Increasingly, consumers are using their smartphones to search and research local businesses, compare deals and make purchases.
Huge profits await any company able to integrate mobile search and mobile payments into simple, comprehensive app. (Think: revenue streams from search, revenue streams from purchases and a motherlode of consumer purchasing data.)
With 500-million-plus active credit card customers (iTunes/App Store), Apple Inc. (NASDAQ:AAPL) appears very close to positioning itself as a mobile payment provider. The missing piece for Cupertino? Mobile search, where Google Inc (NASDAQ:GOOG) has the clear advantage.
However, with the purchase of one company, Apple Inc. (NASDAQ:AAPL) could close the mobile search gap, and position itself to rule mobile search/payments. The company? Yelp Inc (NYSE:YELP), one of the leading search sites for local businesses.
In Tech, Differentiate, Decay, or Die
Long-term profitability for a tech product hinges on the manufacturer’s ability to differentiate its products from the competition.
Through elegant design and a focus on consumer solutions, Apple Inc. (NASDAQ:AAPL) has made its computers stand out from the PC pack. And while its rivals in the computer business slash their margins in a fight for market share, Apple — with less than 10% of the global market — earns the vast majority of the sector’s profits.
Source: Asymco.com. Used with permission.
Similarly, to maintain its enviable margins in smartphones, Apple Inc. (NASDAQ:AAPL) needs to deliver a disruptive mobile feature/service that takes advantage of the company’s tightly integrated iOS platform, thus preventing easy adoption by Android OEMs or Google Inc (NASDAQ:GOOG)
Apple Patents/Acquisitions Show Mobile Payment Service Plans
Since 2010, Apple has demonstrated its interest in mobile payments, with a steady stream of Near Field Communications patents revolving around an “iWallet” mobile payment system.
In particular, a March 2012 patent awarded to Apple demonstrates a mobile payment system that integrates any number of consumer credit cards/payment systems through iTunes using a service called “Mobile Pay”.
In addition, in 2012 Apple bought AuthenTec. Many observers expect Apple Inc. (NASDAQ:AAPL) to use AuthenTec fingerprint technology in the next iPhone to provide immediate authentication for mobile purchases.
The Mobile Pay service, combined with Siri (Apple’s iPhone voice assistant) and AuthenTec fingerprint authentication, would allow an iPhone user to find, compare and securely buy products and services using a single built-in app – the disruptive technology Apple needs for the iPhone.
What is Yelp?
Yelp Inc (NYSE:YELP) aggregates local business reviews. Yelp’s business model revolves around three constituencies: the contributors who write local business reviews, the consumers who read them and the local businesses being described. The types of local businesses on Yelp include, restaurants, lodging, bars, boutiques and salons, dentists, doctors and home repair services.
For the latest quarter, Yelp Inc (NYSE:YELP) served over 10 million unique mobile devices, generating approximately 15 million calls to businesses and 19 million clicks for directions. (Source: Yelp Investor Deck).
The value to Apple would come from leveraging the iOS users-base (400-plus million devices) to quickly grow Yelp Inc (NYSE:YELP) into the premier mobile solution for local business search.
The Current Yelp Partnership with Apple
With the release of iOS 6 in 2012, Apple Inc. (NASDAQ:AAPL) began integrating Yelp results into its Siri search results and Apple Maps.
For an example of how the partnership works: Let’s say you are on the road and in need of a quick caffeine fix. You ask Siri about local coffee shops, prompting, “I need some coffee.”
You would receive the following information on your iPhone via Yelp Inc (NYSE:YELP): A listing of nearby coffee houses with Yelp customer review rankings, business hours, phone numbers and menu and price information.
Apple also uses Yelp’s location information to provide maps of all the coffee houses in your area as well as driving directions. (See results below.)
The value of integrating Yelp Inc (NYSE:YELP)’s price, customer review and location information into Siri is clear: While Google currently has an advantage in mapping accuracy, over time, location quality will inevitably move toward parity. In the very near future, mapping value will largely be driven by the information embedded within the maps.
Apple + Yelp = Businesses Connecting With 500-Million-Plus Active Credit Card Customers
Mobile payments are expected to grow quickly, with Gartner forecasting the market to exceed $617 billion by 2016.
With mobile search (Siri), a huge customer base (500-million-plus active credit cards on iTunes), promotion (iAds), mapping (iPhone) and security (fingerprint authentication), Apple is close to the holy grail of integrated search and payment on mobile.
The missing piece is Yelp’s search technology, which brings together consumers and businesses at the time when purchase decisions are being made. Yelp would provide Apple:
A large and growing database of businesses/consumer reviews tied to location data (Increases value of mobile mapping and Siri search)
A platform for serving ads (Creates an additional revenue stream for Apple)
A social media platform (With the demise of Ping, Apple has no social media property)
Internet/Cloud application expertise (Recurring problems with iCloud and earlier, MobileMe, indicate this is not a core competency for Apple).
Yelp’s technology would let Apple respond to users’ on-the-go search queries with targeted ads, and allow users to quickly and seamlessly buy what those ads are offering from their phones. Apple Inc. (NASDAQ:AAPL)’s promotion partners would receive real-time updates on the effectiveness of the Yelp Inc (NYSE:YELP) advertising/promotion program, allowing them to change or modify features of their mobile promotion. And Apple will be able to create an extensive profile of iPhone users’ purchase habits, which can be used to add further enhance the value of the company’s mapping services.
Why Partnering With Yelp is Not Enough
Yelp’s value is already evident to Apple’s competition. Google Inc (NASDAQ:GOOG) unsuccessfully attempted to acquire the company for $500 million in 2010. Google later purchased Zagat to integrate its restaurant, lodging and entertainment data into the company’s mapping applications. However, Google is likely to still covet Yelp for the company’s social media platform and service reviews.
Also, Yahoo! Inc. (NASDAQ:YHOO) of late has shown interest in growth through acquisitions with the recent purchase of Tumblr and its overtures toward video-streaming site Hulu. Given Yahoo! Inc. (NASDAQ:YHOO)’s increasing interest in partnering with Apple via search, it could be in Yahoo!’s interest to purchase Yelp as a way to increase the company’s long-term value to Apple.
iPhone apps using data from Yahoo! Finance and Yahoo! Inc. (NASDAQ:YHOO)’s weather site come preloaded on all iPhones. In addition, some Yahoo! data, such as sports stats, already power Apple’s voice-activated “assistant” Siri. The Wall Street Journal reported in April that the two companies were in discussions in regards to expanding their iPhone partnership.
Conclusion
With a market cap approaching $2 billion, Yelp is larger than the typical Apple acquisition. However, a Yelp buyout would allow Apple to integrate Yelp’s search technology with a mobile payment system, thus providing the iPhone with a key point of differentiation versus other mobile competition.
Simply partnering with Yelp does not seem to be a long term solution, given the increasing interest in mapping apps/functionality. (For example, Google and Facebook Inc (NASDAQ:FB) are currently rumored to be in a competition to acquire the map app Waze.) A purchase of Yelp by a competitor could significantly damage Apple’s Siri local search capabilities and value of the company’s mapping app.
Since Yelp is not expected to show a profit until 2014, purchase of its stock today is somewhat speculative. However, given the sizable resources Apple is investing in maps, Yelp’s current partnership with Apple, and the strategic value of Yelp’s data to Apple’s competitors – it may be worth a Foolish investor’s time to consider a modest investment in Yelp.
Apple Inc. (NASDAQ:AAPL) investors, in the meantime, should follow the Apple/Yelp partnership closely to better determine whether the company can cash in on extra revenue from mobile searches and purchases anytime soon.
The article Why Apple Needs to Buy Yelp originally appeared on Fool.com and is written by Bill Shambllin.
Bill Shambllin owns shares of Yelp, Apple, and Google. The Motley Fool recommends Apple, Facebook, and Google. The Motley Fool owns shares of Apple, Facebook, and Google. Bill is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
