Yelp's Real Problem Is Google

| About: Yelp (YELP)

Yelp (NYSE:YELP) management has done a good job keeping the stock level since its IPO earlier this year. But it's unclear to me how long they can keep things going.

Yelp has yet to report a profit as a public company. It managed to survive the end of its lock-up period, but is now engaged in an embarrassing campaign against its own reviewers, which are increasingly subject to political interference. A lawsuit claiming it was strong-arming merchants to become advertisers was dismissed, but the company's image was harmed.

The real problem is that its moat is shrinking. The threat is from Google (NASDAQ:GOOG).

Yelp understands this, which is why it is siccing the FTC on its larger rival. Google's purchase of Zagat, and its integration of those reviews with both its Google Plus social network and Google Places is pushing Yelp reviews down in the search rankings, unless people go directly through its own search engine or app.

I know many people don't think much of Google's efforts in social networking, but the Places placement has to hurt. Enter your address into Google Maps now, and you're going to see both restaurants and a big red link to Zagat reviews. You're not going to find a link to Yelp anywhere.

Can the FTC change this? Maybe, but it will take time. Google remains the dominant search engine, location is increasingly important, and Yelp is being systematically shut out of places by Google. Even links from the search engine that go to Yelp itself tend to be clunky, requiring more input and searching to gain good information.

Microsoft's (NASDAQ:MSFT) Bing, by contrast, has no links to reviews in its mapping function. Facebook (NASDAQ:FB) would seem like a natural ally, but there's been no approach reported from either side. Yahoo (NASDAQ:YHOO) would make another natural ally, but again -- no approach.

All of which makes me wonder if the folks at Yelp even know what their problem is, if they're not lost in their little bubble world. Me, I stay out of such worlds.

Disclosure: I am long GOOG, MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.