Yelp Comes of Age

MIHMORANDUM NO. 223 | January 8th, 2010Reader Comments (16)

First off, I’d like to let readers know that this post has been in draft status for almost eight months.  So please excuse any anachronisms or poor idea flow…but hopefully I’ll be able to tie things together in a cohesive and insightful way :)

I’ve paid attention to Yelp pretty much since its inception, admiring its growth from afar and debating its potential to either disrupt or expand the customer base of the average small business owner.  But ever since my former hometown weekly, the East Bay Express, published its controversial “Yelp and the Business of Extortion” column last February about the purported tactics of some of Yelp’s sales representatives, I’ve taken an even keener interest.

The Express’s Kathleen Richards interviewed a handful of business owners who claimed that Yelp sales reps had offered to take down negative reviews in exchange for advertising, and some who were even threatened with negative reviews if they did not advertise.  Naturally, Yelp decried the report and defended its practices.  And despite a follow-up story in the New York Times about Yelp’s “power to make or break a restaurant or small shop,” it remained unclear exactly what had happened.  This wasn’t the first story that suggested Yelp’s sales reps were pursuing some questionable tactics.

Paul Smalera of Slate / The Big Money was skeptical of the anonymity of Richards’ story, rightly asserting that “Yelp is simply a different animal than most merchants are used to dealing with.”  He asked business owners and Yelpers who had a beef to share it with him for publication.  While he did find Yelp engaged in high-pressure sales tactics and its review filter deleted some legitimate reviews (more on this later), he didn’t find evidence to support Richards’ extortion claims.

But, where there’s smoke, there’s usually at least some fire…how much of it was business owner confusion, how much was algorithmic, and how much was over-aggressive sales?  If one of the smartest guys in tech didn’t know for sure, I sure don’t either.  My guess is that there were some misleading or commission-hungry sales reps who’ve since been re-trained or re-assigned, and perhaps the throttle on Yelp’s review filter might have been set a little too high in the Spring.

The fact that Yelp was even a “target” of this kind of coverage signaled in some way that it was now a force to be reckoned with–as Greg Sterling pointed out.  Companies like MerchantCircle have been using underhanded sales tactics for years, or at the very least, “struggled with execution” in exactly the same manner as Yelp, and have not yet garnered media attention for these tactics outside our little SEO community.

A Noticeable Change in Mindset

CEO Jeremy Stoppelman’s quotes from the New York Times article above…

  • “Business owners want to control their reputation, and we’re just not going to let that happen,” he said. His top priority is “to make sure the community is protected and can share without fear of being publicly spat on.”
  • “We can’t referee factual disputes,” responded Mr. Stoppelman. “Why believe the business owner who has skin in the game?”

…seemed considerably at odds with Board member and Benchmark Capital investor Peter Fenton’s remarks that Yelp “can’t neglect the needs of businesses, nor can they be a site where businesses can be abused.”

At the recent Kelsey Conference in Los Angeles, COO Geoff Donaker defended the attacks of favoritism or extortion as “confusion in the marketplace.”

But whatever the actual problem at the root of the controversy, the entire episode seems to have “woken Yelp up” about the need to do a better job of seeing things from the business owner’s–rather than the Yelper’s–standpoint.

Stoppelman and his team had been wildly successful at growing Yelp’s userbase, and its general media footprint, by remaining 100% behind their users.  But despite their “tech darling” status (witness Jason Calacanis’ fawning questions to Stoppelman at the Local Search Summit) and consistent pasting of Citysearch in the unique visitor rankings, it’s been Citysearch–not Yelp–that’s been profitable for the last several years.  Since sites like Yelp make money off of advertisers, not users, it was clear that the company was going to have to find a way to appeal more to business owners in order to get them to buy advertising.

Almost immediately, Yelp responded to the controversy by allowing business owners to respond publicly to reviews. Yelp beefed up and began to do a better job at promoting its Yelp for Business Owners offering–which had already displayed a lot of the rich traffic and review data that Google started to offer in its Local Business Center in June–and then some.  The interface allows for direct communication with Yelpers, provides day-part information (essentially business intelligence) for when Yelpers are most interested in a business, and even now even echoes some of the same ideas for how to respond to reviews that Miriam Ellis and Lisa Barone authored earlier in the year. Yelp sends weekly emails to registered business owners–whose numbers are in the “tens of thousands,” according to Donaker–showing them number of page views and providing tips for how to use Yelp to maximum effect, as well as other helpful local search articles.

Yelp has also made a conscious effort to be more transparent about their advertising offering–it’s now abundantly clear that advertisers are allowed to promote a “favorite review” to the top of their list, and nothing more.  Additionally, a self-serve ad product is coming out soon–which I as a search marketer hope is just as much of a no-brainer as Google’s recent Local Listing Ads beta.  Luther Lowe was made “Local Business Outreach Manager” in April, and they recently filled a position for Director of Business Marketing (formerly posted at yelp.com/jobs).

This is an impressive set of initiatives for a company that is still in “start-up” mode to have undertaken in the course of only eight months.

Remaining Business Owner Hurdles

According to Geoff Donaker, Yelp was cash-flow positive in Q2 and Q3 of 2009, but expected to lose money in the succeeding quarters, due to expansion plans.  Kelsey Group analyst Matt Booth speculated that Yelp’s annual revenues were around $45 million–impressive, but not earth-shattering.  So they’ve still got a lot of room for growth (i.e. recruiting additional businesses to advertise on the site).

Some percentage of business owners seems to have had an inherent mistrust of Yelp and its community for years — witness Greg Sterling’s October 2007 column about a mom-and-pop coffee shop (in my former neighborhood, no less) that prominently displayed a NO YELPERS sticker on its front window.  Donaker admitted this last month.

The flip side, however, is that more progressive, tech-savvy business owners often love it and see its huge potential to drive customers and mindshare for a fairly low cost.  In late February, I visited a local pizza shop in Emeryville, CA (not a client or even a friend–just great pizza) that had been open less than two weeks.  As I was waiting for my pizza, I struck up a conversation with the owner, a guy in his early 30′s, about how business was going, and had he claimed his Local Business Center listing yet?  He didn’t even know that the Local Business Center existed, much less that he could claim his listing.  But he did know how important it was to make sure he was on Yelp as soon as his business opened, and as a brand-new business had accrued 22 reviews in only two or three weeks!  He whipped out his iPhone to show me.

Yelp needs to do a better job of highlighting positive stories like these–a difficult balance to walk, of course, without showing favoritism towards any one business.  Something along the lines of case studies of non-advertisers might be a way to do it.  They also need to continue to provide tips for acquiring reviews that are not seen as self-serving.

According to Lowe, while Yelp does not condone review solicitation per se, they do encourage business owners to use language such as “check us out on Yelp” in promotional emails or newsletters, which they’re confident is a signal for active Yelpers to leave a review.  Additionally, they were fine Michael Jensen‘s ingenious idea for businesses to offer free wi-fi and drop visitors at their Yelp profile by default–although if a Yelp newbie leaves a review via this strategy, it’s more likely to get filtered unless they engage further with the site.

Another major hurdle, highlighted by Matt Booth, is that their core demographic of restaurants tends to be a high-churn, low-spend industry (vs. the medical or legal professions, for example).  While there are a surprising number of long-tail reviews on Yelp (29% are restaurants, 22% have a “retail” focus), continuing to branch out into the long-tail of business categories that aren’t often reviewed–and business advertisers in those verticals–will be a key indicator of Yelp’s success going forward.

Remaining Growth Hurdles

Booth asked Donaker in Los Angeles: “What made Yelp work?”  His first response was that they started using a one-city-at-a-time model that went against conventional wisdom. Needless to say I was quite surprised that the one-city-at-a-time model went against conventional wisdom!  Who are these “wise people” in Local search arguing for an immediate national roll-out?  Arguably the two most successful properties in Local Search, Craigslist and Yelp, both started with the one-city-at-a-time model.

Donaker’s second response was that their review filter “creates a level of trust among users.”  I was somewhat surprised to hear this logic, since I’d expect that Yelpers would demand that each of their reviews impact the business they’re reviewing in some way.  After all, many Yelpers see the site as their “lifestyle blog.”  I’d surely hate for WordPress to filter a post that didn’t meet its quality criteria in some way!

But the technology behind this filter is one of the things that makes Yelp Yelp, separating the shill reviews or spam reviews from legit user-generated content.  Yelp seems to be willing to sacrifice a few “false positives” like Robert Dall in the Smalera / Slate.com article above to gain the trust of its wider base of users who largely rely on Yelp for unbiased recommendations, rather than as a publishing mechanism.

Being even more transparent and proactive in letting business owners this filter exists, as Donaker was at the Kelsey show, might have prevented at least some of the company’s headaches in the Spring.  But it’s surely a hard concept to explain to an SMB that his best customer’s legitimate (but only) review on Yelp was getting filtered due to lack of confidence in its legitimacy.

It’s also *very* rare, according to Yelp representatives, that an Elite Yelper–or even an active one like Dall–will have his or her reviews filtered.  And as Yelp continues to iterate the algorithm, it’s also likely to get better at shill and spam detection.

The lifestyle blog mindset also brings up an interesting potential pitfall for Yelp–what happens when more and more elite Yelpers decide to go it alone, like Dall, and actually start their own blogs?  At some point Yelp may need to consider a review syndication strategy, something along the lines of what outside.in is doing for HyperLocal news content.

There’s also the obvious generational gap in terms of the demographics of Yelp’s userbase–even if it’s not as large as I would have thought.  But there’s an obvious skew in the number of reviews, and the kinds of establishments that get favorable reviews, towards the slightly-funky, teens/twenties crowd.  One of my favorite bars in Portland doesn’t even rank in the top 30 even when I include my neighborhood as a modifier.  Not coincidentally, I rarely see anyone under the age of 35 in the entire place.  It’s expensive, dark, and a little stuffy.  Not the kind of place a typical Yelper is going to frequent.  Some level of personalization or customization of results by strengths and weaknesses of particular businesses could help Yelp appeal to a wider audience and grow its base of users without being burdened by the cost of expanding into new cities.

The Yelp-Google Comparison

The on-again, off-again acquisition last month got me thinking about the relative attitudes of the two parties involved.  Both Yelp and Google (Maps) are technology companies.  By-and-large, business owners don’t have the time to figure out technology.  It’s why I think the self-serve, flat-rate ad products that will be offered by both companies within the next few months are likely to be so successful.

I think the successes of both these technology companies will be determined in large portion by their ability to translate technology into the real world.  To my knowledge, no one in a senior position at either Yelp or Google Maps has run a small business or even worked in one/with one for an extended period of time.  I could very well be wrong about this.  But the tone-deafness of Yelp’s public statements pre-April-2009 and the continued tone-deafness of Google’s algorithmic approach to customer service certainly give that impression.

Yelp, however seems to have matured in its perspective, understood perhaps the most significant impediment to its success, and adjusted its mindset to try to overcome that hurdle.  Will Google be able to do the same, or will “all algorithm, all the time” ultimately drive business owners away, and into more verticalized offerings–or horizontal competitors like Yelp?  Yelp already offers a much better user experience, and arguably better results when it comes to “recovery” type searches.  And they seem to be coming on very strong on the business owner front.

Back on the user experience front, while Google has continued to push Community Edits as a major component of its efforts to clean up business data, Yelp seems to have recognized that pure democracy may not be such a great long-term solution.  Its review filter, though puzzling for a site that seems to place the opinions of the masses in such high regard, may actually lead to a higher-quality Local index in the long run than Google Maps.

While I am neither pro-Yelp nor anti-Google–if anything I am just the opposite in my own personal search behavior, and marketing advice to the typical small business owner–despite their struggles of the previous 18 months, Yelp is quickly becoming a more complete, well-rounded company in the Local Search space.  I think it’s why they may have been such a desirable acquisition target for Google.  If a deal indeed doesn’t end up happening, it’ll be interesting to see the two companies react to each other’s moves as they jockey for market share.

16 Responses to “Yelp Comes of Age”

  1. Syzlak says at

    Were you describing your favorite bar or yourself there?

  2. David Mihm says at

    Thanks, Josh. “With friends like these…” :D

  3. Syzlak says at

    That was alright

  4. YelpSucks says at

    Their algorithm can’t be THAT good. My restaurant currently has a negative review where the person signed up just to make the review, gave it only 1 star, and critiques the restaurant because of one of the people associated with it did something politically that they disagree with. Then they link to another site discussing the political issue.

  5. Jason Hyman says at

    Nice post David. I too will be interested to see how things shake out down the road. The ability to filter results using the “age” of the reviewer would be interesting.

    My favorite restaurant in St Louis usually only has 18-25 year old in it when they’re dining with their parents.

    Currently you can filter results based on the “features of the restaurant” (outdoor seating, music, wi-fi), but perhaps it would make for interesting (and more relevant) results if you could filter the demographic of the Reviewer (age, gender, smoker) as well.

  6. Chris Lister says at

    David,

    Great post.

    Personally I have watched Yelp very closely over the last couple of years as I have found them to be an excellent Local resource for our Small Business / Local clients. I frequently encourage clients to take an active role in setting up a Yelp Business account, to read and respond to reviews both good and bad, and to encourage loyal customers to share their experiences thru reviews.

    To be honest, as I was reviewing the Yelp site for clients, I found that I was soon caught up in the world of virtual compliments and online praise, and now find myself a third year Elite member who is not ashamed to accept free drinks, activities and food at the frequent Elite only events. I have, as you accurately called it, used Yelp as my lifestyle blog, and often wonder if my reviews have any value to the business or are just an excuse to write about what I know best…myself and debase behavior.

    That being said, Yelp has definitely taken steps in the right direction for filtering out spam results and allowing businesses to respond to negative reviews. It should also be noted that Yelp’s community of reviewers is also on the look out for fraudulent reviews or reviews from 5-0-1’s (Someone who gives a 5 star review, but has 0 friends and has only posted 1 review). We can be very vigilant when it comes to these reviews and will sometimes viciously call out a business that is hiring or sponsoring these types of fake reviews.

    Businesses need to realize that Yelp can be a great resource to find out what they are doing wrong and what they are doing right. I have seen cases where a business reacts harshly and mean spirited to a negative review, and other instances where they actually use the feedback, respond appropriately and make changes. Like any form of reputation management, it truly comes down to how you react to criticism, justified or not.

    Sure there are some that will write a negative review because they don’t like an employee, or disliked the type of air freshener used in the bathrooms. However, most people who use Yelp ignore these reviews and focus on the more legitimate reviews. Besides, I personally want to see a negative review or two; nobody’s perfect and an occasional bad night is to be expected.

    I hope that Yelp remains Google free; I think they operate better as an independent organization. That, and I would hate to see the days of free food and drink disappear.

  7. Jennifer Moline, PsPrint says at

    I just posted a blog about Yelp’s outreach to business owners and pondered if the timing was coincidental with the Google breakup:

    http://blog.psprint.com/small-business-marketing/yelp-tools-business-owners/

  8. James says at

    Very thorough and interesting post! It is obvious that a lot of time, effort and research went into it, so thank you.

    In terms of the hurdles they are facing with businesses owners being wary, I guess it goes back to the fact that people with negative experiences will tell 10x as many people about it than those who are happy. Business owners will get scared when they see so many negative posts, just because those who are happy are less likley to share their opinions.

    Unfortunately its a fact of human nature, and hard to tell how Yelp can get around it to please businesses.

  9. Robert Dall says at

    I can’t really say my impression of Yelp has improved at all since posting this. If anything people still post their complaints to my coffee related blog on a regular basis.

    http://coffeevancouver.ca/2009/05/06/how-i-got-banned-from-yelp/

  10. Bill Wyman says at

    This is an engrossing and thought-provoking post, and thank you. Speaking as someone who follows the alternative press closely, I want to note one thing about the proprietors of the East Bay Express. They run a serious operation that spends a lot of time and money they don’t have on substantive reported journalism. That’s why they did that story, which *should* have been in the NYT or WSJ. Again, your post is a model of serious writing and analysis itself; but the Express reporter said she’d found a dozen people saying either that they’d been offered changes in their reviews if they advertised, or noticed negative changes after they’d declined. And then she did another story, with all on-the-record interviews, demonstrating the same thing. That’s overwhelming evidence that the practice was part of that area’s day-to-day operation.

  11. brave g says at

    chris lister’s post above is truth. he is obviously of the community and speaks from the inside, which is very much in the spirit of yelp, that messy democracy caught in the middle of all this. the users are a nation in themselves, and do in fact serve and protect the space on their own.

    things would work better if the businesses being reviewed tried more to embrace the community and utilize its strengths. they could make a lot more money that way than by fighting it or trying to scam it. yelpers are young but a lot of them are very smart and certainly savvy, and do not trust the corporate management of the site any more than the m&a wheeler dealers. way down below all that, there is a lot going on that could be tapped into.

  12. Aaron Weiche says at

    While Yelp has a number of things going for it, a few things to work on and multiple options for the future, it’s still more micro than macro in my opinion. As you point out in the age of the user base and I as I see from it’s lower popularity in the Midwest, Yelp could use a broader audience.

    Would Google help bring this? Likely, but even the LBC (again as you noted) has trouble getting small businesses to engage.

    On it’s growth to work well with BOTH sides of its audeince, the consumer and the business it seems the improvements are solid. I think giving equal opportunity for both sides to have a voice is best for Yelp, but in so many cases the Yelp user/consumer is much more savvy and equipped for the tool than the business owner. One has a lot at stake and likely minimal understanding of the best ways to engage … the other has little at stake and plenty of opinion to throw around. Maybe you get what I’m getting at here.

    Many business owners and employees have a hard time mastering customer service INSIDE their own walls, so getting them to grasp it online is even tougher. A complaint or challenging situation offline is often private and contained, where online it’s open and even permanent. That’s a lot for a business owner to chew on and manage. While some amount of transparency is great, too much can be overwhelming for many.

    Overall, a great post David … so much info and your expertise. I’m not active on Yelp, but obviously keep tabs on it, and it seems it needs another wrinkle or boost to really take it further. With that, I’d also like to see it continue to HELP small business in more ways. It will be more work, but well worth it for all.

  13. earlpearl says at

    Very thoughtful review, David. One thing that impresses me are Yelp’s high rankings in Google serps as compared to virtually any of its competitors. By competitors I’m speaking of any type of directory or community/business aggregation.

    Simply Yelp shows up higher for more business terms in more cities than I see from any competitor. That alone is interesting and different.

    Yelp has a name, a rep, and a body of content that is more appealing and compelling than any other competitor. To date its done a great job in these two areas.

    As a business operator we were approached by Yelp salespeople. Yes the sale included a “hard sell” component. Either you advertise w/ us or we will get your competitor to advertise with us.

    Yeah, I hear that similar approach directly or implicitly pretty often. I just got the same approach more or less from Groupon…only Groupon did it more tactfully.

    As I reviewed Yelp more closely one thing stuck in my mind, and it aligns with your comments about demographics. Yelp seems to have a 5 mile radius in reviewing businesses (okay–primarily restaurants and certain types of retailers). That doesn’t cut it in the suburbs. Its easy to travel 10-30 miles for a restaurant and its easy to travel those 30 miles to get to the special experience of a wonderful restaurant.

    As its currently structured Yelp is more usable in an urban/city environment than that of the suburbs. Restructure it a bit to accomodate more suburbanites…and then maybe it will similarly attract more users and more advertising dollars.

    All in all, though, a very thoughtful piece……as usual.

  14. Max Thomas says at

    David, I’ll echo that this is a very well written, researched and insightful analysis. Thank you for putting this together.

    I think the bottom line for businesses is that Yelp matters. Whether they hate it or love it, Yelp has built a strong reputation with consumers (apparently at a cost in comparison to CitySearch) and users look to Yelp. In addition, as earlpearl points out, Yelp’s business listing url’s rank very well in the SERPs; and, Maps.Google.com pulls in Yelp reviews. Because of this, while Yelp might be viewed as a separate channel from Google, it’s really not since users will find Yelp reviews on Google.com too.

    As for Yelp’s “review filter”, from our experience with clients, I question how effective it is at offering a balanced representation of reviews. We frequently see negative reviews stick around (and rise to the top) while positive reviews disappear.

    It will be interesting to see how Yelp matures.

    Again, a very insightful piece. Thanks.

  15. Jason says at

    A very insightful article to say the least. Thank you for providing this!

    Although I will admit that Yelp is a very powerful tool for consumers (I sometimes use it myself), I think it is very troubling that nobody has touched on the extortion-like practices of Yelp’s service to SMBs and service professionals.

    Like you said David, where there is smoke, there is usually fire. Being from SF, I have seen this fire (firsthand nonetheless) and I am deeply, deeply troubled by it.

    Confusion in the marketplace?

    I personally don’t think it’s the least bit confusing; I actually think it’s quite transparent: If you decide to purchase into Yelp’s monthly marketing campaign, you can drive customers to your business at a reasonable cost. Fine, I’m cool with that.

    On the flip side, if you decide not to or simply can’t afford to buy into their marketing practices you will find yourself reading the details of Yelp’s Myth # 4 in utter disgust. Here is what they state on their website:

    Myth #4: Yelp removes positive reviews from businesses its staff does not like, or from businesses that do not pay for advertising
    Reality: A review you may have seen on Yelp previously is no longer there; this happens. The review in question may have “disappeared” for one of three reasons:

    1)The review may have been suppressed by Yelp’s automated Review Filter, which is always out there looking for suspicious reviewing activity.
    2)The writer may have removed her own review; she has the right to do that at any time.
    3) Another user believed the review violated Yelp’s Review Guidelines and sent it to our customer service team for review. The customer service team agreed, then manually removed the review.

    Well, as a reputable family friend (and absolutely amazing service professional) said, this is an absolute lie. They removed 6+ positive, legitimate reviews when she didn’t buy their services. These weren’t suspicious reviews, they weren’t removed by the reviewers, and she (as a service professional) did not violate their review guidelines; these reviews were the result of providing 15+ years of outstanding service to her patients, and they were lost after a single conversation with a Yelp salesman.

    This is the fire people are talking about – this is extortion. Furthermore, this is absolutely terrible for both SMB’s and consumers, as you don’t get Real Reviews from Real People. You get some internal bias!

    If you don’t pay for their services, Yelp will knowingly remove positive reviews and in replace them with whatever negative review they can find (if any – if there are none, like my example, you simply start over!. If you want more proof, go to Yelp’s own review page. You will find very similar stories that illustrate these extortion-like practices.

    Although it sounds like SEM’s aren’t being to quick to choose sides, I have made up my mind, and have confirmed their shadiness as a for-profit business.

    My guess is that Yelp’s founder and upper management designed a money hungry business model that rewards its’ customers, and royally screws those who don’t buy into it. It’s shameful, disgusting, and bias – nothing you want from a business that can make or break other businesses.

    If you have read this far, please let me point out that I am bashing on their business model; not their members or their highly optimized website.

  16. Jonatan says at

    I have a question? Do you know how many business are listed on Yelp and how many of them are already advertising?

    Best.

    Jonatan

Leave a Reply

You are here: Home > Blog > Yelp Comes of Age