Is Google Buying Yelp? That Might Be a Mistake [UPDATE: Deal's off?]

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Rumors are swirling that Google's about to spend half a billion dollars to buy business review phenomenon Yelp. That's a lot of money, and if other analysis is right, it could be a bad move—Twitter and Foursquare may steal the market.

The Google rumors are popping up at The New York Times and TechCrunch, with the paper citing multiple sources inside the two companies. According to the Times the two have had a number of "conversations for several years" but the recent, and presumably most promising, round began about two months back.

Yelp says its local business review system is the game-leader, and it's projecting some $30m in revenue this year—an interesting return on the $31 million in venture capital that's gone into the company already. Those figures explain why Google's interested—along with Yelp's 20-ish million monthly visitors, whom Google is presumably eyeing up as potential advertising targets—but they don't quite explain the $500 million price that's being associated with the rumor. That would represent a valuation at a revenue multiple of over 16 times, which is significant, never mind that the valuation multiple on a profits basis would be even higher.

The two services would seem to be a neat match. Yelp's system supplies users with a social network-style business reviews of local services. If Google bought it up, it would offer Google another way to tap into the ultra-local advertising market—precious data on the local businesses concerned are basically gift-wrapped for Google by Yelp.

But over at GigaOM, they're raising a bit of a red flag of warning. Despite noting that the deal is probably going to work in the short term, the argument runs that in the long term Yelp is doomed. The older service is likely to lose its throne thanks to two emergent phenomena: Twitter and Foursquare. Both have a sense of immediacy that Yelp lacks. Both, to some extent, are systems that can offer you crowdsourced advice about a local business that comes from your friendship groups rather than random (and potentially untrustworthy) reviewers. Yelp lacks the spontaneity you can get from accessing Twitter and Foursquare on a smartphone, and that, GigaOM argues, is another problem given that we're all increasingly used to spontaneity in our high-tech, mobile Internet-capable world.

And there's another technology that might limit Yelp in the future—augmented reality. As this tech evolves and expands, it's going to change how we access and consume information about geotagged real-world places. Now the Yelp app itself has an AR implementation, which places the reviews in a real-world context. But a Twitter/Foursquare AR implementation would add a "which nearby restaurant are people talking about the most?" real-time feel that Yelp can't compete with.

Update: According to TechCrunch, which is citing "multiple sources," something happened over the weekend to change everything about the supposed Yelp-Google deal. Yelp has apparently turned its back on the half billion dollar cash pile, and is continuing on its independent course. The speculation is that someone else made the company an offer it can't refuse—a logical thing to suspect, given the amounts of cash under discussion.

[Via Barrons, GigaOM]

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  • Lucy Kovalenko

    The rumors that Google might purchase Yelp for over half a billion dollars have been replaced by new rumors that the alleged deal is dead. If that is true, it is very unfortunate because the two complement each other in ways that no other acquisition or partnership can match. Watch the interviews with the representatives on the web
    ANYWAYS, For the sake of all parties, let us hope that they play nice and reach an amicable solution.

  • Brian Kung

    Poppycock. This is unlikely to be a big mistake. Google already has a foothold in their local businesses; Yelp would be a great addition. Twitter doesn't have anything on the specificity of information you can find on yelp, or the history of its ratings.

  • Michael Barnard

    Let's not forget that Yelp is a huge fan of being paid to reorganize ratings critical of restaurants who advertise with them. Biggest example is the recent news about the college students who refused to tip for poor service, being arrested. Prior to this, there were about 5 reviews on that restaurant, most negative/lukewarm, and after a lot of people began posting "reviews" due to the incident, Yelp rearranged the display to put the top review as a positive one...