What a Google-Yelp Deal Would Mean…

MIHMORANDUM NO. 577 | December 18th, 2009Reader Comments (15)

Hat tip to Ben Saren of Citysquares, who called me this morning before I’d even had a chance to check my feed reader! Greg Sterling relayed a TechCrunch story late last night on Search Engine Land saying that Google is in “advanced acquisition negotiations” to buy Yelp.  It looks like Matt Booth of the Kelsey Group’s quick math at last week’s ILM 09 show was inline with Yelp’s own hints — $45MM – $50MM in revenues this year.  The deal is rumored at $500MM.

From an Industry Perspective

I’m not  a VC expert by any means but my two cents is

  • that seems like a nice ROI but not amazing and
  • it seems like Google is getting an absolute bargain, given the multi-multi-billion dollar opportunity that Local represents over the next 5-10 years.

From Google’s point of view, it’s an anti-competitive buy.  Yelp has a passionate base of users that I don’t think Google’s sterile, lily-white brand is ever going to be able to engender on Google.com.  Yelp is absolutely becoming a destination site for Local among people in my generation (and apparently, even in Mike Blumenthal’s).  When we’re trying to discover a new business to visit, we often don’t even think about using Google–we’ll go straight to Yelp.  It’s a major problem for Google that they were starting to lose the Local destination game and they wanted to nip the threat in the bud.

Oh and by the way, Yelp’s category pages tend to rank in the top 10 organic results on Google for most locally-targeted queries anyway.

From Yelp’s point of view, I think it’s smart to sell while the company is still on the rise–the graveyard of web 2.0 companies have failed to sell at the right time is vast–although I’m surprised the valuation wasn’t higher.

It’s a bit of a blow to the other players in the industry that Google is essentially cornering the market on user reviews to-date.  But at the same time, there’s already a rising anti-Google sentiment among search marketers and techies that Google controls too much information, and that may affect some active Yelpers as well, and encourage them to start building their profile elsewhere on more independent players.

I don’t really see any pure IYP’s jumping into the vaccuum (again, thanks to Ben for that word) because they, like Google, don’t have the brands to be able to resonate on an emotional level with users.  But players like FourSquare, UrbanSpoon, Citysearch, JudysBook, etc., I think might actually welcome this move as an opportunity to build a contrarian brand.

From a revenue standpoint, it’ll be more important than ever for these kinds guys to form alliances as a way to say to small business owners “Look, Google/Yelp are 40% of the market; collectively WE’RE 40% of the market as well.”  Particularly forming consortiums among brands that have developed vertical respect like UrbanSpoon, Boorah, Zagat’s etc.

From a Small Business Perspective

Initially my thought was that any deal that made this ecosystem a little simpler would be a good thing from the perspective of the SMB. Provided there is some sort of integration between the LBC and Yelp for Business Owners, that should make the whole claiming/submitting/verifying process considerably simpler.

But, many of my clients already want to put all of their eggs in the Google basket, and that is just not a healthy business model.  How much further would a Gelp (Yoogle?) partnership skew that kind of thinking.

Additionally, ad buys on such a powerful network where every small business owner is competing are going to get prohibitively expensive for some SMB’s at some point…and they’ll need a cheaper alternative that actually brings them a positive ROI at some mid-term point in the future.

15 Responses to “What a Google-Yelp Deal Would Mean…”

  1. Malmborg says at

    I have to admit that I had the same initial thought, stream-lining your local business ability with the rest of your G-account and LBC sounds great.

    Overall though it shows that Google is wanting to improve its local offering for businesses in search when all is said and done.

    Thanks, for the thoughts.

  2. Domenick says at

    Something gets hot an Google is right there with an offer, that’s funny and smart. Can’t wait see what happens and if it does how it shapes out. I actually think it’s a very good potential acquisition, time will tell.

  3. Michael D says at

    Amazing news, I think this would be quite a move for Google for exactly the reasons you mention. I see use in multiple age groups but the 20-30ish crowd is who I encounter most. I also think more SMBs may actually have greater trust for the brand if acquired by Google.

  4. Sarah says at

    Brilliant move on Google’s part. They’ve just started rolling out their new “Favorite Place on Google” window stickers that are able to be scanned via cell phone to access the Google local listing, and this seems like the perfect addition to that – blending Yelp’s user base and existing reviews with their latest technology. I do hope we see others stepping up to fill the void of indie sites, though.

  5. David Mihm says at

    @Michael D – Re: Trust, Not if the support experience is anything like the LBC :) But I agree that the Google brand can help Yelp monetize much, much better. The customer-service angle is a serious one though, and I don’t mean to make light of it. I wonder if Google knows what it is getting into, given its preference for automation & algorithm in all facets of its business.

    @Sarah I also hope we see some new, indie players step up!

  6. David Kyle says at

    Your point to Michael D was what came to my mind when I heard this. There are so many issues with LBC that need to be addressed. If Google does acquire Yelp, they need to get LBC stable before doing any type of integration.

  7. Kyle Kazak says at

    Google could greatly benefit from the acquisition of Yelp. The entire Google local scene can be taken for a spin. Tons of new information being merged with the existing Google local profiles.

    @David, When I head that the figure was 500M I initially thought that it seemed a bit low, maybe it was just me. You also address a great point, the prices of ads on a content network like this will not be cheap. Possibly they can use the same model of rotating static priced ads for the local market.

    On time will tell.

  8. Mike Stewart says at

    Great summary of the implications and evaluation on the price tag. David, am I going nuts, or do I think it would have been a nice move for Google to acquire a position in a print publisher such as bargain priced publisher Idearc Media?

    Yelp just is not as popular in this area of the country. Although I love the user based review community.

    Yelp also understands search and authority more so than other Interactive Yellow Pages and Directories.

    Time for Dallas folks to get on board with Yelp. I already have them listed on client rating and review cards.

    Cheers,
    Mike Stewart

  9. David Mihm says at

    Mike, I think Google is partly banking on the fact that Yelp has figured out the “formula” for how to expand to new cities (as I commented on Greg Sterling’s blog). Kudos to Google for finally recognizing the need for PERSONAL rather than ALGORITHMIC outreach to the business community.

  10. Bryan Phelps says at

    Very interesting move…any speculations on other vertical search sites that Google can buy up?

  11. Mike Blumenthal says at

    David

    I would posit that even some of your generation recognize a quality experience when they find it :)

    I have been an avid Yelp fan since it first was rolled out to NYC

  12. Blogger Den says at

    This is actually some pretty interesting news for me, I wasn’t even aware this deal may be happening. It’s a smart choice (I think) for Yelp though, as it’ll allow Google’s ambition and team-building to really spruce up the site.

  13. Earlpearl says at

    I haven’t used Yelp much, possibly because I am of the ancient Mike Blumenthal’s age. We claimed businesses on yelp and got a sales call from them. No deal, yet. Gotta admit the sale was somewhat negative when the sales person referenced that they were going to offer the deal to a competitor. Pretty hardball. Not friendly at all.

    I looked at it hard for our business types. The business types don’t generate much reviews. On the other hand because of Yelp’s better quality of SEO and stronger rankings than any Yelp like site or an IYP they generate more traffic than others and deliver more to our websites. Still for those categories I like it.

    I’m sure one reason they deliver more traffic and get more visits, besides the serps…is that Yelp is an excellent site. Its definitely the best of its bunch. Its got an avid following, an inviting community, etc.

    Price wise…that offer of $ 0.5 billion for $45-50 million blew me away; again cause I’m probably an old fart like Blumenthal. At 45-50 million and ramping up…who knows if they are showing a profit if at all. Say they were showing $2 million in profits. That is $250/$1 profit. Yikes.

    Obviously its all about growth. Yelp could seriously grow like a weed and be dramatically more profitable if it catches on.

    Now its really city oriented, not suburban oriented. The five mile radius works in a city but it simply doesn’t work in the suburbs. I checked against a great restaurant in the DC area from where I live (which advertises (woot, woot) and one in the Bay area near my brother, where we have eaten.

    Do a natural Yelp search for my address and without advertising the gr8 restaurant wouldn’t have shown. Do a search in the Bay area where my bro and sis in law live and they wouldn’t have found Sam’s Chowder House in Half Moon Bay. Yet those are easily considered trips for a suburbanite.

    I think Yelp would benefit from Google engineering to create larger maps and bigger areas covering more choices. It would give the scope of visits off the site far more activity than via its current method. It would bring Yelp out to the suburbs with far larger populations and more usage.

    Yelp reviews would be added to the LBC. That would make it livelier and probably more believable.

    It would be a nifty purchase IMHO and could make the Google local info far more compelling.

    All in all I’d like to have Google’s money :D being able to consider or be able to buy a dollar or two (or less) of profits w/ $250….you have to have a lot of money to start with to be able to do that.

  14. Marketing Bully says at

    2010 is going to be very interesting it seems with Google working so hard to cover so many local angles. Looking forward to watching how it all comes together. The importance of local visibility due to the increasing iphone and similar device popularity has never been so obvious.

  15. Shubham says at

    The news is interesting for me..! Well don’t be evil..! hahhaha

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