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

google yelp

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]