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Yahoo! Wants Some Yelp

By Adam Levy - Feb 10, 2014 at 8:00PM

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How will the Yahoo!-Yelp partnership impact each company?

Marissa Mayer knows a thing or two about local web searches. At Google (GOOGL 2.39%), after a stint as VP of Search Products, she took on a role overseeing geographic and local services. At the time, she thought Yelp (YELP 3.07%) might make a good acquisition, but a $500 million bid wasn't enough to sway the owners.

Now, as CEO of Yahoo! (NASDAQ: YHOO), Mayer has formed a partnership with the local business review site. Yahoo! will bolster its local search results and Yelp gains added exposure.  

Betting on a winner
Search has been a standout business segment at Yahoo! since Mayer joined the company. Search revenue has grown every quarter since she arrived in Sunnyvale.

Last quarter, the company improved Search revenue 8% year-over-year. The $461 million (minus traffic acquisition costs) was the highest quarterly Search revenue since 2009.

Although the company continues to grow its Search business, it has seen its ad prices come down significantly as its user mix shifts toward international and mobile users. Mayer has said one of her key focuses is mobile, and has made numerous acquisitions to put her money where her mouth is.

Yelp has a very strong mobile presence, and provides an excellent user experience through its mobile website. The company attracted more than one-third of its 120 million unique visitors in the fourth quarter to its mobile website. The partnership with Yahoo! will likely bolster that number while providing Yahoo! with a better mobile experience.

The partnership could lead to further improvements in Search revenue for Yahoo! as the company improves its product -- attracting more users and increasing the value of its ads.

Hedging against Google
Yahoo!'s partnership with Yelp comes as a time when Google is distancing itself from the company.

After its failed $500 million bid for Yelp in 2009, Google snatched up Zagat in 2011. In fact, Mayer oversaw the acquisition. The company is heavily pushing its Google Now feature for its Search app, and the feature became available to iOS users last summer. It's also pushing its own local reviews programs through Google+ and its new City Experts program. Google is certainly more of a competitor than a friend to Yelp.

Yelp's management isn't scared, however. On the company's third quarter conference call, CEO Jeremy Stoppelman said Google has competed with them for eight years now in some form or another. Nonetheless, Yelp continues to attract more visitors and grow its review database.

Interestingly, Google is likely one of Yelp's top sources for traffic. Web searchers looking for local restaurants or services are often led directly to a Yelp review page through Google's organic search results. Of course, Google is capable of tweaking search results, and adding its own local search products to the top of the listings will continually threaten Yelp's traffic.

Yelp's partnership with Yahoo!, despite its much smaller share of the search market, is a good step to ensure web searchers are still finding the sites content, and that it doesn't get burried on another search engine.

A little Yelp?
Yahoo!'s decision to partner with Yelp ought to bolster both companies revenue. Yahoo!'s search engine continues to pick up steam, and integrating Yelp reviews could make its search engine a bit more sticky. Yelp gains exposure to Yahoo!'s 800 million monthly users, and gains a valuable hedge against Yahoo! going a different way and producing its own content like Google has.

Mayer expressed interest in Yelp five years ago, when she valued the company at $500 million. Today, Yelp is worth about $6 billion more. So, although an acquisition might have been preferable for Mayer, the CEO should still be satisfied with a partnership while she goes after much smaller deals.

Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Google, Yahoo!, and Yelp. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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