Yelp Business Model and Their Strategy

2014 was a remarkable year for Yelp. It will always be known as the first year that the online review site was able to turn a profit. For many years, making money has been a struggle for Yelp. Nearly 60% of its employees are sales representatives. Keeping a consistent level of profits is going to continue to be a struggle in some ways because of the Yelp business model, but in some ways, the company really still is a startup organization even though they’re 10+ years old.

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Yelp dominates the market in consumer reviews, but making money off of those reviews has proven to be difficult. Q2 2014 revenue was just $88.8 million for their first profitable quarter in a decade, but that is a 61% increase from Q2 2013, which shows times might be changing. The lessons learned from the Yelp business model show that some of what this review website has been going through has been self-caused.

What can be learned from the struggles of Yelp? Here are some of the specific lessons.

1. Don’t Rely On Just One Outcome

Why does Yelp have such a large sales force? It’s because their only real way of making money is through direct advertising sales. This review site caters to businesses who are reviewed and offers to sell their brand advertising space. About 80,000 businesses have currently taken the company up on their offer.

In theory, the idea should work really well. An advertisement on Yelp leads to a review page for the business. The reviews are independent opinions, some offer pictures, and the reputation from that page causes a lead to want to visit the business to have their needs met. Relying on this 1 outcome, however, has proven to be problematic. It makes Yelp one dimensional and any business model with only 1 dimension is likely to fail.

2. You Must Be Authentic

There are virtually no safeguards in place for a fake review to be left on Yelp. Memories Pizza of Walkerton, IN is a prime example of this. Despite numerous news stories of “vigilantism” on Yelp occurring to this pizzeria’s page, it is still active with a 2.5 star rating. Whether one agrees or disagrees with the stance that got this pizza chain in the news, the fact that fake reviews stand as authentic reviews is problematic.

What happens if a customer has a bone to pick with a restaurant? They can leave a scathing review that is only 5% true at best. Other consumers read the review, think that it is authentic, and avoid the business because of it.

That is why it is important to be authentic in all things. People might be fooled once or twice, but eventually a business will either provide good service or they will not. That authenticity will rise above even fake Yelp reviews.

3. Reputation Matters

Michael Scelfo made news in 2015 when he uploaded a photograph of two people leaving Yelp reviews in his Boston, MA restaurant. The two in the image didn’t have reservations, but sat down anyway and threatened to leave poor reviews on Yelp if they weren’t served. Scelfo stated that he would not negotiate with Yelpers. His point is valid – the current review system creates a sense of entitlement.

For Yelp, their business model suffers because of the actions of their reviewers. Whether they manipulate reviews, make some disappear, or otherwise influence ratings to generate advertising revenue has never been proven. 3 lawsuits regarding this behavior have been dismissed. Yet reputation matters and two people threatening to leave bad Yelp reviews as a threat does the Yelp business model zero good.

4. People Can Reverse the Process

Botto Bistro in Richmond, CA has made the news several times because of their quest to receive a 1 star rating on Yelp. The owner, Davide Cerratini, decided to start this 1 star campaign because he was tired of the high pressure sales tactics that the website was employing to get him to advertise. To Cerratini, the process is essentially blackmail.

Businesses don’t ever know what a customer or lead is going to do. As much as behaviors can be predicted, there will always be times when a surprise like Cerratini’s happens. When this type of surprise does happen, it is generally in response to a negative situation and the behaviors employed will match the perceived injustices that have been felt.

If customers leave a 1 star rating on Botto Bistro’s Yelp page, Cerratini will give them a 50% discount. In response, Yelp has removed over 2,000 1 star reviews from the site.

How can this be avoided? High pressure sales tactics can be bothersome, but if they are conducted with perceived honesty and integrity, people will put up with it. Everyone understands a business needs to make money in order to survive. When there isn’t integrity perceived, whether true or not, then leads like Botto Bistro will do what they can to shake the foundations of the business model being used.

5. It Is Important To Go Mobile

About 61% of the searches that happen on Yelp right now come from mobile devices. With a presence in nearly 30 countries, going mobile means more than just making reviews possible. It also means making it possible to actually grab a table at a highly reviewed restaurant. For that reason, Yelp purchased SeatMe in 2013 so that they could tap into the growing reservations market.

This is why Yelp is often seen as a startup, even though it has gone public and has a decade of experience. In the US, there are 20 million domestic businesses that could benefit from Yelp reviews and reservations. In the international community, the estimated figure could top 1 billion. With about 80k advertisers and money just beginning to trickle in, the potential hasn’t even been tapped yet.

Look into the future to tap the potential. In tech terms, the future is definitely mobile solutions.

6. Take SEO Seriously

The Yelp business model shows that reviews and information all on their own aren’t very profitable. In order to turn a corner, Yelp partnered with Yahoo in March 2014 to have reviews included in search results. By taking SEO seriously, Yelp can become a greater influence in determining who goes where and that can lead to more money in the future.

The emphasis on SEO may have been learned from the very restaurants that Yelp is trying to get to advertise on their site. More than a dozen businesses have used fake Yelp reviews to boost their standing. A Harvard review shows that there can be as much as a 9% gain in profits from each Yelp star, so businesses have contracted with SEO professionals to write fake reviews that have originated from Bangladesh, Eastern Europe, and even in the US.

What does this mean? That search engine optimization cannot be ignored. To get found today, a business must have a top ranked site on keywords that make sense. One word keywords won’t cut it today. Be specific, be accurate, and the results will eventually come along.

7. A Kind Word Dispels Wrath

Many business owners are upset with the Yelp business model because they feel like it gives advertisers preferential treatment on the site. Yelp does have an automatic algorithm in place to screen for fraudulent reviews and remove obvious trolling, but it isn’t 100% perfect. Yelpers know the system and can leave a review that slips past the automated methods.

This is why it is important to make nice with customers, competitors, and anyone else who may feel like a business profile is harming them in some way. Take their concerns seriously, even if the accusations don’t seem serious or even real. What may be one person’s good laugh could be another person’s worst customer experience in their entire life. Since negative reviews are more likely to be left than positive ones, a few kind words can easily save an online reputation.

8. Stick To Your Guns

Yelp has been told to try a number of different alternatives that could help them make money, but ultimately the site has stuck to their guns because they know what works for them and what does not. Considering reviews weren’t even supposed to be a major part of the site on its first design, the fact that the entire business model is built upon their value is pretty remarkable.

Every business can learn to stick to their guns and do what they know is right. The easy way is usually never a profitable way. Don’t be swayed by tempting promises or funding offers that require a business to alter its overall mission. A black walnut tree farm takes 30 years to create viable timber, so a decade of slow and steady growth toward profitability is a good sign a business is on the right path.

The Yelp business model may need some help here and there, but ultimately these lessons have helped many businesses avoid similar mistakes. Adopt these lessons today so that history won’t repeat itself