19:18 PM

Analysis: GOOG/Yelp Deal Focuses On Next Big E-Commerce Battlefield - Eventual Craigslist Competition

Techcrunch reports that Google [GOOG] is about to acquire Yelp, the local restaurant and store reviews site for as much as $500 million.

Comscore puts worldwide traffic at nearly 9 million monthly unique visitors, and it has been growing fast - the company says its real numbers are more like 25 million monthly uniques.

Yelp has whispered that 2009 revenues will be around $30 million and are expecting $50 million or so in 2010.

Foremski's Take: If Techcrunch's figures are correct this is a very high valuation for Yelp. More importantly, it could signal a new strategy for Google, which so far, has avoided acquiring content sites.

Yelp, which depends upon user generated reviews, has done well in San Francisco and a few other large metropolitan areas. But with hundreds of reviews per restaurant, the reviews become less valuable because of their large number and because large numbers of people have different tastes.

The way to deal with this growing mass of information would be to use a search engine to sort through this huge pool of data. Google, which prides itself on its search technology, could simply unleash its search algorithms against Yelp and surface the best (or worst) reviews and help people make a decision. It doesn't need to own Yelp to do this.

Google is more likely going after the advertising relationship that Yelp has with local merchants. The local advertising market is the next big battle ground for e-commerce and the many billions of dollars spent on Yellow Pages type directories.

Google could use Yelp's advertising relationships to offer local merchants a range of other services such as their own web sites and buying local adwords to attract traffic.

This would also push Google closer towards eventually having to compete with Craigslist, which is by far the largest platform for local advertisers. Craigslist is a much larger site than Yelp, it is the eighth largest English language web site in the world.

Craigslist offers local store listings and reviews. And its services are free compared with Google, which offers an auction of local keywords.

If Google does acquire Yelp, the trend will be in place for it to eventually have to compete with Craigslist, a privately held company with about 30 employees but with tremendous amount of loyalty among local users and businesses, that Yelp cannot match.