Yahoo Offers Free Web SitesYahoo Offers Free Web Sites

Yahoo Inc. said Wednesday it plans to offer free Web sites to small businesses as part of its Yahoo Local service. By bringing more businesses online, Yahoo aims to improve the local search experience for customers while establishing positive relations with potential online ad buyers.

"There are over 26 million small businesses in the U.S., approximately half of which do not have a Web site," says Rich Riley, VP and GM of Yahoo Small Business. "So one of our goals is to make it easier than it's ever been for a small business to create an online presence."

Once those businesses have Web sites, they may be inclined to buy online ads. "Yahoo really recognizes that small businesses are great revenue streams and it's a good idea to establish a relationship with them quickly and early and easily," says JupiterResearch analyst Gary Stein. "From there, once they have a Web page, the quickest thing that they can do is sell them search ads."

Last month, a study by market research firms The Kelsey Group and ConStat, Inc. found that 70% of U.S. households now use the Internet as a source of information when shopping locally for products and services. That's a 16% increase since October 2003, making the Internet comparable to newspapers as a resource for local shopping information.

And because the local advertising market looks promising as a source of revenue, local search has been an area of intense competition recently for AOL, Amazon's A9.com, Google, MSN, Yahoo, and online Yellow Pages services like CitiSearch. In a research note released earlier this month, the Susquehanna Financial Group LLP suggests that local online advertising represents a market opportunity of $3 billion or more, at least as much as the national sponsored search market.

Yahoo's free Web site is really more of an online phone and address listing. It lacks the interactivity and e-commerce offerings typical of savvy online merchants. "This is for businesses that don't yet have an online presence," says Riley. "And they might start with this and realize that it's not as hard as they thought it would be, that having an online presence really is a high-return proposition, and over time, want to build-out E-commerce functionality as part of their online presence."

More advanced features are available for a price.

The more small businesses avail themselves of this service, the more valuable Yahoo's Local Search service becomes. But it's not clear how valuable Internet advertising is to small businesses that aren't already online. "One of the problems that Yahoo has selling to small businesses, especially local businesses, is that they say, well, you pay for a click," Stein explains. "A click to what? They don't have anything that people can click to."

What small businesses value, Stein says, is a phone call.

Later this month, AOL Search, in conjunction with a company called Ingenio Inc., plans to sell online ads aimed at generating phone calls rather than clicks and Web site visitors.