NEW YORK (TheStreet) -- Following a month of rumors, Yahoo! (YHOO) finally announced its deal with Yelp (YELP - Get Report), bringing Yelp's reviews, business information and star ratings to Yahoo! Search.
Yahoo! announced on its blog (much to no one's surprise, it's a Tumblr blog!) that it's now bringing Yelp's reviews to Yahoo! Search. "Now when you use Yahoo Search to look up a local business in the U.S. on your smartphone, tablet, or PC, you'll see user reviews, business information, and star ratings from Yelp," the company said in the blog post. "We've also added a new photo viewing experience to show high-quality photos from Yelp, other partners, and the businesses themselves."
Shares of Yahoo! were lower in mid-Wednesday trading, off 0.52% to $37.37, while Yelp shares were gaining 3.1% to $92.79.
What Yahoo! is doing by incorporating Yelp into its local search is not only making Yahoo!'s core business (advertising and search) more relevant, it's beginning to build what Google (GOOG - Get Report) has, with its Knowledge Graph. The Knowledge Graph, essentially the right part of the page, pulls in information from Wikipedia, Google Image Search, Google + posts, and anything else associated with that particular topic, whether it be items to buy, or relevant other searches.
In the fourth quarter of 2013, Yahoo! noted search was the standout performer, as revenue excluding traffic acquisition costs, or TAC, rose 8% to $461 million. Paid clicks, excluding Korea, rose 17% year over year, but the price-per-click fell 3% from the fourth quarter of 2012. Beefing up search can only help Yahoo! in its fight against Google, despite Google owning nearly 70% of the search market in the United States.
By partnering with Yahoo!, Yelp is taking advantage of all the data it has and it can now start putting that to work. In a February note, FBN Securities analyst Shebly Seyrafi said Yelp has a lot of potential ahead of it, following the company's exceptionally strong fourth-quarter results released that month.
"As the company is still only scratching the surface of the tremendous local advertising market opportunity ahead, it is investing aggressively," Seyrafi wrote in the note. Seyrafi rates Yelp "outperform" with a $110 price target.
Not only does the deal make sense from a partner standpoint, it's also beneficial as Yahoo! CEO Marissa Mayer tries to turn core Yahoo! around, a feat which she has previously said would take about three years. With revenue from display meandering, Mayer has mentioned doing revenue-accretive deals if they make sense. "Factoring contacts into our Search offering opens up tremendous opportunities to better answer our users' curiosity and make their daily habits easier," Mayer said on Yahoo!'s fourth-quarter earnings call. "This is a new area of experimentation with lots of room for rapid innovation and we will be investing here."
The images to what the new Yahoo! Search with Yelp integration will look like can be viewed here.
-- Written by Chris Ciaccia in New York
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