Yahoo Set to Partner with Yelp to Improve Search

In order to compete with the likes of Google and Microsoft's Bing in the area of search, Yahoo YHOO needs a twist, an angle, a gimmick, or a better idea.

Yahoo hopes Yelp YELP, can be that better idea.

In effect, Yahoo needs to differentiate itself from both Google and Bing and a potential partnership with an online-review site that specializes in local listings may just improve Yahoo’s search results. Or so the theory goes as reported by The Wall Street Journal.

Yahoo CEO, Marissa Mayer, unveiled the plan at an employee meeting Friday. A source who attended the meeting told The Wall Street Journal the idea was to incorporate Yelp listings and reviews into Yahoo’s search results. According to the source, the new feature would be made available in the coming weeks.

Such a move was important because as more and more consumers use their smartphones to navigate their way both locally and when they travel, local information has become more desirable.

To that end, Microsoft recently struck a deal with Foursquare, a popular mobile check-in app. Yelp is no stranger to collaboration itself, having partnered with both Microsoft and Apple previously. In the Apple collaboration, Yelp reviews and business listings appear on the company’s mobile mapping software.

Yahoo currently has a 10-year agreement with Microsoft in which Microsoft gets 12 percent of revenue Yahoo generates from search ads appearing in search results. Sources at Yahoo have indicated to The Wall Street Journal that executives at Yahoo have described this arrangement “disappointing.” According to the terms of the contract with Microsoft, however, Yahoo could not break free until 2015.

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As of December, Yahoo owned just 10.8 percent of the search market. This compared with Microsoft’s 18.2 percent and search giant, Google’s whopping 67.3 percent of the market according to comScore.

CEO Mayer, who once ran Google’s search division, famously compared Yahoo’s search strategy to a winemaker who buys grapes from another vineyard. "You can grow your own grapes or buy them from someone else and still make a wine with your own style," Mayer said.

Yahoo’s shares have declined almost eight percent this year. Yelp has seen its stock climb nearly 30 percent.

Terms of the Yahoo deal with Yelp have not been revealed.

Meanwhile, Yahoo already has its own version of local search called, Yahoo Local. How that part of the search engine might be affected by the new partnership was also not known.

At the time of this writing, Jim Probasco had no position in any mentioned securities.