Google to buy Yelp

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December 19, 2009

Google Said to Be Near a Yelp Deal

SAN FRANCISCO — Google is in discussions to buy Yelp, the Web site that lists and reviews local businesses, according to three people who had been briefed on the negotiations. The talks show how intently the biggest Web companies are setting their sights on the smallest neighborhood businesses, where they see a large and untapped group of advertisers.

Google and Yelp have not signed an agreement, the people said. The people would not disclose the proposed price, but one said it was more than $500 million.

Google and Yelp declined to comment.

“It’s the strongest testament that Google really wants to own this local market, not vicariously but directly,” said Greg Sterling, the founder of Sterling Market Intelligence, a San Francisco company that researches on local businesses and the Internet.

Web companies big and small are trying to give people information about restaurants, news and events within a few blocks or miles of where they are. Yelp dominates the market for local business listings and reviews in big cities.

Those services are becoming more important as the popularity of smartphones grows. The cellphones are connected to the Web and equipped with GPS so advertisers can know where a person is standing.

Yelp, for example, gives away an iPhone app that searches for businesses within walking distance. It displays what people are saying about restaurants and bars in real time. Google recently began distributing stickers displaying a type of bar code that businesses post in their windows. Passers-by can scan the codes with their cellphone cameras to get coupons or information about the businesses.

The proposed deal between Google and Yelp could still come apart, one person said, particularly if another suitor comes forward now that word of the talks has leaked. Many Web companies, including Microsoft, AOL and IAC/InterActiveCorp., have made local content a priority.

For Web companies that sell advertising, mom-and-pop businesses like dry cleaners and cafes are an untapped $29 billion market, according to BIA/Kelsey, a Chantilly, Va., company that researches local business advertising. Such companies account for 98 percent of businesses in the United States, Mr. Sterling said.

But many of these companies are not advertising online, often because the paper phone directories, like the Yellow Pages, have served them well for years and they are unfamiliar with how to advertise on the Web. Signing them on as advertisers requires a sales force to go door to door, which many Web companies, including Google, do not have.

Yelp, which was founded in 2004 by two PayPal veterans, Jeremy Stoppelman and Russel Simmons, has built such a sales team. That team — two-thirds of Yelp’s 300 employees — probably is its biggest draw for Google, which has recently shown interest in signing up traditional small businesses as advertisers, Mr. Sterling said.

“Google doesn’t need any technology that Yelp has to offer,” he said. “Yelp has content, a community, these hooks into the local market with this sales channel and this brand that is much stronger and more identified with local than Google.”

An acquisition of Yelp by Google could revive concerns about the neutrality of the search engine as it expands its stable of content sites and points to those sites in its search results.

“Google as a search engine is supposed to point to people who have content, not have content of its own,” said Danny Sullivan, a veteran search analyst and the editor of Search Engine Land, an industry blog. “That’s why people trust it.” Mr. Sullivan noted that Google’s search results already frequently point to content on YouTube, Blogger and other Google-owned sites. Maintaining the trust of users will be a challenge for Google if it acquires new content properties like Yelp, he said.

Some analysts have raised the possibility that a deal could attract antitrust scrutiny.

Google has been showing greater interest in the local business market. It has expanded its local business profile pages, which include reviews from other Web sites, location, hours and maps. Google has also been reaching out to local businesses with simpler ways to advertise on the search engine.

Yelp, which has raised $31 million in venture capital, is on track to bring in about $30 million in revenue this year, one person briefed on the company said.

It makes money selling sponsorships to businesses. For $300 to $1,000 a month, their ads appear atop search results and on the profile pages of competitors, and businesses can post slide shows of photographs and prevent competitors from advertising on their page.

Yelp has also raised the ire of some small businesses, who complain that customers who write reviews on Yelp have too much control over how the public perceives companies and that Yelp does not disclose enough about how it determines the order of reviews on its site.

The acquisition talks were first reported Thursday by TechCrunch, an industry blog.

Miguel Helft contributed reporting.