The small-business advertising arms race has gotten hotter in recent weeks, as companies eye a chance to add Google and Yahoo! search solutions, and other services to small-business marketing budgets once totally contained by Yellow Pages.

First we had ReachLocal’s $305 million valuation based on a $55 million round of financing, sparking the whole marketplace. In early March, Spot Runner entered the game, acquiring Weblistic in an all-stock buy to power its 30 local sales offices with solutions that go beyond its core strength in video. At the same time, Orem, Utah-based Orange Soda got on the map with Freedom Communications, the publisher of The Orange Country Register. Previously, New York-based Yodle got $12 million in funding.

Today, Irvine, California-based WebVisible, a six-year veteran of the reseller space with 60 employees, reinforced its own position with $12 million in new series B funding from Sutter Hill Ventures and Redpoint Ventures, an existing investor. WebVisible partners in the U.S. include AT&T, Earthlink and McClatchy. Internationally, it works with Yellow Pages Group of Canada and British Telecom.

WebVisible CEO Kirsten Mangers says the new money is going to be used to flesh out its offerings and “fully support the customers we have.” The company’s focus is all about “innovation for reaching local businesses. At the end of the day, “it is never a money race.”

A major part of WebVisible’s vision is to provide a 360-degree set of solutions for SMBs. Search solutions are an important part of the equation. But “there comes a time when the sales channel needs more display, more marketing needs. Advertising always follows the audience,” she reminds. “And the paradigm changes over time.” The key is to not tie yourself to a single channel. WebVisible strives to be “Switzerland.”

“Statistics show that conversions will rise with an integrated media campaign,” adds Mangers. “Customers have been asking for it.” Video is not “fully baked,” right now. But it “closes the loop on the brand story,” and is undoubtedly part of a solution that also includes SEO/SEM, banners and location-based services. All of it needs to be “scalable by geography; scalable by vertical.”

With so many players in the market, one would think that the resellers would begin running into each other, much like the third parties in the automotive space that besiege auto dealers, four or five at a time. But Mangers says that almost never happens. “It is a problem I want to have.”

WebVisible’s approach, as a white-label provider of solutions, is to partner with the community players that have brand equity, ranging from Yellow Pages to newspapers to chambers of commerce. “They need to own the relationships,” she says. “It is a more sustainable customer base.”

But the local partners should “put a body in place” dedicated specifically to the extended SMB solutions — not just Yellow Pages or the big-three classified verticals. “They need to go out and tell an excellent story, and show new ways of using online as their lead product.” At the same time, they should “never discount the value of their brand” with bundled discounts, etc.

The (Minneapolis) Star Tribune, for instance, has worked with WebVisible to have a dedicated account rep, resulting in a tripling of bookings in the past two months. “Newspaper reps have so many products in their bag that recommendations and fact-finding become difficult,” says Mangers.

Spot Runner has gone into the local reseller channel in a major way by acquiring Weblistic, a company headed by Ketan Shah (and whose president is Yellow Pages Commando Dick Larkin). The company has 50 employees and is headquartered in Fremont, near San Jose, with additional offices in Carlsbad, CA, near San Diego and Chicago. It also has sales staff in the New York metro area and Denver. Its employees will be combined with Spot Runner’s 300 employees.

No price was disclosed but it’s an all-stock transaction. Going forward, Weblistic will be marketed under the “Spot Runner” brand.

Most of Spot Runner’s prior emphasis has been on providing largely prepackaged video production and media planning to national organizations as a way to offer localized video to franchisees and other national advertisers, including Realogy, Century 21, Steak & Ale, Diamond Jewelers and Warner Independent Pictures.

More recently, however, the company has been steadily building up its local capabilities, first by acquiring a videographer network a couple of months back — a step that put it in competition against companies such as TurnHere and Denver Multimedia, both of which are being resold by city guides, Yellow Pages and other local resellers.

Spot Runner also has opened 30 local sales offices in different parts of the country, all of which will now use the Weblistic software platform. The platform had its origins in the old Yellowpages.com platform, pre-AT&T (Shah had been Yellowpages.com’s CTO).

Spot Runner cofounder David Waxman says the company is now going to focus on providing a true multimedia capability. “TV is the best option for some. For others, some search is a better option.” Advertisers are “increasingly asking for other media” including radio, outdoor, print, he adds. “They are clamoring for a full-service offering.”

It doesn’t appear likely that Spot Runner will underestimate the considerable challenges of local advertising. One of its top sales executive is local sales vet Tim Lambert, who previously worked with Yahoo!, HotJobs, Knight Ridder Digital and Pac Bell Yellow Pages (although he is currently more focused on national sales efforts). But it will still need to get good interactive sales pros. They’re in very short supply.

Another challenge will be to differentiate itself among the glut of resellers, which include ReachLocal (valuation = $300 million), WebVisible, Yodle and Orange Soda. Each claims various advantages in software, algorithms and systems, but to a layman, the differences are slight.

The final challenge will be to truly leverage its existing relationships. Spot Runner investors include CBS and ad agency giant WPP. Moreover, former AOL President Bob Pittman sits on its board.

In what amounts to yet another vote of confidence for local merchant video producer TurnHere, the company has announced a $7.5 million cash infusion from Venrock and Hearst Interactive Media. It’s also a vote of confidence for the red hot local video advertising space, of which TurnHere has proved a leader in both the quality of its videos and the distribution deals it’s formed (Citysearch, Superpages, Yellowpages.com).

There are two important parts to this formula: shooting the video and distributing it. In both respects, the barriers have been lowered. Growth in online video is rooted in cheaper online distribution (when compared with cable spot advertising) and broadband penetration. Meanwhile video production has been fulfilled by the TurnHeres, EzShows, and Denver Multimedias of the world, which have come along to create the content.

TurnHere has always had the best production quality and sits at the upper end of the price/quality spectrum. But only within the past year has the company struck deals with publishers to more substantially push its service to SMBs through existing sales channels. To the distribution point above, these deals also importantly provide well-traveled local search sites and give these videos more meaningful places to “live.”

This has taken form in videos that are embedded within profile pages in Yellowpages.com and those that surface to the top of “best of” city-specific sites at places like Citysearch and Savory Cities. Through these formats, video will provide a good combination of search and discovery as inventory continues to grow. More importantly, it will literally add color to local online listings.

Breathing Life Into IYP Listings

The last point got me thinking. We’ve written about how the universal search trend will bring local video to search engine results pages (SERPs). But it also struck me that the on-demand online culture (emblematic of what some call Web 2.0) driving universal search is starting to apply down to the individual listing level. Like SERPs that are evolving with lots of multimedia and disparate sources of content (Ask 3D is the best example of this), some IYP listings are doing the same.

As this listing from Yellowpages.com shows, the embedded video enhances the experience a great deal and makes it a more meaningful and informative experience that puts you “in” the restaurant. In line with universal search, it’s one more thing to add to a listing that satisfies users’ evolving needs and expectations to get everything in one place (Citysearch is driving toward this goal with integrations of menus, reviews and video, and will soon have appointment scheduling).

Meanwhile, from the publisher perspective, it’s an upsell opportunity and another way to increase online margins. Profiles with video, images and other multimedia, in other words, can be seen as the future version of the full-page print ad. In this respect, video has shown strong demand in the restaurant vertical, but there has also been demand in high-margin, high-consideration areas such as real estate and auto.

These are both key verticals for TurnHere and its next growth areas will likely possess the same factors. These will likely include professional services such as dentists, lawyers and photographers. These happen to be Yellow Pages’ sweet spots where relationships and a sales channel are already established. With TurnHere’s funding and growing list of publisher partners, it will be better positioned to access these verticals and get it done.

It is hard for me to comprehend, but we are finally finished with ILM:07. We were grateful to have had 650 interesting and enthusiastic attendees from all over the world, 72 stimulating speakers, a full load of sponsors and an excellent partnership with SES.

Our next conference, April 30-May 2 at the Westin in Seattle, will be a highly differentiated affair. Stay tuned for what we are doing with that (but not for a couple of months, OK?).

For those of you who can’t get enough coverage, a virtual conference will be up with all the PPTs in a couple of weeks (but only for attendees). You can also order the DVD.

For immediate gratification, however, check out the posts from my talented colleagues on the Kelsey Blog.

I especially liked Michael Taylor’s write-up of our discussion with Mahalo CEO Jason Calacanis. Michael is totally correct: “The long and short of Calacanis’ comments go to several of the key themes heard over and over again at ILM:07 — relevant content, deep content and engaging, passionate people are all needed to make a highly relevant and personalized search experience.”

In addition to the Kelsey write-ups, Mike Boland has captured links from the press and bloggers who attended our event. It was good to have them aboard. And Mel Taylor took some great pictures.

Here are easy links to Kelsey ILM:07 posts:

1. TKG Analysts Lay the Groundwork (Michael Boland)

2. Winebaum Provides a Fresh Look at Local Search (Michael Taylor)

3. Cash Is King for Local Search Investors (Charles Laughlin)

4. Herratti’s Citysearch: Social Media Video Partnerships (Bobbi Loy-Luster)

5. NCI: ‘We Can Work with Zillow’ (John Kelsey)

6. ILM:07 Spotlights mobilePeople (Stephen Marshall)

7. Stubbs Discusses AT&T’s Post-InGenio Vision (Michael Taylor)

8. TMP’s McKelvey Discusses Online/Offline Research Data (Michael Taylor, Michael Boland)

9. New West’s Weber and Independent Local Media (John Kelsey)

10. Marchex’s Horowitz: Bet on People Already Winning (Charles Laughlin)

11. Google’s Hanke: Maps, Mobile and Mashups (Michael Boland)

12. An Intuit-ive Approach to SMB Marketing (Stephen Marshall)

13. Injecting Social into Local Media (Michael Boland)

14. Taking It Home: The Final Panel at ILM:07 (Stephen Marshall)

Three investment heavyweights speaking today at the Interactive Local Media/SES Local conference in Los Angeles said the environment for funding is still attractive for early stage companies. However, the credit crunch looming over the market since August is having an impact on leveraged transactions for later stage companies.

Nick Veronis, managing director at Veronis Suhler Stevenson, said, “There will be a pullback on later stage companies coming on the market.”

Overall, investors said their valuation methods are pretty old school, even as they look at Web 2.0 companies. This stands in contrast to how investors approached new businesses a decade ago.

Veronis says his company, which is a late stage investor, focuses on cash flow, while also considering other factors, including growth and opportunities for consolidation.

Kara Nortman, vice president of M&A at IAC, described her company as “a value-oriented investor. We look at cash flow. Maybe not in year one, but in years two and three. If there is no cash flow we cannot justify acquisitions.”

None of the investors seemed to have much use for the idea of using value per unique users as a valuation metric.

Mark Gorenberg, a partner at the VC firm Hummer Winblad Venture Parners, said some companies suffer from getting funded too early in their development.

“I actually think it is healthy for entrepreneurs to start out with no money, to see if they can get to the next level.”

Interactive Local Media: 07 is ready to roll Nov. 28-30 in L.A. That’s next Wednesday through Friday!

The show, which is being produced in partnership with SES Local, has attendees from all over the world. One exec told me he is coming on Wednesday, taking the red eye to New York that night due to a prior commitment, and flying back on Thursday night for the final day.

Attendance-wise, we have the biggest sign-up list for a Kelsey event since the mid-1990s. Almost everyone that we have slotted will actually be there. While the agenda has been tight for some time, with 70-plus speakers, here are some last minute adds:

• Christophe Maire, a cofounder of Nokia’s Location-Based Experience Development, is set for Day 3. HOT DISCUSSION TOPIC: Nokia’s $8.1 Billion purchase of NavTeq.

• Laurel Gilbert, from Microsoft’s Atlas division, is speaking on our localizing national advertising panel. HOT DISCUSSION TOPIC: How Microsoft will use Aquantative to transform itself into a true Web advertising giant.

• Doug Kilponen from MerchantCircle is speaking on the localized shopping panel. MerchantCircle just received a $10 million cash infusion from IAC and others. HOT DISCUSSION TOPIC: Best Practices for Signing up Small Businesses.

• Claudia Poepperl from mobilePeople is set to provide a demo of the London-based company’s cutting-edge social mobile technology.

We are also expecting a drop-in from a top executive of a company that’s been in the news, but we can’t say much more about it. And speaking of news, there are lots of interesting news announcements that will drop around the show as well. So, will we see you in L.A.? Here is the registration page.

AOL is set to pay $340 million (updated) for Quigo, which provides a contextual ad network alternative to Google. The deal includes PageCast, a video search product, and will be added to AOL’s impressive arsenal of network, behavioral and contextual services, including Advertising.com and Tacoda.

Quigo, an Isreali/New York company launched in 2000, was rumored to have been in play with a major Yellow Pages company, so it is an interesting change of fate. The way it ended up is interesting too — in part because Google owns 5 percent of AOL.

In this age of coopetition, however, AOL’s ties with Google don’t seem to represent a roadblock, or even an important enough reason for most existing Quigo customers to quit the service. As we have noted, Quigo has 200 traditional media properties in its network of 500 sites, including entities owned by Tribune, Cox Newspaper and Fox TV. Local media represents about 5 percent of Quigo’s business.

From AOL’s point of view, this might be the first time there have been actual synergies with Time Warner. Time Warner and Quigo made a big deal in July that gave Time Inc.’s 15 Web titles a custom version of Ad Sonar, allowing the online magazines to be sold as a single network. Time Inc. executives estimated that the Quigo deal will bring in $100 million in revenue over the next three years. It is ironic, because AOL might finally be spun off from Time Warner as Jeff Bewkes prepares to take over the chairman’s seat at Time Warner.

Paid Content notes that Quigo has raised $45 million since its founding in 2000. About $30 million of this money has been secured over the past year from existing backers, including Steamboat Ventures (Disney), Highland Capital, Glenrock Ventures, IVP and Meritech Capital Partners.

Gannett is teaming with Tribune on a 50/50 basis to take the latter’s Metromix entertainment site national, and reach into the highly valued 21- to 24-year-old market that doesn’t typically use newspapers — online or off. The JV plans to cover the top 30 to 35 markets within a year, including invasions of cities where neither media company has a newspaper or TV station. A 12-person sales team will anchor the national effort.

Gannett’s buy-in is said to be under $10 million, which is probably a greater reflection of the unestablished value of the Metromix brand than the much greater investment that will be needed to build out the sites. Gannett is already teamed up with Tribune (and McClatchy) for CareerBuilder, ShopLocal and Topix. The two companies are part of the broader newspaper consortium that owns Classified Ventures (Cars.com, Apartments.com, etc.)

Metromix was launched 10 years ago as The Tribune’s city guide after the company began backing away from its JV with America Online for Digital City. Metromix is now launched throughout the major Tribune markets, including L.A., Baltimore, New York, Connecticut, Orlando and South Florida.

In those markets, it is clearly competing against other city guides and event services, including Citysearch, Yelp, Eventful and Zvents. The latter is an especially interesting one to watch as it partners with newspapers such as The Boston Globe and Orange County Register.

The numbers are looking very, very good for the Interactive Local Media:07 conference in L.A. Nov. 28-30. Internally, we think this one is a record breaker. Register and book the hotel while you can. The latter tends to sell out.

In recent weeks, we’ve been putting the final touches on the program. For instance, we’ve added Facebook’s Chamath Palihapitiya, who is VP of product marketing. Here’s a snippet about Chamath from Fast Company’s cover story this month:

“Palihapitiya, 31, is tall and whippet thin, with elegant manners and a ready smile. A former electrical engineer, born in Sri Lanka and raised in Canada, he ran AOL’s instant-message group, then jumped to the venture fund Mayfield. He is part Sand Hill Roadster and part freethinker.”

Other notable adds include ShopLocal CMO Bob Armour, Scott Ferris from Microsoft’s Atlas division, LA Times.com’s Robertson Barrett, and City Voter’s Josh Walker. There is also a brand-new Local Mobile panel, featuring Gary Roshak, who has migrated from Marchex to Yahoo!, Jeff Torgerson at InfoSpace, and Collin Holmes at V-Enable.

Also, take a look at the SES side of the show. Google Local head Eric Stein, Zorik Gordon from Reach Local, and Topix head Chris Tolles are just some of the great execs SES is bringing in. Kevin Heisler and Kevin Newcomb are moderating the SES panels.

The Kelsey Group also has its LinkedIn networking set up for the show. We’ve got dozens participating already. Once you register, you should sign in for that, too (even if you haven’t used LinkedIn for a while). See you in L.A.?

When it comes to third-party local ad sales, apparently, more is the merrier – especially with the powerful incentive of ReachLocal’s $300 million valuation. Yodle and Ambassador Internet are two of the more recent names to consider, on top of ReachLocal, WebVisible, Weblistic, Cornerstone, RHD’s LocalLaunch and Idearc’s Inceptor.

I met with the heads of Yodle (“Get Found!”) and Ambassador Internet Media last week in New York. Yodle, formerly known as NatPal, has 600 customers, and is selling itself as a branded destination. Ambassador Internet, a spinoff of Ambassador Yellow Pages, has 4,500 customers and focuses on consultative sales rather than a branded site. Both companies feature dedicated call tracking and measurement, and day parting “pause” capabilities.

Yodle was launched in 2005 by Nathaniel Stevens, a student at the University of Pennsylvania. It was developed in Wharton’s small-business incubator, quickly learning to stay away from the oversaturated restaurant marketplace and focus instead on services. “Caterers, yes; full-service restaurants, no,” says Stevens. This April, the company recruited Community Connect head Court Cunningham to be its CEO.

The company has developed a media planning tool based on machine learning, boosting click conversion rates and enabling businesses, among other things, to pause advertising campaigns (i.e., Jewish locksmiths can take Saturdays off). Stevens says 80 percent of the process is automated.

Yodle sells tiered SEM services as $500, $1,000 and $1,500 and provides advertisers with call-to-action “AdverSites” that include templated formats to make their information/copy points more searchable. The AdverSites include live chat, and also boast myriad “customer touchpoints,” such as appointment pages and special offers. In the future, it plans to launch click-to-call and coupons. The average buy is around $900.

It’s very early in the game, but the company’s top markets are currently Washington, D.C., Atlanta, Boston and New York, and it sells its services via a combination of inside and outside sales. The company had just three salespeople three months ago, but now it has 15. By the end of 2007, it hopes to have 20 to 24 salespeople.

Stevens stresses that a key differentiator is that the company plans to build the Yodle brand. “We want to be the OEM of local search,” he says. The company has raised $3.5 million from Bessemer Ventures and others, and hopes to raise up to $10 million more.

Ambassador, meanwhile, is feeding off a large independent Yellow Pages operation serving the New York metro area. It had previously worked with ReachLocal, but in fall 2005 opted to go its own way. It provides its customers with a five- or six-page Web site and typically takes out 20 to 30 keywords on their behalf, although it has the capability to manage up to 1,000 keywords. The average spend of its 4,500 customers is more than $2,000 per month.

“We get about $5,000 a year for print, and $25,000 for Internet,” says President and CEO Kathy Hipple, emphasizing why the Internet is where the action is for the company. The company also believes that the Internet allows it to better serve narrow, vertical categories (i.e., “mold resuscitation”).

While some companies are pushing a combination of SEO and SEM, VP of Internet Strategy Rich Hargrave says Ambassador is mostly pushing its SEM solutions. The problem with SEO – organic search results — is you can’t stay on top, he says. He adds that Ambassador sends it customers e-mail reports every day. “After a month, they are comfortable with them,” he says.

Currently, Ambassador has 40 people on the Internet side in New York, but it is also branching out with sales operations launched in Philadelphia, Tampa and Texas. There is also a national sales operation.