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MIHMORANDUM
No. 577
December 18th, 2009


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What a Google-Yelp Deal Would Mean…

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.