed to a CNBC segment about the Yellow Pages. Please keep commenting on what you read here, and by all means be candid, contrary and controversial. If you wish to make a personal attack, however, find a different forum.

The recent hubbub over our “prediction” regarding print media usage — see my earlier blog — has created an exaggerated picture of the perils facing print Yellow Pages. While it is true print YP has some serious challenges, we often forget how well it still works for so many local businesses. Three recent personal experiences drove this point home to me.

1. On Christmas night, as I was sipping eggnog, someone backed into my car. The following day I picked up the phone book, called one auto repair shop in San Rafael, CA, and two days later the shop had authorization for a $2,500 repair. I am pretty certain that my single repair job paid for the entire month of print YP advertising for that auto shop.

2. My second lovely Christmas present was that a family of rats decided they liked our warm and cozy house. Time to pick up the print Yellow Pages once again. Out came the pest control technician to help us manage our new house guests. I asked the owner today how his Yellow Pages ad was working. His first comment was “not very well … you can’t believe how expensive it is.” So I asked him if he tracks his calls and of course the answer was nope, but he did know that most of his calls came from his Yellow Pages ad. Maybe it will take a couple of other houses on my block to pay for the month’s $2,000 Yellow Pages ad, but they now have me on the hook for $150 a month service. I’d say he’s not likely to downsize his ad anytime soon.

3. Finally, our third charming present this Christmas season was a stopped-up toilet. I know the model here. The guys come out and they don’t leave until they’ve lifted $500 for me for two hours of sewer cleaning. If they fill three two-hour slots per day, from the Yellow Pages ad, they’re breakeven by the first Tuesday morning of every month.

So, is print Yellow Pages usage declining? We have consistently said it is in decline and we will continue to collect data to inform our view. Is declining print Yellow Pages usage a problem for the print Yellow Pages industry? You bet it is. They know it and are adjusting their models and approaches every day to manage through a difficult transition period. Are advertisers going to desert the book en masse? Only if they’re looking to sabotage their own business. Look at all the Christmas presents I shared this holiday.

American Public Media’s Marketplace ran an interesting piece yesterday about the launch of NBC Everywhere, NBC’s foray into the expansive and growing out-of-home media market.

According to the piece, there are some 500,000 out-of-home display monitors delivering content and advertising into the aisles of large retailers, the seats of movie theaters and the gas pumps at gas stations. The piece points out that this out-of-home market might reach $2.5B by 2010. The New York Times also covered the story here.

So does this matter to local? These emerging networks are IP based and as a consequence can push highly relevant content and ad messages to the targeted audience. The piece is certainly worth a listen and offers those in “local” yet another platform to consider. Besides, back in November, NBC changed the name of its affiliate network to NBC Local Media – hint, hint.

NBC is not the only network to play in this expanding space. Last year CBS bought Sign Story Digital Media and quickly renamed it CBS Outernet. This week CBS signed a partnership arrangement with RippleTV. In the press release, they talk about how “this agreement represents a powerful marriage between CBS’ national reach and Ripple’s ability to target consumers at the community level.”

We expect even more activity in this space in 2008 as these networks demonstrate their ability to reach the ever-elusive American consumer.

The Kelsey Group has generated considerable attention (and some confusion) in the media and on the blogosphere from a statement that appeared in an Advisory issued by our Marketplaces program on Jan. 4 offering picks and predictions for 2008 (each TKG research practice issued a similar document).

The statement in question reads as follows (referring to newspapers and Yellow Pages):

“In 2008 we think there will be a dramatic falloff in print usage due to two factors: Online has gotten ‘good enough,’ and users have grown fluent with online search. The falloff in 2008 could even reach 10 percent, compared with the 2 percent to 3 percent we’ve seen in years past.”

Several points are needed to put this statement in perspective.

This and all the predictions issued in January by The Kelsey Group’s analysts were meant to be directional in nature. In hindsight, we should have anticipated that using specific numbers to illustrate a conceptual view could be misconstrued as a firm projection.

In truth, the numbers included in the predictions Advisory were meant only to illustrate our sense of things and should not be interpreted as a Kelsey Group forecast. In addition, the figures cited relate to Yellow Pages and newspapers combined, rather than to each individually, which has further clouded the waters.

The Kelsey Group is in the process of updating its annual revenue and usage forecast for global Yellow Pages and local search, which will project out five years. This document will be released to TKG clients in mid-first quarter, at which time our forecast figures will be subject to debate and scrutiny.

Witnessing the rain that has drenched the Bay Area over the past couple of weeks begs the rhetorical question — what could be more local than weather? Now with reports surfacing that weather.com is up for sale, one wonders if any of the major Yellow Pages publishers have their eyes on what is no doubt an intriguing property.

With a price tag of $5b (for the parent company, The Weather Channel) this is not a cheap asset, but to date, weather.com has been unable to build a local advertising business. Imagine a Yellow Pages representative offering local plumbers and roofers and tree trimmers inventory right alongside the latest weather report. For Yellow Pages publishers to garner the requisite volume of unique visitors and build repeat traffic, they’ll have to offer users a reason to be on their site all the time. Weather is something, like traffic, that resonates at the local level.

Someone is going to buy weather.com, but only a few players can ever realize the potential of the local advertising market the way a Yellow Pages publisher can. Now, where’s that raincoat so I can go grab my morning paper?

Earlier this month the Kelsey program directors — Charles Laughlin, Matt Booth and Peter Krasilovsky — offered up their predictions for 2008. These predictions present Kelsey clients a partial road map for navigating what could be a stressful and challenging 2008. Most economists are now debating only the depth of a U.S.-led recession rather than the possibility of a recession. A couple of our analysts’ predictions are highlighted below.

The Kelsey Report’s Laughlin points out that the global print Yellow Pages market may experience more volatility than in previous slow growth periods. As advertisers seek to rationalize their advertising spending, they may well find many more flexible advertising solutions — read online advertising — available to them during this tightening market than in past cycles. Well-positioned online players should see an uptick in orders and demand for flexible advertising solutions that can be turned on and off quickly as dictated by the ebb and flow of the economy. Niche or specialized directory publishers could also see increased demand as advertisers seek to target their messages to more qualified audiences.

Booth, who leads our Interactive Local Media program, suggests that the terrestrial radio industry will go through a period of considerable adjustment as advertisers learn more about the “true” nature of their audiences. Radio’s newly tweaked and more improved (from a transparency point of view) listener tracking system by Arbitron will force advertisers and radio stations to rethink the ad buys. We’ve already seen a shifting of the radio landscape, as Peter Krasilovsky pointed out in this blog just a few days ago. This shift will play into the hands of cross-platform media companies that can offer advertisers a comprehensive media buy — think Google, Microsoft, eBay.

Krasilovsky, who runs Marketplaces, our newest advisory services focused on verticals and classifieds, predicts that in 2008 even more attention will be focused on key vertical categories. The Kelsey Group expects to launch a series of proprietary research initiatives to drill down into the shifting advertising budgets of key players within specific vertical markets. As consumers seek out better and better information, in many cases only tightly defined vertical sites will be able to offer the depth of buying information, which will transition an increasingly nervous shopper into a bona fide buyer.

An interesting op-ed piece in The New York Times on Sunday looked at the importance of “word of mouth” in defining individuals’ candidate preferences. The essence of the article was that voters are swayed much more by what an acquaintance or friend says about a political candidate than a television ad.

The op-ed piece reported that “a Roper poll found the number of people who said they get good ideas and information from television ads declined from 1977 to 2003, while the number who said the same about word of mouth increased by 25 percentage points.” The authors of the piece reported that their own “mid-December survey of Iowa voters found 38 percent saying they trusted information provided by TV ads, while 69 percent trusted “comments from friends, relatives and colleagues.”

While not surprising — ask most small-business owners and they will tell you the best source of new customers is “word of mouth” or personal references — the Times article furthers the argument that the phenomenon of user-generated content will have a lasting impact on our culture. As consumers shift through the piles of choices — cameras, dentists, politicians — they will continue to turn to information that can distinguish hype from reality. Humans have always been in pursuit of “perfect information,” and while we remain a long way away from that state of nirvana, the Internet and Web 2.0 are bringing us closer day after day.

The concept of localized e-commerce was discussed at one of the breakout sessions this afternoon at ILM:07. The essence of the question is how soon will SMBs be part of the growing trend that helps consumers find out where brand name products can be bought locally? Increasingly, local retailers will have to be able to offer up their live inventory in order to compete with the major big-box retailers that are well along the path of offering online shoppers live inventory information.

According to Joel Tolenado of Krillion, a really significant percentage of products bought by consumers online are being picked up at a nearby physical location. While MerchantCircle intends to fulfill its promise of having more than a million local merchants online by ILM:08, most of the panelists recognize the very daunting challenge of enabling SMBs to deliver live inventory information.

Bob Armour of ShopLocal gave a preview of what might be the next area of commerce that ShopLocal may tackle. As Armour explained, the grocery shopping area is very much underserved today, while the advertising dollars are huge and the weekly shopping occasions are many. He suggested that grocery shopping could be a ripe area for new initiatives that transform the current grocery shopping experience. TKG moderator Bobbi Loy-Luster tossed out www.grocerygame.com as one start-up having entered the grocery shopping space to try and pull the content of weekly circulars together with an online shopping experience.

No doubt, the online shopping experience will continue to improve each year with innovation focused on delivering the consumer the best possible shopping information. If SMBs can’t or choose not to take the steps necessary participate in this transformation, then perhaps the notion of Main Street USA will be, as many social pundits have suggested, a thing of the past.