Google discussions to buy Yelp were leaked before the deal closed. Shocking. Yelp, the web’s best known directory and reviewer of local business was said to be valued at more than $500-million for its access to this elusive advertising market.
The leakers said: the deal is 80% done. Of course that means the deal was 20% undone, or the leakers would like it to be. The NY Times quoted “one person” who said, “the deal…could still come apart…if another suitor comes forward now.” Whether or not that was wishful thinking disguised as a leak, it did indeed come undone.
So, what really happened? Alas, poor Google was used to set the price, and set it high – commonly believed to have been over $500-million. That would be 17 times gross revenues of $30-million. Oh, no, wait: the annual gross revenue evaluation model is only 2 times gross, so the price must be $60-million plus a venture capital premium for strategic value, say $500-million. Anyway, how would you interest the powers at Google for less than a cool half-billion?
So, what’s the strategic thing that Google saw in Yelp and why would it be worth half a billion dollars to them?
Google has already made its own version of Yelp, using Google Maps and Google money. Yelp is just a competitor and hardly worth a premium. What’s inside the Yelp box that’s worth the extra bucks?
How about the Yelp local ad sales force — estimated between 130 and 200 people. Sales force valuation would be $500-million / 200 bodies = $2.5-million per head, many are recent hires. So, no, that’s not it.
Well, then, it must be Yelp’s iron grip on local advertising. Oops, no iron grip, more like clinging by finger nails while hoping for Smart Phones to pull the market and the advertising together. With Google already into smart phones, it’s hard to believe Yelp is worth a half billion dollar premium.
So, something else. What? Oh, wait — I know: all those user reviews — the depth and credibility they give to Yelp — 8-million, combed-out user reviews. Well, if you had to pay for them…. Don’t go there, nobody wants to talk about that. OK, Google can just say, “Yeah, Great! big pile of user reviews — really good stuff” and keep on going.
It’s not at all clear from the leaks and the comments, that anybody is looking under the pile of user reviews. What’s under there?
It’s the Yelp culture. Would Google pay half a billion dollars for a culture that’s very different from theirs? Maybe, especially if they don’t know it’s there. They could always keep the reviews and squelch the culture after they own it.
And that just might be “it.” If you buy it, you squelch the culture and risk all value. But now a price has been put on the value. If you have it, and Yelp does, where to go with it now?
This post first appeared in slightly different form on Technorati.com; the author, Peter Neibert, is both a staff writer for Technorati and a regular contributor to Yelp.