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Yelp Acquires Eat24, Bringing the Battle to GrubHub

February 11, 2015 by Steven Jacobs Leave a Comment Filed Under: News

yelp-stickerYelp is officially in the commerce business. The company announced Tuesday it had acquired Eat24, a food ordering service that competes with GrubHub, for $134 million in cash and stock.

The move positions Yelp in direct competition with its other food ordering partners and puts the company on a collision course with GrubHub, the online ordering firm that went public last year after merging with the New York-based Seamless. Yelp has spent the past 18 months developing partnerships with online ordering and booking services as part of its Platform initiative.

Yelp began working with Eat24 in the summer of 2013 when the food ordering company joined Yelp Platform as a launch partner. The partnership, which also included competitor Delivery.com, allowed Yelp to integrate the company’s software into its listing pages, allowing users to book and order food without leaving the search page.

In a post published Tuesday, CEO Jeremy Stoppelman did not comment directly on the implications of the acquisition for Yelp Platform. A Yelp spokesman told Street Fight Tuesday that the company expects its “online booking and ordering partners to continue as Platform partners.” She pointed to Amazon as a model where a company can “sell directly as well as resell [and] fulfill on behalf of partners, all on the same platform.”

Regardless, the deal is bad news for existing food order partners, including EatStreet, ChowNow and Delivery.com, which could see a dip in referrals from the reviews site. Before the acquisition, Yelp randomly assigned orders to partners when the booking capabilities overlapped — it’s fair to assume that Eat24 will now hold precedent over other companies.

Without the favor of Yelp, the future could suddenly be much bleaker for smaller players in the food delivery market. Yelp provided these firms with a critical channel for new customer acquisition — a task that has become increasingly difficult in the app-dominated mobile landscape. As mobile plays a larger role in discovery, companies cannot rely on Google as a primary source of new customer acquisition, making growth a more difficult prospect than ever before.

The bigger story is the coming face-off between Yelp and GrubHub, which essentially becomes the company’s largest competitor other than Google. The competition, which has remained mostly latent until today, reflects an ongoing verticalization of the search industry driven by a mobile consumer who increasingly expects to find and buy in the same app.

For GrubHub, Yelp’s entrance into the food delivery market could undercut its top line growth. The auction-based pricing model which GrubHub uses to determine where a restaurant’s listing appears in a search result relies on fairly intense competition between restaurants on the platform. A meaningful competitor such as Yelp would create one of the first real alternatives to GrubHub and Seamless in key markets, driving down the commissions that restaurants might be willing to pay.

But the shift cuts both ways, and the development of a commerce business could eventually undercut Yelp’s current business model. The reviews company currently generates the majority of its revenue from subscription advertising packages — most of which are not validated on a pay-per-performance basis. It’s unclear how Yelp plans to integrate the product, but the commission-based model used by most food ordering companies could force Yelp to rethink parts of its business model.

The good news for Yelp is that a commerce business may actually help it in the restaurant vertical. As of 2013, restaurants accounted for 39% of reviews, but new data released by Yelp last week reveals that restaurants account for only 16% of its revenue. A commission-based model may help the company more effectively sell to cash-strapped restaurants.

The larger question for Yelp is how the company plans to deal with renew innovation in the home and local services industry, which accounts for more than a quarter of its revenue. Startups such as Thumbtack and Porch.com have raised big rounds to fund products that could quickly diminish the perceived value of Yelp by home services providers.

Steven Jacobs is Street Fight’s deputy editor.

Related content:

  • 6 Tools Restaurants Can Use to Offer Mobile Ordering
  • Delivery.com CEO: Google’s Entry Into Food Ordering…
  • Top 5 Exits in Local Tech of 2015
  • Case Study: Restaurant Increases Visit Frequency with Mobile

Filed Under: News Tagged With: Commerce, Eat24, GrubHub, local search, News, Search, Yelp

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