I can’t recall the last time I used the Yellow Pages and it looks like companies are beginning to recognize this trend. The New York Times has an article on a study by the Kelsey Group which indicates that small companies less than 10 years old rely more on online advertising than listings on print Yellow Pages. The study found that 90% of small businesses less than 10 years old had a web site, 73% spent money on search engine optimization, and that 72% listed themselves on a specialized online or print directory. However, only 52% of small businesses less than 10 years old were listed in the print Yellow Pages.

The study also identifies the decreasing usage of print Yellow Pages by consumers as the main reason for the increasing use of online advertising by small companies. The Yellow Pages is primarily used to look up information on local companies, given that most Yellow Pages are restricted to a few telephone area codes. This means that the Yellow Pages are competing with local online searches, which accounts for almost 25% of commerce related searches online. If you compare the user experience of the Yellow Pages versus an online search engine, it’s clear why the online medium is superior. With the Yellow Pages, you have to find the thick, dusty book, find the appropriate category, and then scan the fine print for companies to contact. Even when you find a company, you really don’t know anything about the company other than the name, phone number, and the types of products/services they offer. With an online search engine that offers local searches, you enter a few keywords, specify your location, and you get a listing of companies with phone numbers, website information, other related websites, and even interactive maps. Although the localized searches are far from perfect (eg. search for plumbing contractors in Palo Alto returning Dura Spray Foam roofing contractors), it’s only a matter of time before the algorithms are refined and metadata issues are resolved.

Given that the global Yellow Pages (online and print) market was $25 Billion in 2002, online search engines have a tremendous opportunity to divert some of that spending into location based advertising and paid listings. The success of Google and Yahoo, both from a branding and technology innovation perspective, has created online search savvy consumers who understand the benefits and strengths of the online medium versus traditional Yellow Pages. It will be interesting to see which online search company executes on a cost effective model for attracting local listing and advertising from small companies and deliver a better local search experience.

Of course, another dark horse to watch is eBay which has figured out how to reach out to small companies and make them successful on the internet. With eBay’s online traffic, community, and technology platform, as well as their business platform, they could end up making a significant impact if they choose to do so. Given some of Meg Whitman’s comments, I’m sure we’ll see them in making a play in the local listings space for small companies.