Founded in 2004, Yelp is a popular online directory for discovering local businesses ranging from bars, restaurants, and cafes to hairdressers, spas, and gas stations. Users can search Yelp via its website or apps.
Yelp Metrics as of September 30, 2019:
2004: Yelp founded by Jeremy Stoppelman and Russel Simmons. Our journey begins!
2005: Yelp Elite Squad starts in San Francisco
2007: Yelp hits 1M review milestone
2008: Yelp iPhone app launches
2012: Yelp goes public ($YELP)
2013: Yelp acquires online reservation start-up SeatMe, now known as Yelp Reservations
2015: Yelp acquires Eat24, an online food ordering service
2016: Yelp hits 100M review milestone; Yelp launches Request A Quote
2017: Yelp acquires restaurant waitlist startup Nowait, now known as Yelp Waitlist, Yelp completes sale of Eat24 to Grubhub, announces long-term partnership
2019: Yelp launches new personalized app experience
Yelp Business Model
Fifteen years ago, consumers needed to pay for AAA or Zagat membership to receive printed guides with restaurant reviews. Yelp disrupted that model with its free online service and became the dominant review platform for restaurants.
It is a social network that lets its users search for and review businesses around them. Unlike other directories, Yelp focuses more on engaging with its users and make them engage with other users and businesses as well.
It’s operating model functions around local businesses which can list themselves on the platform for free. They get to build their profile, get access to business analytics, and get to see and respond to reviews. These businesses can also attract more customers through targeted advertisements.
Reviews have always been a catalyst to the growth of Yelp’s Business Model. Yelp reviewers not only share their review of a particular local business, but they also share experiences. This review feature of the platform helped it make use of the network effect. The reviews help the new users finding what it wants; who in turn convert into a reviewer after using the service.
The company understood the importance of reviewers in its operating model and hence introduced a new squad of Elite members — the top reviewers on the website in 2006.
Yelp recognizes active members of the community based on well-written reviews, high-quality tips, a detailed profile, and other prerequisites. These recognized users are elite members of the platform. In exchange for their participation and constructive reviews on the website, they receive gifts, a sparkly badge on their profile page and an invite to exclusive elite events.
Launched in 2006, this strategy of recognizing members as elite has resulted in many constructive reviews on the website.
How Does Yelp make money?
Just like Facebook, Twitter, Pinterest or any other social media network, Yelp makes a maximum of its revenue through targeted advertisements. The company is a data mine for any local business wishing to target the local audience. The advertisements are targeted according to the user demographics and industry of the business.
According to a study by Nielsen, 98% of Yelp users have purchased from the business they found on Yelp, with around 90% doing so in a week. This is the biggest reason why many businesses look for advertising on Yelp.
- Local Advertising: Over 80% of Yelp’s revenues come from local advertisers, AKA local business owners.
- Affiliation on Deliveries: Acquired by Yelp in 2015, Eat24 is a food delivery & takeout app. The business model is simple. Restaurant owners sign up for free, get listed on Eat24 and can promote their restaurant by paying a fee per actual order
- Reservation Management (SeatMe): SeatMe is a tool that lets restaurants and bars manage their table reservations.
- Brand Advertising: Brand advertising accounted for ~7% of Yelp’s revenues in 2015. With over 140 million unique visitors to yelp.com in Q4 2015 alone, Yelp has plenty of page views to go round, allowing big advertisers to run big display ad campaigns.
Yelp Vs Google
In 2014, it accused the search engine company of prioritizing its search results, even in user searches that included the word “Yelp.” It’s also no secret that Google and Facebook now dominate online advertising, with the two giants responsible for 25 percent of all ad sales (online or off). Google has made numerous moves to make its restaurant search results increasingly useful to diners in recent years: Googling a specific restaurant now brings up a vast amount of data on the search results page, from address and opening hours to the menu, excerpts from reviews, and data on the business’s busiest times, including how long a diner can expect to wait at peak hours. That makes users searching for information on a restaurant less likely to bother clicking out to Yelp unless they’re already a habitual user of the site or the app.
Over the years, the company has been accused of extortion by numerous business owners, who say Yelp threatened to remove positive reviews from their business’s page if they did not pay for advertising, or asked for payment in exchange for hiding or deleting negative reviews. Those complaints resulted in multiple lawsuits that were eventually dismissed after the Federal Trade Commission found Yelp hadn’t committed any wrongdoing. But it’s not hard to see why restaurants would want to shift their ad dollars away from a platform that’s been both plagued by accusations of improper business practices and widely maligned thanks to some entitled users who take great joy in blasting restaurants with negative reviews.
Yelp is still hanging on right now, so depending on the perspective it can be relevant.
There are benefits to both, Yelp has built a community and camaraderie with their site, Google is very much sterile still for most users, but there are forums and community opportunities. Also, Yelp tried, too late, getting into Foursquare’s game of badges for check-ins. I had hundreds of Foursquare badges, and a few yelp ones, because I’m over that check into 3 Chinese restaurants in a week badge stuff. They also are trying to compete with OpenTable for reservations, UberEats DoorDash, etc with their delivery service, and also a cashback system for eating at places… all mediocre efforts.
However, had I been the Yelp CEO I would’ve sold to Google years ago for the billions offered, as Google has the resources to annihilate any service.
Yelp used to have amazing events to get people to participate in Elite, free dinners, tickets to Cirque or foodie events… not as much anymore. And when Google started their program they did as well, but much bigger and better.
But what I am talking about is integration, connecting with Google Maps, they know everywhere I have been, even if I don’t check-in, and poll me for my opinions, reviews, answers to questions, update information, etc. Nothing too invasive or time-consuming. Yelp is annoying as when I bookmark somewhere to try, it begins immediately annoying me to write a review…. I haven’t been there, I believe I just bookmarked it for later… and it’s in Nashville and I’m in Los Angeles. Still, every time I log in pops up with nags to write a review for places I’ve yet to go. Yelp started as a restaurant review site and never really grew beyond that, they have all businesses, but most are not reviewed.
I like Yelp, but it is getting more difficult, or Google is getting easier or both.
So, yes, still relevant, but not sure how much longer, in the restaurant category.
Oh, and one more thing, Google is real. It is connected to my Google profile. That’s my Gmail, Google+, Android, YouTube, everything, with my name and pictures. Yelp is still living the old anonymous days and allows people to create fake profiles and dole out a 1 Star review or 5 Star review… and that is the only review ever written… I know people that would sell services of reviews, writing them a 5 Star review, or several… and/or 1-star reviews for their competition.
If you want to know more, there is a CNBC story about the yelp.