Citysearch announced today that it has shifted its ad model for small businesses, moving from the cost-per-click model that it pioneered several years ago to a new model that will drive consumers directly to their own Web sites. The new model provides advertisers with a complete range of SEO and marketing services across the CityGrid network of 100 Web and mobile partners.

The new services are being offered as “CityGrid Complete,” and will use Orange Soda as a partner. As part of the announcement, Citysearch also announced an investment in Orange Soda, which competes with the likes of ReachLocal, Yodle, WebVisible, Marchex and MatchCraft to resell search engine advertising and optimize content. Orange Soda currently works as a reseller for media companies such as Gannett and Freedom Interactive, and also works with franchise operations such as Remax and Jiffy Lube.

Neil Salvage, Citysearch executive vice president of sales and service, said the announcement is consistent with the enlargement of his own job description, which now includes product development on the merchant side. Salvage acknowledged that Citysearch has had a “not robust” search engine marketing platform, and has been searching for a better solution for 18 months.

“We talked with everybody,” Salvage said, and came to the conclusion that Orange Soda is a superior solution with a “robust back end oriented system.” Its SEO solutions “fit somewhere between ReachLocal and Yodle,” he added.

To Salvage, what’s really important about the announcement is that Citysearch is moving away from its complex cost-per-click sales model and toward a fixed-fee model that will boast a wide bundle of services. The move should allow Citysearch to increase its monthly yield from$600 to $800 per advertiser to more than $1,000, said Salvage. “That’s where we need to be.”

Cost-per-click overemphasizes the reseller factor and has become “old school,” added Salvage. “It was built to go after Yellow Pages, but wasn’t really appropriate because the Citysearch product set did not really support that. It was an entertainment site. Now we want to focus our time and energy on platforms and the process,” he says. “We are focused on signing up more publishers, not on owning the [SMB] relationship. ”

Citysearch CEO Jay Herratti is a keynote speaker at Marketplaces 2010, which is taking place March 22-24 in San Diego.

As it readies its expected public offering, ReachLocal is branching out beyond its roots as a third-party SMB reseller for Google and others. First, it started selling display. Now it is set to offer improved search optimization, digital presence and reputation management via the acquisition of SMBLive.

Other companies in the space have made similar moves to branch out beyond their reseller roots to solidify their relationship with SMBs. Marchex and Yodle, for instance, have major organic search and reputation management initiatives under way.

The acquisition of SMBLive will enable SMBs to use Reach to publish multimedia content from a single interface to a business profile page, as well as to local directory sites, search engines and social media sites, including Twitter and Facebook. In addition, Reach will monitor local review sites, social media sites, and local blogs for references and comments related to the SMB.

SMBLive occupies a rapidly evolving space that also includes such companies as Google, Yahoo, YellowBot, MerchantCircle, ShopCity, Brownbook and various IYP sites. It started out providing upsellable free Web sites for ISPs that had separated from their Yellow Pages business. A couple of years ago, it launched operations for BT TradeSpace. Last year, it also launched TelMex.

The company has continually added features, such as video and blogs. But the company has recently focused on scalable cloud profiles that are entirely Web based and enable “write once, publish many times” functionality.

SMBLive’s Cloud Profile also enables SMBs to publish updates using e-mail and SMS text messages — tools that they’re already comfortable with. The service also includes a “virtual coach” to remind and encourage SMBs to regularly update their profiles and engage prospects in online conversations.

Are we omniscient? In our year-end predictions, BIA/Kelsey SVP Matt Booth predicted that “mergers and acquisitions between vertical ad platforms and social marketing companies” should be watched for.

Yodle, the third-party SMB reseller, has now divided its business into “Yodle Sponsored” and “Yodle Organic.” The formation of the latter division, which has been live for a month with 150 clients, is a recognition that SMBs are increasingly relying on organic search as much as paid search — and they need help driving exposure to their Web sites, blogs, YouTube, and social sites such as Facebook and Twitter.

For $400 a month, with six-month initial contracts, Yodle Organic is set to pump up its clients’ organic search rankings. It will provide personalized consultations, design and code Web sites to maximize search rankings; help create and syndicate video; distribute local business profiles to search sites and directories; and provide a dashboard that allows SMBs to measure goals.

Yodle CEO Court Cunningham says the timing feels right. “SEO’s price-per-lead and price-per-click is substantially lower than SEM. But it isn’t ‘either-or.’ They complement each other,” he says. “SEO takes time to build your site so it becomes visible and builds authority in the eyes of the search engines. It is about building equity in a brand that is long lasting.”

The challenge is to properly scale the effort for each client and make money — Yodle gets an average of about $1,000 per month from its 7,000 paid search clients. “No one has productized and automated and put clear accounting” around something like this, he says. But “we’ve been building Web sites for three years. We’re experts in automation.”

Still, it is an ongoing experiment as Yodle works to get clients non-paid traffic in such new areas as maps, article sharing sites and even Google’s 7 Pack. “We look at these things as organic distribution,” says Cunningham.

Content production is probably the biggest question mark for Yodle (and for any company entering this space). Out of the gate, Yodle is using a combination of external contributors, internal editors and curated content from other sources. It hopes to provide at least 10 fresh pieces of content a month to each client.

Three years ago, BIA/Kelsey created the Marketplaces research program and conference because we saw that local advertising was quickly “verticalizing.” Indeed, money and talent have poured in for the new breed of vertical products that would take their place among existing vertical success stories, such as AutoTrader, Cars.com, Realtor.com and ServiceMagic.

The Marketplaces 2010 conference reveals just how fast the industry has evolved. This year’s event, now under construction, is set to highlight all the major trends in Marketplaces, including:

• AOL’s $50 million investment in Patch.com, and ongoing transformation of its Mediaglow vertical properties (and Mapquest)
• eBay’s renewed efforts to build up classifieds as entry-level e-commerce via Kijiji, eBay Motors and other services
• Examiner.com’s  big bet on local/vertical content, and its network of 26,000 “examiners.”
• Groupon’s “smart mob” theory of local commerce, backed by a $32 million investment, that allows hundreds to make a volume purchase of local services and products.
• Redbeacon, AlikeList and others’ efforts to remake ServiceMagic-like home and trade leads with social media
• Adify and Pulse360’s  bid to verticalize ad networks for local merchants and national brands
• OpenTable’s big bet on mobile to let diners make reservations wherever they are.

The two-day conference takes full advantage of its location in sunny San Diego. It includes rich research presentations, top-flight demos of the latest services, and a preconference showcasing all the best tools of Marketplaces 2010. Come to San Diego March 22-24 to learn, enjoy the unbeatable networking and participate. You can register at early-bird rates here.

CONFIRMED SPEAKERS (in Alpha)

• Ethan Anderson, CEO, Redbeacon
• Jeff Beard, CEO, Localeze
• Rick Blair, CEO, Examiner.com
• Jon Brod, EVP, AOL*
• Craig Donato, CEO, Oodle
• Jim Delli Santi, CEO, AlikeList
• Todd Dubner, SVP, NCI
• Russ Fradin, CEO, Adify
• Krista Glotzbach, VP, Vast.com
• Mark Goldstein, Chairman, Loyalty Labs
• Martin Herbst, GM, Kijiji U.S., eBay
• Scott Jampol, Senior Director, Marketing, OpenTable
• Jaan Janes, CEO, Pulse 360
• David Kidder, CEO, Clickable
• Steve Larsen, CEO, CallSpark
• Andrew Mason, CEO, GroupOn*
• Colin Pape, CEO, ShopCity
• Ben Saren, CEO, CitySquares
• Craig Smith, President, ServiceMagic
• Mat Stover, CEO, Local Matters
• David Vazdauskas, President, Local Thunder

*keynote

Google CEO Eric Schmidt addressed newspaper publishers this morning at the NAA Annual Convention in San Diego, giving a high-level, thought-provoking talk (without apparent notes) about the future of information and the role that newspapers, search and consumers will play in it. (While I attended the event, the talk was streamed online here.)

Schmidt noted that there are basically two models of information: the newspaper of record and Wikipedia/user-generated content. Given the rapid shifts in technology and consumer patterns, there’s going to be some integration between the two, and we are going to have to relearn what a “newspaper of record” means. Reporting “is what newspapers are ultimately about,” he says. “Knowing all things that happen in a local environment, a national environment and a global environment.”

Schmidt suggests that it will be marriage of reporting and reliable networks of communication, such as cloud computing. One example of such a marriage was Google’s mapping this year of Flu Trends. “It provided early, instantaneous analysts that gets ahead of everyone else” and had real societal importance, says Schmidt. Looking forward, Schmidt anticipates databases providing instant “BS detectors” for politicians in debates and other forums. “It’s the most obvious,” he says.

Mobile also plays an essential role in Schmidt’s vision of user empowerment. “It isn’t obvious, but it represents a fundamental change — all in a local context. If you like history, you can walk down the street in San Diego, and the phone can tell you the history of every building,” he says. “We never had these kinds of tools before to use, and perhaps, misuse.”

The ultimate goal is “to get 1 billion people with this kind of power in their hands. It is easy. That many mobile phones are being built in the next couple of years with this kind of capability. The underlying platform has now been built, and all the mobile operators are now building services with the kinds of capabilities I am describing.”

While the Web and mobile is our future, right now, Schmidt concedes the UI needs a lot of work. “The Web is still relatively unpleasant to read,” he says. “Think of the joy of reading a magazine. It is the most wonderful experience. Why can’t we recreate the same thing on the Web? The online experience is terrible compared to the wonderful experience of magazines and newspapers. It is a fundamental thing we don’t do very well on my side of the world.”

But personalization will be a factor in making the Web better to use, he says. “People consume information in many, many ways. Now we have the opportunity” to get away from one size fits all. And “we need new formats for journalism that will work for all platforms.”

The newspapers’ lack of knowledge about their readers especially has to evolve, says Schmidt. “Why doesn’t the newspaper know what I read yesterday? It is easy to remember this kind of thing. The new model is knowing you have already read this … you can tell me what has changed.”

User-generated content also plays a major role in all this. “The reality is the vast majority of information is not being produced by any traditional means. It is being produced user-to-user. That’s another fundamental change. People care a lot about what their friends are doing.”

But what is the business model, going forward? Schmidt notes that “the Internet doesn’t respect traditional scarcity structures. We think the answer is advertising,” he says. “Of course we have a bias. Ninety-eight percent of our revenue comes from advertising.”

While Google’s cash cow is text ads, Schmidt says the company has to keep pushing the envelope of better story telling — “ads with narrative and engagement.” User engagement is key to all this. “When you go the movie theater, people will be twittering: ‘Oh, I think he is wrong,’ or ‘this is going to happen next.’ We’ll have mood mapping in real time,” he says. (Google is rumored to be in talks to buy Twitter.)

But Schmidt also sees subscription-based models making a comeback, perhaps using Kindle as a core platform. “Kindle is very successful,” he says. “It is another example of cloud computing for specialists. It is a model that works, economically and technologically.”

Schmidt noted that the model for subscriptions going forward is probably television, which is segmented into free TV, cable TV and on-demand paid TV. “The vast majority [of this] deals with the free model. But micropayments are getting to be possible.” Before, transaction costs were so high that you couldn’t do things that cost one or two cents. But now, “with aggregation, you can do this.”

So — given the venue, does Google believe there is a future for newspapers? Schmidt gives newspapers kudos for being early to embrace the Web. “They understood repurposing of the Web. They had their reporters blog. But there wasn’t an act after that. The act after that is much harder. How do you keep a user’s engagement? How do you keep from being disintermediated?”

The IAB and PricewaterhouseCoopers are out with their semi-annual report on the online ad market. IAB/PWC say that interactive revenues were $23.4 billion for 2008, which is up 10.6 percent from the prior year. But everyone seems to be pointing to ominous signs, since the share of second-half revenues was just 51 percent — the worst showing since 2002.

Big trends in the report: Search revenues have gone from 42 percent to 46 percent, display has gone from 35 percent to 33 percent, and lead generation-based revenues have climbed from 6 percent to 7 percent. Meanwhile, classifieds (which include Yellow Pages and auctions) have declined from 14 percent to 13 percent. More startlingly, pay for performance has really boomed, growing from 51 percent to 57 percent of all ad revenues. CPM, meanwhile, has declined from 45 percent to 39 percent.

Kelsey Executive VP Matt Booth notes the report is slightly lower on search and display than Kelsey’s own forecast (although Kelsey forecasts a decline of 8.4 percent this year across all local ad market segments). Given that, Booth is concerned that people may draw the wrong conclusions about interactive’s growth.

“The assumption is that the driver for ad spending is ROI because ‘pay for performance’ is growing and CPM is shrinking if you look at share of both formats,” says Booth. “This is somewhat misleading. The fact is, most advertisers, especially in local, don’t measure ROI; they measure immediate gratification. Getting a quick result is different than getting a good ROI. CPMs are dropping because inventory is skyrocketing, combined with weak national and brand buys.”

It’s important to keep a declining growth rate and ominous signs of slowdown in perspective, Booth adds. “It’s a time of transition and increasing fragmentation. New ad formats are emerging. Let’s remember that after 2002, the ‘minor’ ad improvement called ‘paid search’ started to grow exponentially. If you’re curious, paid search was $1.0B in 2002, $2.1B in 2003 and $3.3B in 2003. We’ll see a similar acceleration of some interactive segments over the next few years.”

Kelsey’s own assessment of the online ad market — specifically, the interactive local ad market — has made Booth more bullish then in any previous year. “In 1997, everyone expected the market to crash and begin a large-scale transition from print to Internet media,” he notes. “What people expected to transpire then is basically happening now.”

“If you think about classifieds, for example, dealers used to buy a newspaper print ad. Now, companies like AutoTrader are selling subscription ads with search views, display ads, call-tracking, lead-gen, photos, inventory collection, etc. These products span traditional ad categories like ‘search,’ ‘display,’ ‘lead-gen’ and ‘classifieds.’  Mobile certainly spans several categories,” Booth says.

“AutoTrader is going to put up slightly less than $700 million this year in top-line revenue,” notes Booth. According to Kelsey’s research, AutoTrader is receiving the majority of the auto spend transition from traditional media.

In the next 24 months, Booth believes “we’ll start seeing an acceleration of product development around local.” He’s especially impressed by efforts such as Citysearch’s to bundle local content and local advertisements to create “a new type of AdSense for local — one that distributes Citysearch’s local content and along with monetization.” Free local content along with money — it worked for Urbanspoon and it will work for others.

Booth adds that “a new category — ‘E-Mail, Presence and Reputation Management’ (EPRM) — will emerge this year in local. This EPRM segment will grow to $3.1B by 2013. Helping businesses manage their communication and Internet presence will fast become the next interactive growth driver.”

At The Kelsey Group, we’ve come to appreciate that our new owner, BIAfn head Tom Buono, is a major strategist. While Buono’s roots are in the finance of traditional TV, radio and newspapers, he’s mostly thinking about their next steps in the Internet era — and the next steps for local media in general.

In an interview with TVNewsday Editor Harry Jessell, Buono notes that BIAfn’s perspective is that it is all part of a “media ecosystem.” “When you introduce some kind of disruptive force, the whole ecosystem changes,” he says. “We’ve seen this happen over the history of media. Now we’ve got the Internet entering and the Internet just dramatically changes the media ecosystem in terms of relationships, in terms of accountability, in terms of transparency, how quickly you can see ROI information, the cost-per-point differential and actually shifting from cost per point to cost for leads or actual performance in terms of purchases.

“Unfortunately for print media — newspaper, yellow pages, magazines — they’re very vulnerable to what’s going on,” Buono observes. “Longtime heritage newspapers are going out of business because their business model can’t adapt to this new environment.”

TV stations, however, are more adaptable. “Television is much better situated for survival and actually can thrive, but it needs to be redefined in terms of what the business it is in,” says Buono. To adapt, however, TV stations must redefine themselves as being community portals or content providers of local content. “TV broadcasters have to start looking at their business differently and saying. I’ve got these assets. I’ve got the ability to generate content locally,” he says. “I’ve got a sales force that can go out and reach advertisers. I’ve got a local identity already established in this marketplace. I have a brand that has value. I have got an audience that already follows what we’re doing. How do I capitalize on that?”

Sales are also critical. “The sales force needs to be trained differently. They have to be selling multiplatform. They can’t just be selling spots on a TV station. They need to be selling a whole range of services for local advertisers. It’s how can I help the local advertisers be successful, not how can I sell spots on my TV station.”

“In summary, the current economic pressure may be substantial and must be addressed,” says Buono. “But the long-term survival of existing traditional media depends on them undertaking internal and external reviews and taking new and different action to transform their business model to succeed in this changing media ecosystem.”

Local.com, the public company that started life as Interchange Corp., observed its 10th anniversary last week, complete with a red balloon-festooned party at its headquarters in Irvine, California, and an upgrade of its three-year-old, local ad distribution agreement with Idearc’s Superpages.com.

There are, of course, a lot of pieces to Local.com, which has evolved right along with the local ecosystem. It includes the local directory/city guide sites, the outside sales force selling “Local Promote,” the networks, a mobile site, an SMS site, a U.K. site, and its growing “Local Connect” private-label directory service (formerly PremierGuide).

The expanded agreement with Superpages illustrates how some of the pieces can be leveraged. Under the deal, Superpages.com’s performance-based and subscription advertisers now receive preferred placement on Local.com’s 700+ regional sites. The expanded agreement also includes distribution of enhanced content from Superpages.com advertisers, including ratings and reviews and links to enhanced local business profile pages and videos.

I’ve often pondered CEO Heath Clarke’s vision. It goes like this: “Local is really big. If you scale it right, you don’t need to be No. 1 or 2 to make a go of it — you just need to get a few percentage points, and then leverage it.”

Clearly, SMB marketing is no longer just about local search and directory listings. While search remains an important piece of the pie, display is emerging in its own right.  Marchex, AdReady, Cobalt’s Admission, MediaTraks, Mixpo and Jivox are among those companies that have been targeting SMBs and others for display (and rich media) solutions.

Now, ReachLocal, the independent sales company that pitches local SMBs on alternatives to Yellow Pages advertising, says it is going into selling display ads as well. The company has offices in 30 U.S. cities, as well as operating units in the U.K., Canada and Australia.

The launch of ReachDisplay “employs remarketing and optimization to make customer acquisition for local advertisers a better value,” notes the company’s press release. That’s a lot of jargon, but it means two things: It is cookie-ing consumers who have previously visited a Web site and using the knowledge about consumers to create ad hoc local networks.

AlmondNet actually pioneered the practice several years ago, sharing high CPMs from highly targeted advertising with media providers that allow it to take an ad and place it on a network that features similar content.

Marchex, during its 3Q earnings call today, reaffirmed its focus on providing ad solutions for the local and vertical search space, noting that it currently works with 80,000 local advertisers via 110 local partner relationships, including AT&T and Idearc. The advertiser count is up 5,000 from the previous quarter. By the end of 2009, the company expects to serve 100,000 local advertisers, despite worsening macroeconomic conditions.

The company also continues to sign up new partners, most recently adding the Barrington Broadcasting Group of local TV stations. The broad distribution of services in key verticals is “an important factor in forming relationships with … companies like Barrington,” says CEO Russ Horowitz.

Horowitz also notes that advertisers are exposed to 33 million visitors to its thousands of domain sites, Marchex Connect profile pages and the OpenList city site. That’s up from 32 million during last quarter.

Horowitz says no other provider services 80,000 advertisers with campaign fulfillment and ownership of key features such as call tracking and the AdHere performance-based network of premium services (formerly known as Industry Brains). The result, he says, is an effective bundle of lead packages instead of merely selling a fixed number of clicks.

Still, while Horowitz contends that Marchex is more than holding its own against the competition, it is tough out there with the bad economy. “We are realistic about the impact of the economy on all national ad dollars, including those that are spent marketing locally.” But they’ll be less affected because of online advertising’s “accountability and transparency.”

Horowitz added, however, that Marchex is slimming down in some areas in order to focus more on local and vertical. It made $4 million in the past two quarters, for instance, from the sale of nonessential domains (it has 150,000 domains). It also is de-emphasizing Sitebox, its third-party Web site optimization business.