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Yelp Acquisition May Boost Local Ad Revenues for Google
Yelp Acquisition May Boost Local Ad Revenues for Google

By Jennifer LeClaire
December 18, 2009 10:17AM

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Google is reported in advanced acquisition talks for Yelp, which has been successfully working with local businesses. With about $30 million in revenue, Google could pay $500 million or more for the Yelp community. An analyst said if Google buys Yelp, it could have a dramatic impact on local advertising markets.
 



Technology acquisitions continue to make headlines in a down economy. With Google, Apple and Microsoft going tit for tat on the acquisition front this year, Yelp could be the next digital property to get scooped up. Google may pay $500 million or more.

According to published reports, Google is in the advanced stages of Yelp acquisition talks. Yelp was founded in 2004 with a mission to help people find local businesses, and the idea caught on. As of November, more than 26 million people had visited Yelp in the past 30 days.

Users, called Yelpers, have written more than eight million local reviews. Business owners can set up free accounts to post offers, photos and messages to customers. Yelp makes money by selling ads to businesses, and some reports suggest Yelp has about $30 million in annual revenues and could see as much as $50 million in 2010.

Yelp's Familiar Revenue Stream

Greg Sterling, principal analyst at Sterling Market Intelligence, said the Yelp deal makes strategic sense for Google. Google has increasingly focused on providing content and services to local markets, such as on Google Maps. Yelp would sharpen that focus.

"Yelp is very strong. In many markets it's got the strongest local brand. It also has a very active community," Sterling said. "Google doesn't have a social network. I wouldn't exactly call Yelp a social network, but it has an engaged and active community."

Yelp also offers Google a wealth of content that it can repurpose, Sterling said, and though $50 million in revenues is not meaningful compared to Google's overall earnings, the income demonstrates Yelp has a business model that's working.

Beyond sponsored results, paying advertisers can also promote a favorite review at the top of their Yelp page. And Yelp is mobile. The service is available through the mobile web, or applications for the iPhone, BlackBerry, Palm Pre and Android.

Not a Traditional Google Acquisition

"This is not a typical Google acquisition in the sense that it's not a technology company Google is buying. Google is not getting some platform or tool to complete something they are doing elsewhere. They are really buying a community, a brand, and, also very importantly, they are buying a sales channel," Sterling said.

Yelp sells ads to the local market via telephone and also has an on-the-ground presence, with local editors in charge of specific markets. Sterling called the telephone sales channel an interesting dimension of the reported deal, especially considering Google's unsuccessful attempts to build a sales force around AdWords.

"Adding Yelp gives Google the ability to reach out into local markets in a way they haven't been able to thus far. It's the closest Google has come to buying a sales channel," Sterling said. "If this deal does come to pass, it could have a fairly dramatic impact on the local online market and traditional online publishers like newspapers and Yellow Pages. It could also initiate some consolidation as others sort of scramble to get theirs."
 

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