Yelp — the verb-inspiring app that has transformed how we eat, shop, and approach businesses in general — might not survive the coronavirus.
When restaurants and bars closed last month, I didn’t immediately consider how the tech industry would be impacted. After all, Yelp, a quintessential San Francisco tech behemoth, saw $1 billion in revenue in 2019.
Yet, when Yelp recently announced its mass layoffs, I wasn’t surprised, considering how its business model relies on advertising dollars from brick-and-mortar retailers — many of which are closed or struggling themselves.
Despite the government’s mixed messages, the end of the coronavirus lockdowns seems unlikely to manifest in the next few weeks. As Yelp’s revenue stream dwindled and bad PR stories exacerbate the restaurant industry’s existing disillusionment towards the company, will the coronavirus crisis mark its end?
What did they do?
On March 20th, Yelp announced that it would be providing $25 million in assistance to struggling local restaurants and nightlife businesses impacted by the pandemic. However, this was not a cash grant, but $25 million worth of “waived advertising fees, and free advertising, products and services,” such as three months of access to Yelp Reservations and Waitlist.
The company also shared that it was taking steps to ensure that businesses don’t suffer from unjustified coronavirus-related “reputational harm.” Yelp will have “zero tolerance” for reviewers’ claims that they contracted the coronavirus after visiting a business.
A few days later on March 24, Yelp introduced a small business relief partnership with GoFundMe for patrons to easily support tens of thousands of local businesses. Using Yelp photos and descriptions, GoFundMe automatically generated $2,500-target fundraisers for eligible businesses — restaurants, nightlife, beauty, and fitness businesses with five or fewer locations in areas hardest hit by the outbreak — which Yelp linked to via a button on its business participants’ Yelp pages.
The initiative was a charitable one. Yelp and GoFundMe would be matching $1 million of the donations generated through $500 grants to businesses that raise at least $500 on their GoFundMe pages.
However, a backlash soon followed. Angry small business owners complained that Yelp did not inform them or seek consent before auto-generating their fundraisers. The process for opting out — because businesses were already hosting their own fundraisers, did not need a fundraiser, or did not want one set up through Yelp — was cumbersome and stress-inducing. Businesses needed to provide documentation, claim the GoFundMe campaign, then delete it. Donations already made would be returned to donors.
Additionally, it was revealed that despite Yelp originally announcing that it was waiving fees, GoFundMe was setting the recommended “tip” at 15%, though donors can modify it manually. Tips are how GoFundMe covers its operating expenses. “Yelp does not get any portion of the donations. Donations through the GoFundMe platform may be subject to payment processing fees in some instances per the terms of the GoFundMe platform,” an FAQ page for the program stated.
In response to the mounting negative publicity, Yelp paused its partnership with GoFundMe on March 26th, acknowledging that some businesses did not receive opt-out instructions. The companies announced that they were working to provide a “seamless way for businesses to opt into the program moving forward.”
In a sudden twist of events on April 9th, Yelp’s co-founder and CEO Jeremy Stoppelman announced that over 1,000 employees would be laid off, another 1,100 furloughed, while others would have their hours cut — in all, affecting over a third of its 6,000-employee workforce. Executives accepted 20–30% pay cuts, while Stoppelman himself would not be taking a salary nor vesting any stock awards for the remainder of the year.
The Good, the Bad, and the Ugly
1. Bad: Yelp is currently irrelevant for users, which means zero revenue
Though many might still use Yelp to check restaurant hours, users are unlikely to be sampling takeout from new restaurants, instead opting to support ones they already love. Yelp’s published findings reflect this: interest in restaurants has dropped 64% since March 10.
Even if users are still using the app, few are leaving reviews. In fact, restaurant owners are furiously berating any Yelp use during the pandemic. New York’s Prince Street Pizza posted on Instagram: “Why are you still writing Yelp reviews at a time like this” as places are “risking their lives to serve the communities food… Just know if you’re Yelping during a time like this, there is a special place in hell for you.”
Yelp relies on its users to generate free content. If reviewing restaurants and other essential businesses is shunned upon, there won’t be new content. No content means no reason to open the Yelp app. No users mean no eyeballs for Yelp’s ads, which ultimately means no revenue for the company while it still hemorrhages money on expenses like server costs.
2. Ugly: That awkward moment when goodwill pisses everyone off
To say that business owners were displeased with Yelp’s attempt at goodwill would be an understatement. “What the fuck?” said Jamie Zawinski, the owner of SoMa nightclub DNA lounge in an email to Eater. “Seriously, what the fucking fuck?”
According to many irate business owners, Yelp hadn’t called, emailed, or attempted to inform them of the initiative. Though scores of restaurants have set up GoFundMe pages to compensate employees, pay rent, and stay in business, business owners say Yelp’s non-consensual fundraisers harm their reputation. “Our customers think that we are asking for charity for our workers. We are not. We are working hard to provide for them by selling food to-go, and will participate in the government programs being crafted for hospitality workers,” said Nick Kokonas, co-owner of Chicago’s Alinea restaurant group to Eater. For those businesses who already have their own fundraising efforts — whether through a GoFundMe campaign or gift card purchasing option on their websites — Yelp’s fundraiser could draw attention away.
“I truly cannot believe that Yelp and GoFundMe thought this was a good idea,” Kokonas also shared. “It’s the worst kind of fake stewardship in a crisis, crafted to look like charity but really taking advantage of a horrific situation.” It’s true that Yelp’s generosity, like any corporate charity, benefits themselves in addition to those they’re trying to help. Helping small businesses stay open, at little extra cost to them, could determine the survival or demise of the company.
3. Good? Bad?: Its partners’ charitable giving isn’t that great either
Yelp’s $25 million fund followed a similar announcement from its partner, delivery service Grubhub. Though on the surface, Grubhub’s “$100 million relief program” sounds more charitable than Yelp’s $25 million one, the reality is that Grubhub is simply prepared to delay the collection of $100 million in marketing commission fees; essentially, a no-interest loan. The terms and conditions also stipulate that restaurants must keep Grubhub as a delivery service for at least one year after applying for the program.
Considering how Grubhub profits by currently taking 15–30% commission for delivery and order processing — which they could charitably reduce — restaurant owners have complained on social media about how its initiative is yet another hollow PR move.
Though Grubhub’s blunder distracts the angry mobs away from Yelp, as partners, their fates are intricately tied.
4. Ugly: Businesses already hate Yelp
In an article that covered Yelp’s layoffs, one netizen commented, “With my condolences to the laid-off employees who are joining the rest of the eliminated service industry, this is the best news I’ve read since the start of the pandemic.” This was the top-voted comment.
Over the last decade, numerous business owners have claimed that Yelp extorts businesses by promising to hide negative reviews or threatening to remove positive reviews in exchange for ad dollars. These shady business practices have inspired Billion Dollar Bully, a 2019 documentary about Yelp’s alleged extortion. Considering how the effectiveness of Yelp ads has long faced skepticism, these “pay to play” claims — which the company has vehemently denied — has created a mass disillusionment with Yelp across industries.
These sentiments have been exacerbated by Yelp’s notoriety as a platform for entitled users to blast businesses with negative reviews, many of which are written by people who have never visited said business. An example that comes to mind is Lucky Lee’s, the now-permanently shuttered restaurant lambasted on Yelp after its white owner advertised “clean” Chinese food. Though Yelp does remove politically-motivated fake reviews, public perception of the company has shifted from a legitimate review site to a space to make a statement, overreact to minor negative experiences, or actively retaliate against a business.
Businesses and customers alike have begun flocking to Google instead. As Google began putting its own local business results and reviews ahead of Yelp’s in recent years, Yelp’s stock has lost over half its value since its peak at over $6 billion in 2014 (it’s currently trading at prices close to when the company went public in 2012).
Ultimately, any review platform provides a small minority with an amplified voice and strong leverage over businesses. After all, 90% of customers say that what they decide to buy is influenced by positive online reviews, while 94% will use a business with at least four stars. Though Yelp can help businesses attract new customers, consumers’ overreliance on review platforms means scattered negative comments can also easily permanently damage a business.
Though there have been mixed predictions on when we can expect businesses to reopen, it’s certain that when that day comes, pent-up consumer demand for human interaction and normalcy will mean joyful crowds at beloved restaurants, bars, shops, and salons.
However, this does not immediately translate to revenue for Yelp. Most, if not all surviving businesses will seek to recover from the damage caused in the preceding months — though some will turn to marketing to boost sales, the rest will cut discretionary spending and focus on covering paychecks and rent. Consumers, knowing businesses have been financially devastated and relishing the opportunity to finally leave the house, will return to their cherished and familiar spots; leaving a review will be far from a priority. Given this atmosphere, Yelp’s advertising model may struggle.
If the company’s woes continue, it’s possible that it might get acquired — in 2019, rumors swirled that Groupon was eyeing Yelp. After all, Yelp has rich and valuable user data and insights on consumer behaviors that could be of interest to tech companies (cough, Facebook).
Will Yelp survive the coronavirus? Verdict: Probably, but as Facebook Yelp™.
This article is part of my new series on how the coronavirus will permanently impact our lives. What are the brands that will thrive? Which ones are messing up their PR strategies? Each week I’ll be featuring a different in-depth case study. Leave a comment on what you’d like to see next!