Tag Archives: yelp

LSA16: Yelp Says Ads Remain ‘Core of Product’

Greg Sterling interviews Geoff Donaker at LSA16 (Photo, LSA Insider)

Yelp and other SMB channels are providing an increasing number of marketing services to their SMB customers. Interviewed by Greg Sterling at LSA 16 in San Francisco this week, COO Geoff Donaker noted that Yelp is providing “integrated commerce in many different forms,” including bookings, integration with OpenTable, food delivery and others.

But at the end of the day, Donaker reiterates that advertising remains front and center. “The core of our product: it’s ads,” he says. While “it is hard to explain the value of Yelp to SMBs…. it is the only option other than Google in many geo-categories.”

SMBs often assume that a large number of good reviews are a substitute for advertising on Yelp,” adds Donaker. While they help, the volume from word of mouth just isn’t there. “There are like two (ratings leaders that can forgo advertising) in every town. Everyone else could use ads to enhance their traffic,” he says.

Yelp, in fact, has developed one of the largest local sales forces in the industry, with 2,000 sales reps in the U.S. alone. It also has partnerships set up with YP, Yext, Single Platform, Loku and others; and has its reviews distributed on the largest traffic sites, including Yahoo and Bing. The majority of the traffic, howver, is App-Centric. “ You have to think ‘App first,’ says Donaker. “Websites are great as an advertisement for the App.”

LA Times Columnist Calls out Yelp for ‘Suppressing’ Reviews

I think Yelp is a fantastic service and a top resource, especially when I am travelling. But it was disturbing to read a column in The Los Angeles Times on Saturday by Sandy Banks, which suggests that Yelp is suppressing good reviews, and implies that there is a linkage between ad sales and allowing good reviews to be posted.

This isn’t the first time that Yelp has been accused of unsavory behavior. Yelp generally says it is all a series of misunderstandings about its business practices and technology. Some reviews get caught up in its algorithmic filters, which are designed to prevent businesses from hyping themselves via “fake” reviews from friends, family or paid agents. The system, unfortunately, favors frequent reviewers, who have essentially been validated.

Yelp also implies that if it has rogue salespeople lying about what they can and cannot do for advertisers, they’d be fired. “There’s no amount of money anyone can pay Yelp to manipulate reviews,” spokeswoman Kristen Whisenand told Banks.

But Banks notes a sign in the window of Bai Thong Thai, a San Francisco eatery, which asks customers to “Stop the Bully. Boycott Yelp.” The sign says that “Our customers repeatedly tell us they have submitted very good reviews. We asked Yelp. We were told ‘perhaps if you paid to do Yelp ads, we could help with this.’ We earn our good reviews. We will not pay bribes to Yelp to post them.”

Banks says the restaurants experience mirrors her own. She has posted positive reviews for her favorite hairdresser — presumably, a non-advertiser — but these reviews have been excluded, along with other acquaintances that she knows have written good reviews. Meanwhile, what is posted is a string of negative reviews.

She also notes that a number of a knitting store’s customers discovered Yelp at the same time, and sent in positive reviews. But “just about all of them were banished to Yelp’s untrusted file – while the negative reviews are all on page one. “ (Personally, I had a limo driver last year tell me that the same thing happened to him.)

I have a hard time believing that Yelp is purposely corrupting its system. The majority of Yelp’s reviews are positive. And the majority of the reviewed businesses on Yelp are not paid advertisers. But it needs to get out front on these issues.

Yelp Rolls Out Local Revenue Estimator

Primitive (and perhaps misleading) estimates on effective ROI have driven many local publishers up the wall. During Yelp‘s IPO period, one analyst suggested that it cost pizza shops almost a hundred dollars in advertising on Yelp for every pizza sold.

To combat such mistakes and show how local ad dollars are really working, Yelp has come out with a new “Estimator,” which seeks to close the loop on the value of each lead. Any merchant that has claimed a Yelp page can track leads and engagement that Yelp brings in via phonecalls made from its App , check ins, or uploaded photos.

VP of Revenue and Analytics Matt Halprin, recently recruited to Yelp from Boston Consulting Group (where he worked on similar SMB analysis, as covered by our colleague Steve Marshall), noted that SMBs are confused about the value of their Yelp advertising compared to other channels, such as circulars, coupons, display and radio.

The Estimator, which is based on actual data pulled from Yelp’s logs, will give SMBs a much better idea of Yelp’s effectiveness, he says. But it “undercounts customer leads. We can’t see calls coming from consumers who are looking at their laptop and then making phone calls. It also can’t track customer walk-ins.”

Already, the Estimator has determined that Yelp advertisers do significantly better than non-advertisers. A local business that has claimed a Yelp page sees an $8,000 annual lift from Yelp, but advertisers see a lift that is $23,000. Halprin notes that typical ad packages run about $4,000 a year, or $350 a month.

Milestone: Yelp’s IPO is Today

Yelp is IPOing today at $15 a share, allowing it to raise $123 million on a valuation of $900 million –$400 million more than it was apparently offered by Google a couple of years ago.

We know from the S1 that Yelp earned $58.4 million in net revenue in the first nine months of 2011, representing 80 percent growth over the first nine months of 2010. It also has 22 million reviews, and sees 61 million monthly users.

During the first nine months of 2011, the company claimed 19,000 paid accounts – up 75 percent from the same period in 2010, And 529,000 claimed pages –up 114 percent. Its ability to convert claimed pages into paid accounts is going to be where the action is.

It must also continue to penetrate deeper into restaurants, amidst tough competition from Google/Zagat and others. At the same time, it must continue to expand beyond restaurants deeper into shopping and services.

Restaurants and dining now make up 23 percent. Other major segments include shopping (22 percent), services (10 percent); beauty (9 percent); arts and entertainment (8 percent); Health (5 percent) Night Life (4 percent) and Travel and Hotel (4 percent). It also has a broad demographic, with 42 percent between the ages of 18-34, and 33 percent between the ages of 35-49.

Reading Yelp’s S1: Rapid Growth, Amidst Challenges

Yelp’s S1, which was issued last week as a run-up to a $100 million IPO, reveals a lot of new data about the reviews leader. The big question about Yelp has been whether it can grow against increased pressure from Google, and also begin to take market share away from traditional media players such as Yellow Pages.

Yelp’s plan for growth relies heavily on overseas growth. It is now in 22 international cities on top of 43 domestic markets. But it would also grow its primary business via local and brand advertising; monetizing mobile services that now make up 40 percent of its searches; boosting revenue from deals (where it has lowered expectations); and more revenue sharing dollars from restaurant reservations and travel.

Launched in 2004, Yelp had initially risen to the top of the heap among service and city guide leaders by dominating Google’s organic local search. After Google’s effort to acquire Yelp for $500 million ended under murky circumstances, Yelp has seen its prior dominance of Google search fade away. Moreover, Google Places – enhanced by Google’s purchase of Zagat — now looms as a competitor in its own right for reviews and advertising.

“Our success depends on our ability to maintain a prominent presence in search results for queries regarding local businesses on Google,” notes the S1.

Yet, Yelp is growing splendidly, even with the apparent Google woes. Yelp earned $47.7 million in 2010 and $58.4 million in net revenue in the first nine months of 2011, representing 80 percent growth over the first nine months of 2010.

During the nine months of 2011, the company claimed 19,000 paid accounts – up 75 percent from the same period in 2010, And 529,000 claimed pages –up 114 percent. And in a business where the number of current reviews is its currency, it has an archive of 22 million reviews, up 66 percent from the same period in 2010. Overall, it sees 61 million monthly users.

Yelp is primarily known for its restaurant reviews. That is still its primary image, and what has made “to yelp” a verb. But Yelp is also more diversified than generally perceived, and resembles a combination city magazine/Yellow Pages.

Restaurants and dining now make up 23 percent. Other major segments include shopping (22 percent), services (10 percent); beauty (9 percent); arts and entertainment (8 percent); Health (5 percent) Night Life (4 percent) and Travel and Hotel (4 percent). It also has a broad demographic, with 42 percent between the ages of 18-34, and 33 percent between the ages of 35-49.

What investors will be looking at is not only Yelp’s ability to grow and move into new areas, but also it’s potential for profits. The company has accumulated a deficit of $32.1 million since its launch, and lost roughly $7.6 million in the first 9 months of 2011. Sales and marketing costs have been especially heavy, eating up $38.5 million for the first nine months of 2011.

Business Insider suggests that “Yelp is Groupon without the cash flow,” basing its comment on Yelp’s increasing marketing costs for customer acquisitions. But to us, Yelp is working to get over a tipping point. And unlike Groupon’s one-time relationship with local businesses, Yelp is working on Yellow Pages-like renewal rates.

In fact, the key to Yelp is to continue its ability to maintain and leverage its huge user base; satisfy advertisers; and stay abreast of social media trends that help match users with establishments based on their interests. It won’t be easy and is not a sure thing. But Yelp’s trajectory to date has been an impressive one.

Shares of Yelp Searches

Google Buys Zagat: Reviews Platform is the Focus

Google’s march into local reached another milestone today with the acquisition of Zagat, a major, international provider of high end restaurant and lifestyle reviews in 100+ cities.

Zagat remains a major player in a reviews space it pioneered in 1979. In addition to hosting its patented “30 point” reviews from some 350,000 “surveyors.” Zagat has a print, pocket-sized restaurant directory product that is often sold as a sponsored corporate giveaway. Online, it provides “Zagat Exclusives” deals using the Reach Deals platform, and also, widely integrates its reviews with key players for more traffic, including UrbanSpoon, OpenTable and New York Magazine.

While Zagat is protective of its premium firewall, a February relaunch included more free content. The company also has very active smartphone apps. In 2009, the company also started expanding its platform to medical reviews via Wellpoint/Anthem Insurance; part of a broader licensing effort that also included Priceline, Diageo liquor…and Google.

In truth, however, the closely held, 110 employee company was slow to react to the Web, and has basically underperformed, opening doors for companies such as Yelp and UrbanSpoon to gain a foothold, especially among younger audiences and with more mainstream restaurants. Zagat had tried and failed to sell itself for $200 million in early 2008, but apparently did not find real interest at that price point.

Google’s failed effort to acquire Yelp in 2009, in fact, probably set the Zagat acquisition in play – as did the retirement age of founders Tim and Nina Zagat. We believe Google will focus on the reviews platform, and the archive of reviews, and probably de-emphasize the premium products.

Rethinking Deals after Facebook and Yelp Pullbacks

Facebook and Yelp are downsizing their separate deals initiatives after launching them with some fanfare. Facebook is now limiting its deals to users that check-in to businesses; and Yelp is sharply reducing the number of deals that it features, while continuing to support self-serve efforts that are integrated with other Yelp ad products.

Are these pullbacks a sign that deals are collapsing even before Groupon’s IPO? I don’t read it that way at all (and quickly note that Google, Amazon, AT&T and others are still ramping up their “Groupon killers.”)

To me, Facebook and Yelp are mostly following former GE head Jack Welch’s edict to always be among the Top 2 players. As Welch famously said, “When you’re number four or five in a market, when number one sneezes, you get pneumonia. When you’re number one, you control your destiny.” In the case of both companies, they can buy their way in later.

Let’s look at Facebook first. Conceptually, there has been much to admire in Facebook’s prospects in deals. It had strong potential to target users based on their FB posts (i.e. proclivity to go to happy hour, buy discounted travel, and attend jazz concerts.).

It also has been poised to use Facebook messaging to lessen reliance on email overload – a real advantage if one accepts the idea of email fatigue. The site’s ability to ramp up Facebook Credits as a transactional agent also loomed large for closing the loop on sales.

But as Facebook realized, none of these conceptual advantages were really ready for prime time. Moreover, during the four months that it was in the deals market, its ability to source deals from other players resulted in nothing special and inevitably, in an “also ran” status.

Perhaps Facebook can come back via a smart acquisition –including some feet on the street. Meanwhile, its local efforts continue to smartly build via Ads, Pages and Sponsored Stories.

Yelp, similarly, saw a ripe opportunity to highlight local deals when it entered the marketplace a year ago. It also, ambitiously, was seeking to source deals via a ramped up local deals sales force – taking on the big players directly. In June, it integrated its deals into its smartphone apps in more than 20 markets.

But Yelp may have been a little out of context in the deals space – it has such a strong identity for its local business reviews. And the requirement to highlight a daily deal for a site that might be a less regular habit ended up watering down the deals quality. According to data from Yipit, Yelp’s deal revenue was down from $30,000 a deal at the beginning of the year to $10,000.

Yelp now says it will focus on fewer deals that can get more attention. Weekly service deals featured on sites such as Angie’s List and Kudzu have done well in this manner.

So — what conclusions can we draw from these pullbacks by Yelp and Facebook? Some of the press thinks it means that deals are going down, having already peaked. This is supported from Yipit data, which shows that 38 daily deal companies have recently quit the business, while just 36 jumped in. (a point of trivia which means nothing at all, really.)

But here’s another thought: what if the pullback shows that there really are, perhaps, barriers of entry after market leaders have been established. This is what Groupon board member Ted Leonsis cryptically suggests.

But I would suggest that there are other signs of vulnerability – for the big guys as well. I think there is little doubt that deal quality –and the positioning of deals –has really suffered. In my market of San Diego, the same deals are being repeated, and uninspired merchants are being featured. Indeed, hardly anything has tempted me (or amused me) for months.

It is probably a reflection of my personal interests, but the only deals site that consistently engages me is Marketsharing, a B2B site that constantly comes up with fresh takes on B2B offerings (messenger delivery, cleaning services, copier discounts). In the end, it might be the interesting niche sites with highly curated offerings that really end up driving this thing.