As Seamless Nears IPO, Search and Commerce Continue on Collision Course

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ConvergenceLast week, the Wall Street Journal reported that GrubHub Seamless, the result of the May 2013 merger between the two online ordering firms, had made a confidential filing for an initial public offering. The move puts the food ordering giant on a collision course with Yelp and Google as the three firms look to wrangle local consumers who increasingly expect to search, compare and buy in a single keystroke — and do so at a large enough scale to satiate the public markets.

For the past decade, Yelp and Seamless have coexisted peacefully, kept apart by the depth of the local market opportunity and the sheer difficulty in building a their respective products. But as the local technology ecosystem has grown, it’s becoming more efficient, and increasingly, search and commerce businesses no longer can afford to avoid one another.

There are a number of other firms competing across a range of local verticals, but the restaurant industry is arguably the most developed, and Yelp and GrubHub Seamless are the clear leaders in their respective sectors. It’s reasonable to argue that the competition between the two firms will offer an early peek into how the collision of search and commerce business may play out in other industries.

From a consumer perspective, the increasing pressure to bring search and commerce functionality together is a matter of efficiency, accelerated by the shift to mobile. The cost for consumers in switching between services is substantially higher in a mobile environment in which applications account for the lions share of usage compared to a desktop browser where consumers often have multiple screens open at once.

Local Businesses Drive Local Tech
All this said, consumer trends often have less of an impact on innovation in the local technology industry than in other, more traditional online businesses. The fragmentation of the local market provides an enormous roadblock in terms of what can be built, and subsequently, it’s often the trends on the business side that govern the direction of the industry.

To a certain extent, Yelp has managed to avoid the complexities of the supply-side of the market more than Grubhub Seamless, whose product relies on the participation of local businesses. But as Yelp continues to expand its revenue-generating ad product, and increasingly looks to fold in information like business hours or product data, which is typically controlled by the business itself, in the core service, the company’s growth will increasingly rely on participation by local businesses.

Bringing the Back Office Online
More than anything else, it’s the adoption of web-based operations software that will drive the search and commerce sectors together. As brick-and-mortar businesses start to adopt web-based and point-of-sale and CRM systems, and effectively put their core systems online, there’s a clear economic incentive for both the local business and the technology provider to connect the discovery and buying processes. Once that system is in place, adding one more data input (like search) or introducing a new functionality (like online ordering) costs very little for the local businesses.

What’s emerging is a “platform economy” in the local technology sector similar to third-party developer ecosystems built by Salesforce and Apple in their respective enterprise and consumer software markets. The back-of-the-house products will effectively manage the master data of the business, and provide key services for the target business, and then function as a development platform and software marketplace for enterprise applications. This will dramatically reduce the sales and support costs associated with scaling a local marketing services business, providing the infrastructure needed to do scale without sacrificing margins.

For Grubhub Seamless, the growth of these back-office products — many of which offer basic online ordering capabilities — will dramatically reduce its value as a technology provider (an enabler of online ordering) to local businesses. Instead, the company will need to rely wholly on its ability to drive traffic to these businesses, pushing it to compete with Yelp directly as a local lead generation company.

What’s more, these back-office products also open the door for Yelp to offer similar commerce functionality — and likely at fraction of the cost it took for Grubhub Seamless to build its own network over the past decade. Yelp Platform, the six-month old partnership initiative aimed at helping the reviews site integrate food delivery and other commerce-related tools into its system, has already captured the interest of investors, helping the firm to more than double its stock price since announcing the initiative in July 2013.

But Yelp’s push into commerce is defensive as well. As local businesses adopt connect operations software, data will play an increasingly important role in the way they make decisions. In order for Yelp, and other ad-supported search businesses to compete, they will need to provide marketers with the same depth of data about the consumer they’re driving that Grubhub Seamless and others can provide. It’s pay-per-performance revenue product also fits much more squarely with a data-driven advertising environment than Yelp’s subscription model.

Steven Jacobs is Street Fight’s deputy editor.