In Trying to Buy Yelp, Google Is Becoming ... Yep, a Media Company
A little over a year ago, on Dec. 1, 2008, I made this prediction in my column: "Google will buy Yelp" -- the social-networking-esque site that provides user-written reviews of businesses in cities across the U.S. and Canada. It took a while, but Google finally tried to make good on my prediction last month -- but, of course, failed (at least initially). Yelp reportedly balked at being bought. Then Miguel Helft of The New York Times Bits blog reported that his source was saying that Google walked away from the acquisition talks, because it "didn't want to let the negotiations be driven by leaks to the press." In other words, Google was pissed at Yelp for driving a hard bargain. (If only Google had moved earlier -- like in December 2008! -- before Yelp got so full of itself.)
Back in late 2008, you may recall, Google had just announced plans to shut down Lively, its attempt to compete in the avatar/virtual-world space pioneered by Second Life. As I wrote back then, "The blessing in disguise of Google's failed Lively experiment: It's a helpful reminder that Google can't figure out everything all by itself." (And remember Google's attempt to out-YouTube YouTube with Google Video ... until it realized it was easier to just buy YouTube? I bet it's just a matter of time until we see Google-produced content on the site.) I thought Yelp would be a perfect acquisition for Google, which had just begun to explore the user-generated content business in earnest with its Knol project (its attempted Wikipedia-killer).
Founded in San Francisco in late 2004, Yelp first blew up big in the Bay area, becoming the go-to resource for local restaurant reviews, bar listings, etc. -- a market that used to be dominated online by Barry Diller's CitySearch, and before that, city magazines and local alternative newspapers. In fact, in 2008, Yelp became truly competitive with CitySearch in traffic; that year Yelp also established a beach-head in New York City. User-contributed reviews of Manhattan establishments piled up (the bitter irony is that the quality was generally high because there are so many unemployed and underemployed journalists in New York!), and I got addicted to Yelp -- particularly because of its iPhone app.
As I wrote in Dec. 2008, "If Google really wants to offer relevant, real-time, commerce-linked search in the mobile space, it should buy Yelp. ... Yelp has achieved a true critical mass of enviable user engagement and loyalty in the biggest U.S. markets -- and its beautifully executed, location-aware iPhone app is unmatched and phenomenally useful. ... In the spring, Silicon Alley Insider guesstimated its worth at $225 million; as of last week, though, its Nasdaq-indexed 'SAI 25 Live' list put Yelp at a bargain-basement $135 mil."
Last month, Yelp balked at being bought by Google for half a billion dollars. And according to multiple reports, Yelp told Google that a mystery third party (maybe that old dog Barry Diller, or maybe Yelp was just bluffing?) had offered it $750 million. (If only Google had moved earlier -- like in December 2008! -- before Yelp got so full of itself. Oh, wait! I already said that.)
Now here's the really brilliant thing for Google: Yelp's little game of "brinksmanship," as Miguel Helft put it, distracted everyone from realizing exactly what was/is going on here. Google, despite its protestations to media companies that it is here to help them, not compete with them, is officially becoming a media company.
Google has, of course, many win-win advertising rev-share partnerships with media companies. But you know what's totally awesome for Google? When it doesn't have to share revenue! Which it can do by buying media companies like Yelp.
Yep, Yelp is a media company: It offers content to consumers. It's gussied up in social-media dress, but the bottom line is you go to Yelp.com or use its mobile app to access its content. Yelp, of course, gets its content basically for free, because it's all user-generated.
So if Google buys Yelp, it gets 100% of the advertising revenue, because it doesn't have to rev-share with a pesky little media company, because Google itself becomes a media company -- one that doesn't have to pay media people to create media.
What's hilarious about Google chasing local-listings site Yelp in 2009 is that, back in 1997 -- last century! -- Microsoft also was trying to get into the local-listings business. That year I was pretty much freaking out, because I'd been hired as the founding editorial director of the website of New York Magazine (which, shockingly, had no online presence at all when I arrived, because it had earlier shut down its -- gah! -- CompuServe site), and Microsoft had just announced that it was launching a local-listings site called Sidewalk that would roll out in San Diego first, then other cities including New York. I had a shoestring budget, and meanwhile I was hearing that Microsoft was hiring editors (mostly local journalists) at $100,000 and up. (Fortunately, Microsoft didn't understand the content business, Sidewalk sucked, the site I launched for New York Mag took off -- it's a huge business today -- and Microsoft ended up selling its by-then-77-city Sidewalk division to CitySearch in 1999.)
The lesson here: It's time to ignore Google's insistence that it doesn't want to be a media company. The fact that it is not, like Microsoft in 1997, hiring a ton of journalists is meaningless -- because, well, even media companies (except, weirdly, AOL) have stopped hiring journalists.
Mark my words: By not hiring journalists, but instead dominating the user-generated content business by buying companies such as Yelp, Google will become a massive media company (that, among other things, will kill off the city-and-regional magazine market, and what's left of local alternative newspapers).
A media company that will insist that, gosh golly gee, it's not a media company!
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Simon Dumenco is the "Media Guy" media columnist for Advertising Age. You can follow him on Twitter @simondumenco