SECOND-TIME SUITOR
Yelp said in an emailed statement that it is frequently approached to discuss "partnerships, investments and more, and the company does not comment on private discussions that may occur."
A Google spokeswoman said the company does not comment on rumors or speculation.
Google has had its eye on Yelp for some time. According to one former Google executive, the Internet company had had "early discussions" with Yelp about an acquisition several years ago, but ultimately passed on the deal.
"Yelp doesn't monetize very well, so it's always a bit hard to justify an acquisition," the person said.
The local businesses that Yelp sells online advertising to are more interested in promoting their businesses through coupons than online ads, he added, noting he believed Yelp was still an unprofitable business.
Yelp was founded in 2004 and has received $30 million in funding from Benchmark Capital, DAG Ventures and Bessemer Venture Partners.
The acquisition talks are the latest in a string of recent deals by Google, including the $750 million acquisition of mobile ad firm AdMob announced in November, that are designed to extend Google's reach into new advertising markets.
The world's No. 1 Internet search engine generated roughly $22 billion in revenues last year, but has seen its top line growth slow from the 40 percent-plus clip it was managing as recently as early 2008.
Google has stepped up efforts to court local merchants recently, encouraging businesses to register their information on its small-business online directory.
But some analysts say Google will have its work cut out trying to sell online ads to local merchants more comfortable with traditional channels like local television, newspapers and the Yellow Pages.
Needham's May estimated that Yelp, which had 8.9 million unique visitors to its site in November according to comScore, is generating revenue at an annual rate of $15 million to $20 million.
"That's a pretty tough nut to crack," May said about selling online ads to local merchants. "Whether Google can crack the code on it, is still to be seen."
(With inputs from Reuters)