It's not just startups, either. In many markets, you've also got embedded competition from newspapers, radio, TV, and local magazines. And, of course, there's the national players like Groupon, Living Social, Google... The market is very likely disproportionately crowded for the amount of money you could feasibly extract from SMBs.
Local businesses in the US alone spend around $100 billion/year in advertising. I think you're underestimating the size of the market and how many companies it could support.
Small businesses often don't have the expertise to analyze things like ROI so often end up spending large amounts of money inefficiently (that restaurant with a 2 column 10-inch ad in the local newspaper typically pays around $80 per customer gained), there's a huge opportunity in this space.
