I think in terms of whether a niche search engine could be useful (and even better that Google in its niche) I believe that it could.
But I think there are problems in terms of acquiring an audience.
Search is an activity everyone is accustomed to, and my belief is that searchers are used to picking a search engine, and sticking with it. I don't know many people that go to more than one website to search for things, other than perhaps on-site searches at Amazon and similar.
So, to be successful, it would seem you would need to both take people away from Google, and then send them back to Google when their search was not location-specific - without them just sticking with Google! I think that's a pretty big challenge!