Recent reports claim Yahoo! CEO Marissa Mayer approached Apple in the hopes that Cupertino would make Yahoo! the search default on Apple's mobile devices. While the limitations of Yahoo!'s current search product make it unlikely that Apple would agree to the change, opportunities do exist for Yahoo! to make significant inroads in capturing Apple's mobile search business. A purchase of Yelp , a local business search provider, would immediately provide Yahoo! with an important piece of Apple's mobile search business.
Yahoo! and mobile search
Formidable hurdles stand in the way of Yahoo! offering a complete mobile search solution:
- The majority of the company's search is powered by Microsoft's Bing search engine. Although Yahoo! incorporates some of its own search data to improve its results, it's likely that Apple considers Yahoo! search an "enhanced" version of Bing. And while the relationship between Apple and Google is less than cordial, a move away from Google, the most popular Internet search engine, would be risky for Cupertino.
- Building out a search engine isn't cheap, and the resources of Yahoo!'s competition are daunting. Microsoft's cash position is approximately $80 billion. Google's is $60 billion. Yahoo! has $5 billion in cash and short-term securities. While Yahoo!'s cash position is expected to improve to approximately $15 billion following the sale of the company's investment stake in Alibaba, Yahoo! simply doesn't have the resources to go head-to-head with the search competition.
Yahoo! has its foot in the door
The company has already made progress placing Yahoo! search services on Apple mobile devices. Yahoo! provides the sports, weather and financial data for Apple's Siri queries. A strategy of incrementally expanding Yahoo!'s niche search services on Apple mobile devices is the company's best bet for achieving its Apple search ambitions.
Since Apple already licenses local business-location and search data from Yelp, a Yelp acquisition would immediately place Yahoo! in the middle of a strategically important piece of Apple's mobile business: location-based search and advertising.
Location-based search and advertising
Analysts at Gartner estimate that global mobile advertising will be a $42 billion business by 2017, and they see location-based search and mobile advertising as a major benefactor, fueled by the increasing use of location-based apps tied to local businesses and mapping.
Large investments in its Maps app and the incorporation of Yelp data into Siri and Maps indicates that Cupertino wants in on this growing mobile business opportunity.
With a rapidly expanding database of local businesses, Yelp clearly stands to benefit from the increasing importance of location-based search and advertising. The majority of the company's revenue already comes from local advertising, with 59% of Yelp's local business searches originating from mobile devices.
Yelp and Ms. Mayer
Yahoo! and Yelp already have a history of working together. Earlier this year, Yahoo! announced that it had reached an agreement to license Yelp's content for Yahoo! Search. The deal was seen as part of an effort by Yahoo! to differentiate the company's search results from Bing and Google.
The agreement between the companies isn't surprising, given Mayer's history. While she was at Google, Mayer had pressed the folks at Mountain View to purchase Yelp. While the deal never closed, it's clear that Mayer continues to see significant value the San Francisco-based company.
With the Yahoo! acquisition of Tumblr, Mayer has shown a willingness to make the big deal. However, buying Yelp could be difficult -- in the past, the company has shown little interest in being acquired. But right now, Yelp looks to be Yahoo!'s best chance to quickly capture a chunk of Apple's mobile search business.
With the recent tech pullback, Yelp's valuation is down approximately 40% from its earlier highs, and soon Yahoo! will have $15 billion in its pocket. Stay tuned to see what happens next.
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The article Yahoo! + Yelp = More Apple Search Business originally appeared on Fool.com.Bill Shamblin owns shares of Apple and Yelp. The Motley Fool recommends Apple, Yahoo, and Yelp. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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