Last year was a frenzied one for local online advertising, reminiscent of the dot.com boom years, with ad spending exploding by 79 percent, to $4.9 billion.

This year looks set to bring another spurt of growth, according to Borrell Associates, which tracks online ad spending in local markets. Local ad spending will rise $5.8 billion, up 18.4 percent, according to the latest Borrell forecast.

While that's hardly the pace of 2005, this year local web advertising will reach an important milestone, one with tremendous symbolic value: The largest local web site in most markets will generate more in ad sales than the largest-grossing radio station in that market, predicts Borrell.

“These sites are successful. They are real. And advertisers are figuring this out,” says Colby Atwood, vice president of Borrell, of Portsmouth, Va. The Borrell study, titled “What Local Web Sites Earn: 2006 Survey” and out this week, is the company’s fourth annual report on the subject.

For the report the company analyzed the web revenues of 2,266 local media properties, including daily and weekly newspapers, radio stations, TV stations and independent local sites.

Borrell researchers believe that there are several reasons for the surging local online ad revenues. For one thing, local advertisers initially took a wait-and-see approach to internet advertising.

“Now they have waited and seen, and it is time for them to get on,” says Atwood.

What’s more, traditional local media companies, national internet players and local entrepreneurs have all begun to push ad sales of their local internet initiatives.

The result was last year’s rampant growth. And even as the big web site in many markets looks set to overtake that market’s biggest radio station this year, there are other potential milestones looming.

“With double-digit annual revenue growth over the next four years,” says the report, “it is conceivable that a large local web site could gross more than the largest cluster of radio stations owned by a single company in its market by 2010--and perhaps more than the largest-grossing TV station.”

Looking at the dynamics of the markets, the report concludes that local newspaper sites continue to dominate the local online advertising, taking in 41 percent on average of all local online advertising revenue in 2005. Newspaper online advertising revenue was up 67 percent to $2 billion in 2005.

However, local newspaper web sites are expected to face increased competition this year from local TV station web sites, which, with online revenue of $283 million, accounted for 6 percent of the locally spent online advertising revenue in 2005.

What is driving the online push of TV stations is the growth of broadband. Newspapers saw early internet growth, drawn by the static text and pictures format that so closely resembled their print editions.

But with broadband, and the opportunities for streaming video and audio, TV stations are ramping up their online activities. 

Borrell's Atwood sees only modest growth for radio web site advertising this year. Radio web sites, which now account for 1 percent of local online ad revenue, are not positioned for major growth in share in 2006, but Atwood is anticipating stronger results in 2007.

Another challenge to the local newspaper sites has been the increasing amounts of money going into search advertising, now accounting for some 9 percent of local online advertising revenue. Much of this spending is with national search engines.

In fact in all, one-third of local online advertising revenue aimed at local consumers is actually going to national search and pure-play companies like Google, Craigslist and Yahoo.

Looking at the types of online advertising that are expected to grow, Borrell forecasters believe that the strongest growth will be in forms of targeted advertising. As such strong growth is expected for local search advertising and direct online marketing opportunities like opt-in email.