Late last week news leaked that Google was in the advanced stage of negotiating a deal with local business review site Yelp for a sum rumored to be in the $550 million range. Today TechCrunch reported Yelp has walked away from the negotiations. While there is widespread speculation as to why Yelp decided to stay independent (including rumors of competing deals from Apple or Microsoft/Yahoo!) one thing is clear - it's not the end of the story. There was a lot more to this deal than just acquiring Yelp's traffic (9 million monthly unique visitors according to Comscore) and passionate community.
Yelp has been successful at doing what Internet Yellow Pages(IYP's), and the major search engines are still trying to achieve - combining an engaged community with selling local business advertising to make a profitable online business model. TechCrunch on Thursday reported "Yelp has whispered that 2009 revenues will be around $30 million and are expecting $50 million or so in 2010."
The keys to Yelp's success have been their ability to build a vibrant, engaged community that posts reviews of local businesses, creating content that generates traffic to their site and loyalty amongst users. Yelp combined that rich content and traffic with an advertising sales force (both telephone and feet-on-the-street) to take advantage of a market with no strong leader. While IYP's were focusing on driving revenue through their local sales forces, Google and Yahoo! were building online advertising platforms and huge databases of content. As a little start-up, Yelp was nimble enough to do both and embrace the social media trend of creating online communities. Yelp also capitalized on the growth of smartphones and mobile search to increase traffic and the number of reviews.
So far the major search engines have tried to address local advertising through location targeting options in their pay-per-click and display advertising products. Google has tried to address the local market through products like Place Pages, web pages with expanded information on a place (be it a business or landmark), and Favorite Places, an index of businesses with a high number of search queries on either Google.com or Google Maps. Both products are not easy to find on Google and not widely known. Yahoo! has similar offerings in the form of business profile pages and Yahoo! Neighbors. The purchase of Yelp would allow key search players to integrate their content into search results. The most important aspect of this deal isn't about an immediate revenue or traffic bump. The acquisition of Yelp will give one of the big players their first serious foothold in local advertising. They get more accurate local data, tons of business reviews from Yelpers, a strong mobile presence and a local sales force. Big search engines will finally be able to provide local businesses with more value for their advertising dollars while generating revenue over the long term in two of the fastest growing advertising markets - local and mobile.