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May 21, 2015, 7:31 a.m.
Business Models
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Newsonomics: Buying Yelp — and making it the next core of the local news and information business

The pricetag would be high, but it might be worth it to reassemble one part of the old newspaper bundle — tying together local news and local services.

Yelp’s for sale, and the news has generated the usual, now-tiresome lists of potential buyers: Google, Amazon, Apple, Yahoo, Facebook. It’s like all the money in the business world slid off one end of the table and sluiced down to Silicon Valley. Forget the old spend-a-week-without-the-Internet experiments; is it possible to spend a week without talking about one of those companies?

Speculation has it that the asking price of $3.5 billion might be too rich for any of those players, or anyone else. Yelp’s audience is still growing — up 7.5 percent year-over-year to 142.5 million in the first quarter — but its revenue and audience growth is slowing. Total revenue will come in at about $580 million this year. It’s lost 40 percent of its market cap in less than a year, as investors have decided it’s lost its growth mojo.

I’ve got a modest idea, especially if one of the digital behemoths won’t bite: News companies should buy Yelp and use it as the foundation of the next generation of local news and information sites and apps. Before we get to the particulars of how that might happen, let’s think about the role of Yelp and what it tells us about the persistent funk in which local news companies now wallow.

Yelp stands out in our digital universe. It is a go-to smartphone app that’s local. Check your smartphone right now. How many of the two dozen or so apps on it can claim localness? Sure, the weather app provides local weather, and the trusty MLB app serves up news and videos of your local team, but how many of the other apps are local at all? But does any local newspaper company or broadcast station claim first-screen status? Local so far is a smartphone disaster, even as the world and readers move profoundly mobile. Yes, mobile browsers do push local readers to the websites of local newspapers, no matter how subpar and middlingly responsive the experience may be. However, engagement rates — time on session and sessions per month — remain low. Why? In part, they are all about reading, not doing.

Yelp, on the other hand, is all about local — local access, local to-dos, local usage. Founder Jeremy Stoppelman started Yelp in 2004, seeing the value of such a local utility as newspaper publishers and local broadcast execs focused on migrating their news content from print systems onto the World Wide Web. Stoppelman saw what was right under local media’s noses: People want help living their lives, and those lives are local. Yelp’s prime function was increasing the value of local information.

Yelp first got traction in its native Bay Area, and I recall being astounded at how useful it was to separate the omnipresent restaurant chaff of San Francisco from the gems. We’d use Yelp, which already had achieved critical mass, discount the few predictable lunatic reviews, and find great places. Restaurant reviews in the San Francisco Chronicle and the San Jose Mercury News found themselves lapped in quantity, freshness, and sometimes quality.

Those newspaper reviews had been the local standard for decades, reviews that were then multiplied in their power by old-fashioned word of mouth. That’s of course what the web, and Yelp, did: multiply word of mouth many times over. Just as newspapers replaced the town crier, whose word was once spread around villages, Yelp replaced newspapers for restaurant reviews, and eventually services of many kinds.

Flash forward to today: Yelp now can’t produce the kind of growth it needs within its digital category. Local news and information companies, a.k.a. newspapers and soon local broadcasters, have become less and less relevant to the daily lives of their readers and viewers, as smartphone utility connects people to local maps, sales, events, and more.

So the idea: Marry the Yelp platform to a nationally used news platform, able to be customized locally. Re-establish the connection between daily (now hourly and instantaneous) news and life lived in cities. Reconnect local services, restaurants, and retail with the news.

Close your eyes for a moment and think about being welcomed back to a world that the daily newspaper neatly created and served (so profitably for owners and satisfyingly for readers and advertisers) for decades, until the great digital rupture. That rupture: The package of news, advertising, and things-to-do split asunder by digital disruption, from classifieds (Craigslist, eBay, Monster, etc.), Google search, and now Facebook social.

Why stop there? Add other highly useful apps to the mix — likely through partnership. Angie’s List for household services. OpenTable for restaurant reservations. Uber and other ride-sharing services for transportation. A Yelp acquisition would already include Eat24, the restaurant takeout company Yelp bought in February for $134 million, and the online reservation service SeatMe.

Okay, so who’s going to get the ball rolling and put in a $3 billion bid?

It could be one of the big rollup newspaper chains — Gannett, New Media Investment (GateHouse), or Tribune Publishing. Any of them would require a private equity partner, which New Media already has in Fortress. How about Apollo Global Management, whose talks to buy Digital First Media have apparently broken off?

DFM, in and of itself, is a turnaround and a headache — at any price. DFM, as a first rock of a national/local-news/information/city guide/review-site operation, would be a whole different proposition.

How would the numbers pencil out? Well, that would depend on the ability of local companies — whoever owned them — to monetize local audiences. I’ve talked to a number of publishers recently who talk vaguely about adding e-commerce to their business models. A Yelp-infused publishing platform would completely change the game of what’s possible, how much audience and engagement can be gained, and how much new money can be made. Publishers could connect one of their biggest growth initiatives — digital marketing services — to the Yelp mix.

Certainly, $3 billion is a lot of money, but let’s recall the three billionaires that have bought into the daily newspaper business recently. Imagine what John Henry’s Boston Globe, Glen Taylor’s Minneapolis Star-Tribune, or Jeff Bezos’s Washington Post might be able to do with such Yelp-enhanced platform. Could a network, owned or partnered, make it work?

Of course, it’s Bezos who would be the wild card, given his wealth, standing, and outside-the-box thinking. We’ve all been waiting for the next Washington Post shoe to drop, which would mean a bolt-from-the-blue new business model for local news companies. Further, consider many advantages of a possible Amazon/Yelp tie-up, particularly with Amazon’s strong interest in superfast local delivery.

Many others may have the money and imagination to make such a move. Perhaps Verizon, in its quest to be a media company (“Nine takeaways from the Verizon–AOL Deal”) could double-down with a Yelp and match its GPS-leading smarts with local media and services. Many an entrepreneur could see how it could work, but we’d hope to find one with respect for (local) news values and the ability to renew them in the digital age.

How should a potential buyer think of a Yelp acquisition? The first logical question: Why buy a stalled Internet company that the market is now devaluing? First, its price is declining, so it becomes a better buy over time. Most importantly, it isn’t Yelp’s current financials that would matter most strategically. The big question: What happens if you combine the current engagement and revenue power of Yelp with that of the strongest local media players, with huge digital audiences and sales forces? Finally, what’s the financial return of reorienting local digital news franchises into local digital news/city guide businesses, reclaiming for another era newspapers’ longtime place in the community?

Photo of Yelp CEO Jeremy Stoppelman in August 2014 by AP/Eric Risberg.

POSTED     May 21, 2015, 7:31 a.m.
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