Update: Jennifer Slegg has confirmed with Google that this new ad format is actually rolling out.

Last week while in SMX I noticed a new hyperlocal, very contextual ad unit that appeared above the Local pack and looked more like the local pack then an ad. Google has been on a tear monetizing local of late with the new ad units in Google Maps and Joy Hawkin’s uncovering of their plan to monetize the pack as well as possibly removing additional information from pack results.

This new ad display, for nearby businesses, is perhaps a test. And one that pushes the boundaries of identifying the ads as such with just the single notation at the top of the display.

There is obviously a distance factor in what displays but I also noticed that the business had to be open to appear. When I did this same search after 6:00 pm when several of the businesses had closed, they were no longer included. So in addition to ad quality and relevance, Google is adding proximity and open hours as factors in choosing which ads to display.

As Joy Hawkins pointed out in the Local U Forum: I think it’s definitely possible to show in surrounding cities but not as likely if there are lots of good competitors who are actually in that city with great AdWords accounts.

This new ad display though does give some clues about where Google is going with local ads, what pack ads might be like AND provide an indication as to how far out of the radius of the local pack they might be.

With the advent of Pigeon, Google dramatically decreased the radius within which a business might show in the Local Pack. Google effectively started showing different search results every 5 miles or so thereby increasing the absolute number of businesses that displayed in the Pack results and reducing the opportunity for domination by a few companies. By adding radius and open hours, Google dramatically increases the potential inventory opportunities for themselves to display local ads. And one assumes that over time the reach of these ads might mirror the radius of the Local Pack post pigeon.

I was curious in this first go exactly how far afield the Nearby Ads reached so I mapped the area of both the Local Pack and the Nearby Ads to get a sense of that. The Local Pack, in typical Pigeon fashion, showed the furthest result from my location at about 2 miles. The Nearby Ad on the other hand displayed the furthest location nearly 17 miles away. By the same token the nearest business in the ad to my location was only 1 mile away indicating that with more inventory a much tighter display radius is very likely. It will be interesting to see how Adword quality and relevance are valued compared to distance and open hours. And how these types of ads will impact spammy local results like locksmiths and movers (and botox and law and….).

Key:

Clearly both these Nearby Ads and the coming Local Pack ads will allow for early entrants to get increased urban and suburban exposure. But as the value of the ads become more obvious and there is more inventory I assume that not only will the cost go up but the radius and display port will become much much smaller.

And Google will continue its growth in Ad revenue. Even if searches do not increase.