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Why Apple Inc. (AAPL) Needs to Buy Yelp Inc (YELP)

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.

Apple Inc. (AAPL)

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: 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)

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