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Yodle, a company that helps small businesses buy online ads to market themselves locally, has raised $10 million in third-round funding to continue product development and expand sales nationally. An alternative to Yellow Pages, the New York-based company aims to turn click-throughs into direct-response phone calls and new customers for small, local businesses like salons and mechanics.

Yodle actually purchases the keyword-linked ads called up on search engines like Yahoo, Ask.com and Google (it’s an authorized Google Adwords reseller), among other sites. These ads redirect traffic to the business in question’s web site — unless it doesn’t have one, in which case Yodle builds what it calls an “adverSite” for the company. Operating on a direct response model, Yodle says it only charges for clicks or ads that result in calls to businesses.

Today, the company claims 5,000 customers. It says it’s seen a 700 percent jump in revenue from 2007 to 2008, attributing the growth to two facts: first, that 75 percent of consumers search for local services and businesses online, and second, that local business owners have caught on to the importance of online advertising but don’t know how to do it effectively themselves. Last month, Yodle said that its clients make $7 in profit for every $1 they spend to advertise through the service — down from its claim of $12 profit in 2007. It charges an initial fee of $447 and allows clients to budget anywhere between $900 and $5,000, according to an article on Forbes.com.

Predictions of an overall decline in ad spending in 2009 don’t bode well for the company, though some reports say that search ads will hold up better than display ads. Revenue growth is also forecasted for local advertising companies as more small businesses, pinched by the recession, turn to the internet to reach larger audiences for less money. Yodle’s bigger challenge may be its competition, including Ingenio, a pay-per call advertising firm acquired by AT&T in 2007, ReachLocal, Clickable (which raised $14.5 million in July) and MerchantCircle, which also tracks reviews written about its client businesses and lets them create online coupons. While it’s clear that local online ads are here to stay, there might not be enough to go around yet — considering a projected slowdown in market growth from 47 to 7.8 percent.

The recent investment round was led by AFCO Ventures, and included Draper Fisher Jurvetson Growth, as well as previous investors Draper Fisher Jurvetson and Bessemer Venture Partners, bringing its total capital raised to $25 million.

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