Steve Jobs got his way in this deal


Steve Jobs was always notorious for being able to get his way — everything from making sure those who worked for him met his perfectionist product requirements by deadline to talking wireless partner AT&T into launching a handset the company was never even permitted to lay eyes on. Well, he got his way in another important deal years ago — or rather, in the lack of a deal.

May I ask who’s calling?
SFGate recently ran a profile of Yelp (Nasdaq: YELP) CEO Jeremy Stoppelman, describing how back in early 2010 he was on a conference call and his assistant informed him, “Steve Jobs is on the line.” Steve Jobs isn’t the kind of guy you blow off with a “pretend I’m not here” or a “tell him I’m on lunch,” so he picked up the phone.

With the review site’s growing popularity catching the eye of the titans, Google (Nasdaq: GOOG) had already expressed interest in snapping up the small company for an estimated US$500 million. Yelp would have been a natural fit within the search giant’s plethora of services. It was this possible deal that Jobs was staunchly against, advising Stoppelman to “not sell out to Google.”

Jobs was still fairly raw about Android as what he viewed as technology stolen from Apple (Nasdaq: AAPL), and he was fond of Yelp and didn’t want to see it get swallowed by his multicoloured rival from Mountain View. Stoppelman says he had already spurned Google’s advances, opting to stay independent, so Jobs’ phone call didn’t tip the scales one way or the other.

Moving on
So far, Yelp’s decision to go it alone is working out, with its market cap now standing at US$1.3 billion, more than twice what Google had offered. That’s just about where it started when it went public in March of this year, more than two years after the phone call from Jobs and turning down Big G.

In the meantime, Google decided to pick up restaurant ratings and review site Zagat to satisfy its craving, and Yelp now views Google as a major competitive threat since it relies on the search giant for most of its traffic. Google was responsible for more than half of traffic from Internet searches in the first quarter, and Google has removed links to Yelp from some of its search products in favour of its own local offerings.

The site is free for users, a key advantage over rival reviewer Angie’s List (Nasdaq: ANGI), which remains unprofitable after nearly two decades of operations even with a paying membership base. Yelp is also getting into local deals, competing with leading daily dealer Groupon (Nasdaq: GRPN), which also happened to snub a monstrous US$6 billion bid from Google. Yelp Deals was less than 7% of revenue last quarter, with ads continuing to be the bulk of sales.

Getting iLove
At the Worldwide Developers Conference last month when Apple detailed iOS 6, the iPhone maker also incorporated direct integration with Yelp’s services, allowing for check-ins directly in the new maps app. That’s a big boost for Yelp as exposure to Apple’s large and rapidly growing installed base of iOS users, and it most assuredly wouldn’t have been possible if Yelp had been corralled into Google’s stable.

It’s also a big vote of confidence from Apple, putting Yelp in the same category with other dominant third-party social services getting iLove, most notably also including Facebook in iOS 6. Twitter was directly integrated last year in iOS 5.

The next major version of Apple’s desktop OS X, Mountain Lion, is also integrating social features directly. Mountain Lion is due out this month and will launch with Twitter while Facebook will be added this fall. One can’t help wondering whether Yelp might eventually get this treatment as well, which would be yet another major score with Apple.

Yelping Yelp
For now, heavy spending in sales and marketing continues to hold back Yelp’s bottom line, despite a booming top line. It’s been able to fetch a loftier valuation by staying independent, and the deals with Apple definitely help, but for now I’d review it as 1.5 out of five stars as an investment, because I’m not confident in Yelp’s ad-based business turning a sustainable profit.

Interestingly, my rating is just half of the three stars that the company fetches as a service on its own website.

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The Motley Fools purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article, written by Evan Niu, originally appeared on fool.com

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