After news broke last week that Google was offering about $550 million for -- in what would have been its sixtieth acquisition since 2001 -- the startup has done a 180-degree turn and rejected the search giant's offer. The San Francisco, Calif.-based Yelp told Google over the weekend that it was no longer entertaining an acquisition offer, according to published reports.
Yelp and Google are both being tight-lipped about the deal gone sour. "Yelp is not able to provide comment on private discussions," said Stephanie Ichinose, a Yelp spokesperson, in an e-mail. Google's Andrew Pederson said: "Although we're always talking to various companies about various things, we don't comment on rumor or speculation."
While $50 million in revenues is not a big deal for a company the size of Google, it would have benefited by capturing a specific audience and targeting local businesses. Yelp's business model has been successful and the service has a large following.
Yelp is a web site that connects Internet users with local businesses. It works by enabling business owners to set up free accounts and post photos, offers and messages to potential customers. The company says the site is the leading U.S. local guide for word of mouth on everything from boutiques and mechanics to dentists and restaurants.
Yelp has attracted both heavy site traffic and paying advertisers. Since being founded in 2004, Yelp has had $30 million in annual revenues and may reach $50 million in 2010, according to reports. As of last month, Yelp had a reported 26 million users, called Yelpers, visiting the site.
The service is also mobile with applications for Apple's iPhone, Research In Motion's BlackBerry, the Palm Pre, and -powered devices, is an attractive sell for companies wanting to reach a specific demographic -- in this case small-business users -- observers say.
Buying Yelp would have given Google access to Yelp's more than eight million customer reviews.
"Given the importance of local search and the ability to find what's nearby and what's good, the Yelp/Google deal would have made sense," said Interpret analyst Michael Gartenberg. "Given that we don't know the actual numbers or terms, it's hard to judge the proper merit of a deal based on rumor."
More Than Walking Away
Observers say the deal didn't go sour because of last-minute talks or objections by Yelp users. Instead, observers say Yelp would not have walked away from Google's big money without a sizable alternative offer.
Backed by Benchmark Capital, DAG Ventures, and Bessemer Venture Partners, Yelp may have been entertaining more than one acquisition offer, or may have even been considering an initial public offering of stock, observers say.