"...Google Inc is in talks to buy Yelp Inc, the popular website for reviews of local businesses, in a deal that could help the Internet search leader tap a lucrative local ads market, media reports say.
Google may pay more than $500 million for Yelp, according to reports confirmed to Reuters by a person familiar with the situation. It came as the Web giant embarked on an acquisition spree that has netted at least five companies since August.
By swallowing privately held Yelp, Google would own one of the Web's most popular repositories of local restaurant and small-business information, including more than 8 million reviews penned by Yelp's users.
That trove of content and a heavy focus on local businesses could provide a valuable foothold for Google as it seeks to convince local merchants to shift their advertising spending to the Internet.
"The local advertising market is a multibillion dollar market that for all intents and purposes is still untapped on the Web," said Needham & Co analyst Mark May.
In July, Internet portal Yahoo Inc teamed up with AT&T Corp in a partnership that involved the phone company's 5,000 sales people selling Yahoo advertising inventory to local businesses.
News of the recent talks between Google and Yelp -- backed by Benchmark Capital and other venture capital firms -- and the $500 million price tag were first reported by the blog TechCrunch.
The source familiar with the situation said talks were currently bogged down by concerns among some Yelp investors that the company could be selling itself prematurely, and that it could be worth far more than $500 million if it had a chance to develop its business.
The source added that Friday's news stories may have been floated to put pressure on for the deal to be consummated at a price that was too low.
Apparently, Google has had its eye on Yelp for some time. According to one former Google executive, the Internet company had had "early discussions" with Yelp about an acquisition several years ago, but ultimately passed on the deal.
"Yelp doesn't monetize very well, so it's always a bit hard to justify an acquisition," the person said.
The local businesses that Yelp sells online advertising to are more interested in promoting their businesses through coupons than online ads, he added, noting he believed Yelp was still an unprofitable business.
Yelp was founded in 2004 and has received $30 million in funding from Benchmark Capital, DAG Ventures and Bessemer Venture Partners.
The acquisition talks are the latest in a string of recent deals by Google, including the $750 million acquisition of mobile ad firm AdMob announced in November, that are designed to extend Google's reach into new advertising markets.
The world's No. 1 Internet search engine generated roughly $22 billion in revenues last year, but has seen its top line growth slow from the 40 percent-plus clip it was managing as recently as early 2008.
Google has stepped up efforts to court local merchants recently, encouraging businesses to register their information on its small-business online directory.
But some analysts say Google will have its work cut out trying to sell online ads to local merchants more comfortable with traditional channels like local television, newspapers and the Yellow Pages.
Needham's May estimated that Yelp, which had 8.9 million unique visitors to its site in November according to comScore, is generating revenue at an annual rate of $15 million to $20 million.
"That's a pretty tough nut to crack," May said about selling online ads to local merchants. "Whether Google can crack the code on it, is still to be seen."
Here is my analysis of the (potential) Google - Yelp Deal
- With growth slowing down, it is becoming difficult to justify the high revenue multiple on its stock price, so its seems it is buying growth or, at least in this case, a (potential) growth engine
- Google has been trying to tap the locals market for some time but has not been able to make a splash despite its obvious strengths in search. Hopes Yelp would help it make a dent.
- 8 million + reviews (on Yelp) are useful (think user reviews on Amazon), but you know, these are not exactly like product reviews on Amazon. Restaurants change and so do people's tastes. So while there is a network externality, it may not be as strong.
- If Yelp's reveneus are really only 15-20 million then the quoted price ($ 500 Mn) is really over the top. Am sure if Google really commits even half of the money on local search it can do a better job. (Build Vs Buy)
- Surely, its not to get another bunch of great engineers ( Not at this price)
I think this deal (if it goes through) would be paid for mostly through Google Stock. One over expensive stock (currency) for another. Perhaps it would be best for both companies. Yelp's investors would happily cash out by selling Google stock in the open market and as for Google, it would would have acquired another growth engine where it has been unable to make a huge headway by itself.
PS: On second thoughts, Yelp + AdMob could be an explosive combination and help Google recover the price paid, many times over.