Start with community and get local search
Listen to "The Architecture of Participation" by Paul Levine, GM of Yahoo Local. Its focused on the marriage of search and local people looking for stuff.
Local communities in the offline world are all around us in the school clubs, alumni groups, PTAs, bars, networking events groups of all kinds, all different segments of population, with one thing in common - hudling of people seeking a common connection to find information about local referals to solve a specific problem NOW!
I think Yahoo groups is the largest collection of active online groups.
I think the solution to local search is not a typical search solution - search content and find information, focusing on better search algorithms and UIs around it. I think its one of bringing offline communities into the online world with little or no change in behavior to solve the problem they are looking for information, validated by their trusted network NOW!
The trusted community aspect is what made all the tagging community sites famous and built a community of people around them - friendster, delicious, kaboodle ...
It a low hanging fruit waiting for the larger portals and hosted players to marry this community into their existing group solutions and focus on the community and their needs which in turn should provide the local search solution as the end product.
They should not start with a local search product and find marketing to reach the community who will use it. Isn't our first wave of web 1.0 lession about personalization and customization?