Local search may not be all that effective today based on the way people use search. However, isn't it conceivable that the way people search will change. One of the biggest arguements against local search is that local advertisers are not present. Many local companies will never embrace the web but there are many successful companies that do. I think it is a little too soon to rule this out or call it a failure.
Why Won't Local Search Carry Its Weight?:
"What can the engines do to make this market grow more quickly? They must make lots of changes. They have to build the local databases so I can find all the bike shops in my neighborhood. And they must find a way to drive offline leads to local advertisers."