The key difference is that a business (any business) will predominantly use social media channels to promote their products and services.

Local government on the other hand, have no products or services to sell. They are more interested in using social media to create online communities, and engage with local citizens.

It gives local governments a powerful means of engaging with harder to reach groups, such as teenagers and young adults. It can also be used to empower the citizens within the community. For example, Redbridge Council used online polls to solicit feedback in relation to the closure of local Post Offices.

Social media is a vehicle for social inclusion.

It may take some planning and effort to get there, as this article hopefully highlights, but using social media is a faster, cheaper and more effective means of engagement than the alternatives.

How do the needs of local government differ (if at all), from that of a small business?

I imagine them having access to more data, which would help a great deal on the demographic refinement side of things, if not the implementation.

Like the implementation of any tool or technology, you need to have a sound plan in place before proceeding.

The killer app may be out there somewhere, but not at the present time.

Also interesting to me is your observation that most successful uses of social media have been in small scale projects addressing specific needs. This conflicts with my natural impulse toward the comprehensive killer app, but is more consistent with my experience with social media, both personally and as a corporate communicator.