Yahoo-Yelp Partnership Another Bold Move for Marissa Mayer

The Wall Street Journal reported Sunday that Yahoo! (NASDAQ: YHOO  ) will make a deal with Yelp (NYSE: YELP  ) to help improve and differentiate its search engine results.

The partnership, which the Journal said was revealed by Yahoo! CEO Marissa Mayer to employees Feb. 7, on the surface would integrate Yelp's online listings and reviews into Yahoo's search results. The idea behind the deal appears to be to make Yahoo's results different (and theoretically better) than those coming from Google  (NASDAQ: GOOGL  ) and Microsoft's (NASDAQ: MSFT  ) Bing.

Search is a big business

Search ads, Yahoo! reports, make up a little more than one-third of the company's revenue. In the fourth quarter of 2013, those revenues grew 8% to $461 million. There is tremendous room for growth, however, as Yahoo! holds only 10.8% of the search market, while Google commands 67.3% and Microsoft holds 8.2%, according to ComScore.

The company reported search revenue was $1.7 billion for the full year of 2013, an 8% decrease compared to $1.8 billion for the prior year. Still, if Yahoo! can bring in $1.7 billion in search revenue while controlling less than 11% of the market, a gain (or a loss) of a single percentage point of traffic could mean nearly $200 million in revenue gained or lost.

Mayer, who is attempting to reverse the fortunes of Yahoo!, the one-time category leader, knows the field as well as anyone. She once led Google's search efforts, partially creating the problems for Yahoo! she is now trying to solve.

"Search is far from over," Mayer said in a 2013 interview with Bloomberg BusinessWeek. "It's physics in the 1600s or biology in the 1800s. There's miles to go before you get to quantum physics or even a microscope. There's a lot of that you can do once you have mobile, and we are going to be very focused on the user experience."

A mixed bag

Currently, search engine results, whether you are on Yahoo!, Google, or Bing, all look pretty much the same. Making a deal with Yelp changes that. But different does not always mean better. Yelp is both a listings site and a review site. The listings, while perhaps helpful to Yahoo, are not particularly distinguishable from what comes up on any search engine when looking for a business.

Searching Google for Forbidden City Bistro, a Chinese restaurant, led to the Yelp listing being third on the page. The same search on Yahoo brought up a phone book-style listing for the eatery on the right-hand side of the page. Bing, which provides search results for Yahoo, had the same result with an added opportunity to make a reservation on OpenTable.

It may not be the listings that attracted Mayer to Yelp, but the reviews. And these are where the CEO is rolling the dice. Yelp reviews, while plentiful, can also be maddening as the people who have a bad experience are often more passionate (and perhaps more willing to post) than those who have a good one. Serving up Yelp reviews will add content and make Yahoo different, but it will also lead to people reading comments like "General Tso himself should be ashamed of this chicken," next to "The best General Tso's chicken in New England."

Yelp can be useful (hey, at least we know the place serves General Tso's chicken) but the reviews can be confounding with people focusing more on promoting how witty they are rather than offering useful information.

Willing to partner

And while she has made fixing and improving search a priority for the company, Mayer -- who was part of an attempt to buy Yelp while she was at Google -- is not against going outside the company to get what she needs.

In 2013, while speaking at a conference, Mayer talked about search innovation and constructing results in different ways. "It's like being a wine maker. You can grow your own grapes or buy them from someone else and still make a wine with your own style," she said.

The opportunity is huge

When it comes to search, Mayer has to do something as the company, which had revenues of $7.8 billion in 2008 had only $4.68 billion in 2013. Search, which is Yahoo's second biggest category (just slightly behind display advertising), may be the key to reversing that trend.

Still, while Yelp may be a piece of the puzzle, it's thus far a small one. In addition to competing with its search engine foes in an increasingly mobile battlefield, Yahoo! will also have to figure out new ways to hold onto its searchers -- for example, why pull up a browser or Yahoo's app to find out about a nearby restaurant when you can just use Yelp?

Mayer may have bought herself a few more grapes, but she might need more if she wants to blend a truly fine wine.

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