Going Local: Why Google Wants to Buy Yelp

Google (GOOG) is in talks to buy local business-review site Yelp for as much as $500 million, or at least that's what tech industry website TechCrunch is reporting. Yelp, which lets reviewers rate local businesses, has over 9 million unique visitors a month according to Internet research company Comscore. The purchase hasn't been finalized, but it appears the deal is imminent.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%Why would Google want a local review site? Several of the large Web portals are buying or building local sites. AOL (AOL, parent company of DailyFinance) bought local news site Patch. MSNBC bought local information site EveryBlock. Google may believe that Yelp will be its play in the local search and information business.

Local news and information sites aren't new to the portal industry. AOL built Digital City in 2000 as a local guide to stores and entertainment, and at one point planned for the service to cover 200 locations. The theory behind owning Yelp is not unlike the theory behind owning Digital City. Consumers who visit search engines and entertainment and news portals are just as interested in information about the places where they live as they are in searches of broader data.

In many ways, local information is an extension of services like Mapquest and Moviefone. A website that offers both global and local information is more likely to be a one-stop destination for consumers.

Market Share Is Still Up for Grabs

Another reason for the popularity of local sites is that market share in the broader search-engine business is fairly well established. Google has the largest part of that market -- about two-thirds in the U.S. -- followed by Yahoo! ( YHOO) and Microsoft (MSFT). Microsoft's Bing may be picking up modest market share, but the emphasis should be on "modest." By contrast, market shares among sites that cover local news and information are still fluid.

Whether there's any advertising or subscription money to be made in this business is yet to be determined. What is clear is that websites that provide these services are becoming very valuable to search and information Internet companies.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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