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Are You High on Yelp?

The Lovers and the Haters of Yelp Collide!

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On Friday, popular online review site Yelp began trading on the New York Stock Exchange. The company had a successful first day with shares jumping from $15 per share initial pricing to nearly $25 per share, making early investors very happy.

While the shares dipped 14 percent yesterday in the company’s second day of trading, some fluctuation is to be expected in the early days of trading. However, one can’t help but wonder if the high about Yelp will continue or diminish.

Can Yelp meet investor and consumer expectations going forward? Let us know what you think in the comments.

While Yelp has experienced significant growth since its launch in 2004, the company has also experienced its share of criticism, which is the reason people are questioning its future. Most people associate Yelp with restaurant and other business reviews, but it is actually an Internet advertising company. In other words, it competes with the likes of Google and Facebook.

As we know, this marketplace is very competitive and is growing. Foursquare is even breaking into the review space by allowing users to offer local recommendations and tips after they check in to places of business.

For Yelp, this means that it has to defend its position. The company has had a rough road in this sense as it has been accused of ripping off the small businesses that advertise through it. Rocky Agrawal on VentureBeat wrote:

“At a time when much online advertising is being sold for 60 cents per thousand impressions (CPMs), Yelp is charging some local advertisers $600 per 1,000 impressions.

That’s not a typo. Yelp is charging small businesses 1,000-times the standard online CPM rates for local ads that appear on Yelp. Even when compared to its own ads for national advertisers, the company is charging a 100x premium.”

Unfortunately, for Yelp, many of its users feel that Agrawal presented an accurate portrayal of how Yelp’s advertising model works. In a follow up article written by WebProNews CEO Rich Ord that focused on “defending online advertising,” we received numerous comments similar to this one from AJ:

Is Yelp misleading its advertisers? If so, how? Please share you experience with us.

Francis Gaskins, President of IPODesktop In addition to these ongoing advertising concerns, there are also other issues regarding its advertisers and the economy. Francis Gaskins, the President of IPODesktop, told WebProNews:

“In this flat-lined economy, customers that Yelp deals with are not experiencing a lot of growth, so they have to claw and fight for every ad dollar that they get.”

This information raises some big red flags for investors in terms of long-term profitability, which is another questionable area of the company. Yelp has always struggled with making money, and the following chart shows that the company is actually losing money.

An even greater red flag for analysts and investors, however, is the fact that Yelp relies on its competitor Google for traffic, which, of course, ultimately means that it depends on it for revenue as well. According to Yelp’s S-1 filing, the company revealed just how dominant of a role Google plays in its business:

“Google in particular is the most significant source of traffic to our website accounting for more than half of the visits to our website from Internet searches during the year ended December 31, 2011.”

Incidentally, Yelp has taken a particularly outspoken stance against Google claiming that it shows favoritism toward its own products in search results. The filing also stated:

“Google has removed links to our website from portions of its web search product, and has promoted its own competing products, including Google’s local products.”

Yelp’s stand against Google is similar to that of FairSearch.org, which is an organization made up of various companies that believe Google has monopoly power. The group and Yelp are working to encourage policymakers to take action against the search giant in order to, based on information from FairSearch’s site, “protect competition, transparency and innovation in online search.” Yelp has even testified toward this effort, but at this point, the government has not acted.

When WebProNews spoke to Gaskins about these issues, he equated it to Demand Media/Google situation. If you remember, the companies had a deal where Google directed searches to Demand Media’s eHow platform. In Google’s infamous Panda algorithm update, this all changed.

“I don’t know whether the people buying the stock… at $25 or $24 realize that Google can turn off half their revenue faucet by changing the algorithms and putting their own searches up there,” said Gaskins.

He went on to say Google could easily do this since it is a private enterprise that controls its own products. As he explained, Google doesn’t need to worry about what could happen to Yelp.

However, it is these concerns that have Gaskins and other analysts qualifying Yelp as a risky investment. Rick Summer, an senior stock analyst, recently wrote why his firm Morningstar wasn’t applying for Yelp’s IPO:

“Unfortunately, the company faces challenges translating the small advertising budgets of local businesses into profitability, as about 70% of ad revenue is eaten up by sales and marketing expenses. Although we ultimately expect operating leverage and resulting profitability, success is far from certain.”

It’s clear that Yelp has several challenges to overcome, but only time will tell if it can prove its naysayers wrong. Do you think it can? We’d love to hear your thoughts in the comments.

Are You High on Yelp?
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  • Christie

    Quite frankly, Yelp sucks. I am a small business owner. I had several positive reviews that were ‘flagged’ as possible ‘spam’. These were legitimate reviews. I tried and tried to contact Yelp – they kept sending me to their ‘help’ pages, which were not helpful. I finally got a person on email, who sent me to their ‘help’ pages. They would not unflag my reviews no matter what I did. I am a web designer. I recommend my clients NOT invest their time in Yelp because of this arbitrary behavior. Much better to spend their time (and money) on FB or Google.

    • http://www.captaincyberzone.com Cap’n Cyberzone

      I agree Christie. I had some positive ones (no negative) that just were deleted a year later. No reason given,

    • http://preciouspetalssd.com sherry

      It is very frustrating to me that YELP has filtered every single one of my positive reviews. I actually have lost sleep over this, worrying how they may be able to actually damage my business – which I have worked so hard for. We provide excellent customer service and are always receiving compliments about the quality of our flowers and service. YELPERS seem to be a certain type of person as well. I contacted a person who wrote a negative review about her flowers. She complained about the lilies she received. Most people aren’t aware that fresh lilies come in the form of buds and the flowers will open in a day or two. I sent her a nice email suggesting we send her a new bouquet. I followed up with a phone call, and she hung up on me!

      Yes, I am disgusted with YELP and their practice of filtering positive reviews. I am also disgusted with the nature of people who YELP!

  • http://www.NaturalDogTraining.INFO Paul Anderson

    Just wondering… how can ANYONE take ANYTHING with a name like “Yelp” seriously?

  • http://none Terry Akins

    I love Yelp because the most interesting and funny people are always on that site. There is nothing fake about the site. I think that they are the most authentic in terms of getting an honest opinion. Linkedin is great for doing real business but Yelp is just the most real source for honest and educated opinions on the entire web. I would skip everything but those two sites and I work the web daily so I have tried it all.

    Terry akins
    TG Public Image

  • http://www.absolutewebworks.com/ Absolute Webworks

    Yelp concerns me because any business can have a bad day. Human nature being what it is most people tend to look for the bad rather than the good.

  • http://www.effectivesales.sandler.com/ Michael

    I am concerned about these claims against Google, not about Yelp. I don’t use Yelp or invest in them and I think they have a lot of work to do. As for Google, they may have monopoly power, but that is only because they earned it. If Yelp doesn’t like it, then they should make a better product. Google provides the fairest search results possible because that is why the got the monopoly like popularity in the first place. No one is required to use Google, and Google only penalizes cheaters not competitors.

  • http://www.guitar4free.com Simon James

    Thanks for these articles, they re really helpful

    • http://www.webpronews.com/ Abby Johnson

      Glad you’re finding the information useful, Simon!

  • http://www.creativedevelopment.com.au Robert Steers

    What is it with all these fads? First there was Groupon, where group buying is as old as the internet, and now Yelp, which is just another reviews site. How do these sites justify making money?

  • Alton Trawick

    Can any program that deliberately supress positive comments about a company but accept
    all negative ones survive? The program is contrived and superficial at its core. Time will catch up with them and I will be glad when it does.

    • http://www.tipsinablog.com Daniel

      Sadly there are a number of Companies online who do just that.

      I visit certain sites when software issues arise regarding their products, and it seems they(these particular sites) simply do not publish any negative comments. So, away from the products website, there is a wall of sound, discussing the products issues, whilst you could hear a pin drop back on the Companies website support threads(It’s all Glowing reviews as the order of the day).

  • chase

    Bought Yelp stock?
    Hurry up and Sell! Sell! Sell!

  • chase

    Didn’t buy Yelp stock?

    Better hurry up and Buy! Buy! Buy!

  • chase

    Now when you are done playing the monkey throwing the dart at stocks …

    Try the Black–Scholes formula and know what your stock will do.

  • http://xcelplus.com.au Michael Czajka

    Multiply earnings by 10-14 and you have a normal Price/Earnings ratio ie. how much the company is worth. This has all the hallmarks of a bubble economy… when stocks are traded on hype not real metrics. Even worst none of the commentators seem to even know how to do basic calculations like this… at least none are doing them… or highlighting this pricing discrepancy.

    :-(

  • http://century-club.com J “Rolin” Stone

    Honestly, are we ever gonna learn? Wall Street is one big casino for the wealthiest, period. That’s all it is. Risk taking that takes no prisoners. Obviously that first day of trading was an inside bonanza for those who had the grease for the wheel, but in the long run, people will get hurt. Once Again. And unfortunately the ripple effects are the big unknown, that historically have never been good for the economy, only for a privileged few.

    Or let me put it another way: Who the heck is Yelp anyway?

  • NoVictim

    I would not touch this one with a ten foot pole. YELP is a known extortion scheme whereby businesses who decline to advertise wind up with their positive reviews filtered and their negative reviews made prominent. A cadre of so called elite Yelpers (chronically unemployed losers) are Yelps hired guns who do the dirty work of defaming small businesses for them and shilling for advertisers. Thousands upon thousands of Yelp reviews are actually reviews of big chains like Starbuck and Chipotle rather than being genuine reviews of small businesses who lack advertising and p.r. budgets. If you look at the numbers for this IPO they simply do not add up. After all, how can YELP expect small businesses to advertise with a bulletin board which has already defamed them or threatens to do so? Keep in mind that this MONEY LOSING BUSINESS relies on advertising for over 60% of its revenue! Yelps advertising rates area a complete ripoff. While other online advertisers are charging 60 cents per 1000 impressions, Yelp is charging $600!!! To make matters even worse there are numerous class action lawsuits which have already been filed, one of which has been dismissed but there are many, many others in the works. The nail in the YELP coffin? GOOGLE is a powerful competitor which recently acquired Zagat. The removal of links to Google searches will considerably reduce Yelp traffic.No wonder Jeremy Stoppelman and other top brass absconded with 36M in Series E funding by dumping shares in advance of this sham IPO.

  • JPeters

    Thank you, Abby for a great report.

    Yelp has also been filtering my company’s legitimate positive reviews for years. Fortunately, I have no negative reviews to see how they would treat these. Could the filtering be because I have refused to pay Yelp’s ridiculous prices for advertising? I have purchased Google ads for less money and I’m sure better results. While I do agree that many of the comments and reviews are interesting to read, Yelp doesn’t seem to care at all about its advertisers. I have a friend who will be dropping her restaurant’s high priced advertising with Yelp once her contract is up. Why? Yelp keeps filtering her positive reviews. If this is how they treat their clients, can you imagine how they treat people who refuse to pay their price?

    • http://www.webpronews.com/ Abby Johnson

      Glad you enjoyed the report! Thanks for sharing your opinions as well as your friend’s experience with Yelp. The concerns that so many people have expressed in the comments make you wonder if, in fact, Yelp will make any changes to its monetization platform now that it will have investors breathing down its neck.

      Whatever happens though, I think it’s clear that one of biggest challenges the company faces is pleasing both its customers and advertisers in addition to investors. The future will be interesting for sure…

  • http://www.lonemopperproductions.biz Lone Mopper

    Yelp tactics are high pressure, borderline harassment techniques that will eventually hurt them. Just like telemarketers there annoyance factor will kick in within the next few years and they will be gone.

  • http://www.rkjonline.com Kay Alexander

    Although I have managed to put some of my clients into Yelp I have like others been told legitimate reviews were spam!
    I have also put my own business in 5 times because each time it simply does NOT show in a search. I’m not stupid and I did everything correctly – you can never get hold of them and even when I complained in front of 1,000s on their facebook page, I never got a whiff of a reply!

  • http://www.inversearch.com Joe Cibula

    One of the biggest problems with our economy is that we advertise everything, which not only keeps prices high and sucks up corporate capital that could be better spent; it’s a snowball effect that cycles right back around to the consumer/taxpayer. What we need to do is inverse the search process – consumers send simple text queries, and businesses respond with real results. Inverse search is how you eliminate spam, information overload and click fraud, and save people and businesses tons of time.

  • http://www.charlotte-pest-control.com J henry

    One thing is for sure, you can’t manipulate reviews on Yelp. Seems to be one of the most reliable sources for anything.

    Envirosafe Termite and Pest

  • frances porter

    Google is simply the big plan for the future of the US.
    Small business is doomed in this country when a company like Google can dominate what (Internet) was supposed to be a free information tool for everyone. I asked myself 15 years ago when would the Internet get to be part of ching-a-ling-ling. It has arrived and unfortunately the masses in this country will keep “googling”. People need to be educated as to the amount of control “Google” has over their future and our country’s economic viability. One has to only look at the destruction of our communities, town property values,small towns across America with rathole or burned buildings which has been caused by the monopoly of WallyWorld(Wal-mart) Old man Sam did not have enough offspring for everyones daughter or son to marry into the Walton family. America looses hundreds of grocery super markets each year to store closings and auctions. The elimination of competition leads to higher prices and fewer choices. Most Americans do not realize that most imported farm raised fish grow in a sewers of human waste. Great way for the foreign places to dispose of their waste. Look at the package labels on your next food purchases. BTW, distributed by … is just another way of of not stating country of origin. Thousands of small business such as tire, hardware, grocery, 5 and dime, clothing, shoe stores, pharmacies etc, have closed due to the rampant monopoly of Walmart. Walmart has truly been the slayer of middle class America, but our politicians and analyzers of the woes of our economy remain mum.
    Walmart has become one of the largest sellers of furniture in US. Walk down the aisle of Walmart and you will get a sneak preview of what will be available at yard sales in the next 5 years. There are a finite number of dollars to be spent on any commodity by the general population and when it is spent on foreign particle board junk, the recycling process of repeat use is ended with the initial purchase. Our founding fathers were smart men and they put laws into effect to grow our country and truly SPREAD THE WEALTH but elimination of monopoly laws and blind eyes turned by our elected officals have put the United States into a downward third world spiral. American people will have a rude awakening when there is only one place to spend their dollars. They will not need to “Google” fo find what they are going to buy but probably will need to find info on health issues caused by the extreme poverty descending on America.

  • http://www.monstercourses.com rahul

    tnx… for the article

  • Glenn t

    ANNOUNCEMENT:

    We have recently implemented a system to outsmart yelp from hiding our filtered reviews:

    Step 1- First of all, if you\’re advertising with yelp, we suggest you stop doing so and shift that money to optimize your own web site instead

    Step 2- Have a graphic designer make a yelp badge that is placed on your web site. It should say \”we have …… filtered and unfiltered reviews on yelp\”.

    Step 3- When a visitor clicks on the badge, it will go to another page ON YOUR OWN WEB SITE (instead of going to yelp\’s. (why help them get traffic and rank higher anyways)?

    Step 4- On this page have your graphic designer get a screen capture (picture) of all your filtered and unfiltered reviews and have them pasted together onto one page (in 2 sections, the top section to be unfiltered reviews, leave a space, and then the lower section the filtered reviews). 

    Now, all your reviews (filtered and unfiltered) will be visible to all your web site\’s visitors.

    5- Add the following words on the top: 

    \”for your convenience, we have combined all of our filtered and unfiltered reviews on one page for you to view. If youd like to go to our live yelp page, please click here ——-\”

    This is done so that your potential clients will not feel like you\’re trying to hide something or trying to cheat the system. 

    6- Be sure to update your unfiltered yelp page every few weeks. 

    Advantages of doing this:

    1- Your visitors will stay on your web site instead of being re-directed to yelp\’s

    2- Your visitors can\’t be redirected to your competitors page (unless they choose to go to your live yelp page). 

    3- No more being a slave to yelp\’s algorithm

    4- Yelp would not benefit from getting traffic from you and higher rankings on google. 

    5- This system cost us only $150 to implement 

    Just be sure to shift that $300 per month on yelp advertising and put it into KEYWORDS that people will search for. 

    **Please pass this on to all small business owners that may benefit from this.

  • http://teasastipss.blogspot.com/ Teasastips

    I played around with Yelp for awhile, but it didn’t keep my interest the way Foursquare has. For me, Yelp started out as the smartphone app that I rarely used, and eventually abandoned. Maybe I’ll take another look at it, once I evaluate its usefulness to my marketing mix.

  • Connie Peterson

    When a consumer feels they did not get the service or product they deserved and go to yelp to blast the business involved, as far as I know, the company cannot respond on yelp. So the negative stays there indefinitely, I believe, and in some cases the complaint is exaggerated to make their case sound legitimate. Small businesses struggling to stay afloat cannot afford to have this happen, especially in a small community, so I am not HIGH on Yelp for that reason.

  • http://My.referdia.com/megadeals Eric Gonzalez

    Yelp is just part of the first generation of group buying. They lack the ability to help businesses generated revenue and bring more traffic. Referdia is the 2nd, 3th, and 4th generation of group buying industry. They offer businesse their own storefront, and they ability to created their own deals. Go to my.referdia.com/megadeals for more details.

    • Dave Meyer

      What is the name of the company you’re shilling for–Retardia? Returdia? Reeferdeala? Very memorable, and so easy to spell.

  • Graham

    Yelp is amazing to start off with! Than the advertising hunt starts and all your reviews get filtered I have over 20 filtered 5 star reviews and of course 2 of my worst reviews appear on the 4 reviews that are not filtered .right now as a business owner I am faced with paying them as the only way out as it really is effecting my livelihood and my kids + wife . People only see the negative I refused to pay them for a year now but I’m afraid in a technology driven world I have to bite the bullet and pay fingers crossed it will remove the CRAP and restore my company and all my hard work

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