This post was authored by Peter Weir and originally published on the Yelp Blog. @LiinaPotter contributed to the analysis and reporting of findings. All visual and interactive materials built by The DataFace.
Today we’re releasing the third installment of Yelp’s Local Economic Outlook, a program to rank U.S. metro areas by the pace of growth in their local-business population. This program is part of a larger, ongoing project to surface insights from Yelp’s deep data stores to help businesses succeed and arm policymakers with the information they need to boost local economies.
While Yelp is most commonly recognized for our leadership in restaurants, Home & Local services has become the fastest growing and largest category by revenue on our platform. In the first quarter of 2018, Yelpers sent more than 4 million quote requests, and Home and Local businesses increased the amount they spend to advertise on Yelp by approximately 30% compared to one year ago. There are now more than 1 million local businesses set up to receive consumer quote requests via Yelp.
This growth inspired us to take a closer look at what’s happening within the category and its impact on American cities.
While examining the growth in Home & Local services on Yelp, we noticed an interesting trend: a dramatic rise in the number of searches for “smart home” and enormous growth in Home Automation businesses.
The Internet of Things isn’t Just For Techies
As voice assistants and connected devices continue to dominate tech headlines, it seems the trend may be expanding across America. In the past two years, searches for “smart home” on Yelp have quadrupled and this growth doesn’t show signs of slowing.
Of those searches for “smart home,” consumers are most often seeking out businesses specializing in Home Automation and Security Systems. Home Automation in particular is one of the fastest growing Home & Local services subcategories on Yelp.
In the first quarter of 2018, the number of quote requests sent through Yelp to Home Automation businesses more than doubled from a year earlier. In response to this demand, more businesses are opening up shop. There are almost 30% more Home Automation businesses on Yelp today than there were a year ago.
The rapid growth in consumer demand and the industry response suggests that the rise of smart homes may not be a flash in the pan as users beyond early adopters join in.
While Home Automation has emerged as one of the fastest growing business types on Yelp, we’ve also noticed that the larger success and growth of Home & Local service businesses in a city is strongly linked to the economic health of that city.
Austin, Texas, Leads The Country In Local-Business Growth
The Local Economic Outlook ranks 50 U.S. cities by local-business investment and success to reveal the health of urban economies around the country. We measure local-business success by the rate of change of the business population in each city’s metro area in the first quarter of 2018. Cities where openings greatly outnumber closures are ones where business owners have spotted opportunity and found success.
In the first quarter of 2018, Austin, Texas, topped the list. Largely driven by the growing tech sector and VC investment, Austin’s unemployment rate in 2017 dropped to levels not seen since 2000. Spurred by the influx of people moving to the area in search of newly available jobs, construction and other home services industries have seen tremendous growth in the Austin area.
Behind Austin, Texas, Miami, FL, Atlanta, GA, Phoenix, AZ, and Charolette, N.C. topped the list for local business growth.
You can see where other cities sit on the list and what’s changed over the past four quarters in the interactive chart below.
In fact, Home & Local services accounted for the largest share of total net business growth among all major business categories in Austin. This dominance by Home & Local services is seen throughout the top cities on the Local Economic Outlook list.
Let’s take a deeper dive into our Local Economic Outlook rankings for Q1 2018, which counts Austin, Miami, and Atlanta in the top three. Meanwhile, Philadelphia fell to the bottom of this quarter’s list, which could be a reflection of the city’s high poverty rate(25.7), rising homicide rates, and increasing opioid epidemic.
Building a Model to Measure Economic Outlook
Yelp, the leader in connecting people with great local businesses, is putting its rich data stores to work identifying the parts of the country and types of business with the highest rate of growth in the number of businesses. Our data science team is continually working to identify the best measure of local economic health. This quarter, we are using the same methodology as last quarter: We’re using the rate of change in the number of businesses in a city or business category as a way to equally weight business closures — a sign of economic challenges — and business openings, a sign of business investment and dynamism. We’ll continue to study and refine this measure in the quarters to come as we release further updates on local business health.
The rankings are based on data from the first quarter of 2018 (January through March). The changes in rankings are based on comparing data from the first quarter of 2018 with data from the fourth quarter of 2017 (October through December).
We built our rankings using the top 10 primary categories on Yelp, according to page views. We chose 50 major U.S. cities — the Yelp 50 — based on a combination of factors, including the number of businesses in those cities.
Choosing the 50 Cities in the Economic Outlook
We started with the three biggest cities as measured by number of listings on Yelp in each of the Census Bureau’s nine U.S. regions in 2017. We then added 23 of the other largest cities in the country. Each city includes businesses within the city’s larger metro area, as defined by the Census Bureau’s Metropolitan Statistical Areas. We continue to track these 50 cities — the Yelp 50 — each quarter.