29 October 2018
In the world of online sharing, Yelp has become the ultimate platform for sharing your customer experience. Yelp is an app where users can find local businesses, while seeing the reviews and ratings that past customers have posted about the business. For small business owners, Yelp has completely changed the game. Gone are the days when one wandered into a restaurant, clinic, clothing store without knowing what to expect. Yelp allows a person to research nearly every local business around them, and judge said restaurant on the basis of stranger’s past experiences with the business. Needless to say, this grants business patrons with an extreme amount of power and influence, much more than the average customer had in the days before Yelp. Now, the future and success of a business depends on its ability to gain positive reviews—not just from a professional critic, but from any and all customers. In this sense, Yelp has altered the entire business model of most businesses, and it has changed the longstanding relationship between the giver and receiver of any product or service.
What is Yelp? Yelp is an online, local search service that acquires data through a crowdsourcing model. For lack of a better description, Yelp is like an online version of the Yellow Pages with a social media bent. Users can search for products, services, businesses, and events near them while having the ability to comment, review, and rate their experiences of the different products and services they received. Yelp is a publicly owned, multinational company, based in California. Yelp serves local businesses by providing them with a platform to advertise and promote their product or service. Yelp serves the customers by providing an easy way to find local businesses and to judge the quality of the business based off other Yelp reviews.
A brief history of Yelp Founded in 2004 by former PayPal employees Russel Simmons and Jeremy Stoppelman, the site started off as a “glorified email-list” where users could seek business recommendations or reviews from their friends. In 2005, the pair altered their site so that all users could leave reviews giving life to today’s Yelper. By 2008, Yelp went international by launching into Canada. In 2011, Yelp filed for an initial public offering valued at 100 million dollars with each share going for $15.00. Currently, the site is offered in 30 countries, and is valued at roughly 5 billion dollars. With over 115 million reviews and 145 million unique monthly visitors to their website, Yelp has become the go-to service for reviewing other services. Yelp has transformed the relationship between customer and provider by firmly planting themselves in between the two parties. In many respects, Yelp has become the gatekeeper for receiving good business.
What is Yelp’s business model? Yelp is a publicly owned company, with the biggest shares being held by Jeremy Stoppelman, Geoffrey Donaker, Laurence Wilson, and Joseph R. Nachman, all of which either have executive positions or are members of the board. The elements of a traditional business model are the following: value proposition, key partners, key activities, key resources, customer relationships, channels, customer segments, cost structure, and revenue streams. Innovationtactics.com has an excellent break down of the app’s business model: Yelps proposed value from the supply side—value supplied to local businesses and to its content creators, or Yelpers—include additional revenues, free business listings, table reservation and management, as well as engagement and fun, social exchange, and participation in special events. Yelp’s key partners are their regular review contributors and their non-key partners are the small business owners. Key activities consist of selling ads to and products to local businesses, keeping users coming back, and growing the platform. Yelp’s bread and butter, it’s key resources, are its high quality content, established vibrant communities, captured data and insights, and its technology and algorithms. Yelp’s business model segments its local businesses by location, category, price category, opening hours, meal type, type of features, and by suitability of Yelp products. On the other hand, the app segments its users by demographics, home location, price categories, interests, and many other factors. Yelp’s customer relationships have been tested over the years as over 2,000 lawsuits have been filed against the app with the Fair Trade Commission, however the FTC never found Yelp responsible for the claims filed against them. Yelp’s channels are broken down into three categories, product and transaction channels, communication channels, and ad channels. The first category mainly consists of the Yelp app and its webpage. The communication channel features the Yelp webpage for business owners, Yelp blog pages, and Yelp developer pages. Ad channels include digital or traditional ad campaigns, vouchers, or email and notifications. According to Innovationtactics.com, Yelp’s 2016 cost structure was broken down in the following blocks: of their net revenue, 55% was spent on sales and marketing, 19% was spent on product development, 14% spent on general admin, 9% spent on cost of revenue, and the last 5% was spent on depreciation and amortization. Nearly all of Yelp’s revenue is generated through advertising but according to their 2nd quarter report for 2017, of their $208 million revenue, 89.7% was generated through advertising, 9% through transaction revenues, and 2% was generated through other methods.
Yelp designers and engineers have developed a special technology that recommends Yelp reviews to members of the Yelp community. Here’s a video telling more about their recommendation process.https://youtu.be/PniMEnM89iY
As mentioned before, Yelp has taken on the position of a pseudo-gate keeper for many small businesses. Yelp serves as the app that millions of consumers turn to for advice, listings, and general information regarding their surrounding small businesses. The app partners both with the local businesses and with its reviewers; the reviewers provide the content covering the products and services that are provided by the business. In that sense, both parties—Yelpers and the small businesses—supply content and information to the app. Yelp’s competitors include travel sites such as TripAdvisor and major search engines and social sites like Google, Google Plus, and Facebook. The app is regulated by two main bodies: The Federal Trade Commission has conducted two investigations into Yelp but has come up with nothing each time. Yelp is also self-regulated as their software designers and engineers have developed software that works to analyze the truth behind each Yelp review. Yelp’s mission is to connect consumers with great local businesses, so in that sense, Yelp is used by both consumer and the business/service provider.
A model of Yelp’s ecology
How has Yelp transformed our understanding of the internet? Yelp has given every internet user the opportunity to become a professional critic. Because of Yelp, our thoughts on every little experience we have with small businesses becomes permanent, and becomes someone else’s reading material and basis for judgement. Yelp is innovative because it combines search engine capacities with social media aspects of rating, reviewing, and commenting. Imagine if you could open the Yellow Pages and see what every friend or stranger wrote about the businesses you are searching through. That is the genius behind Yelp.
What has been the social and political effects of Yelp? The app has largely impacted the social interactions between small businesses and its customers, with some business business offering discounts, promotional materials, and even free merchandise in exchange for a good Yelp review. However, these practices of bribing customers for positive reviews is very much frowned upon by the Yelp admin team and they have put protocols in place for dealing with businesses that engage in such practices. Similarly, while many customers appreciate discounts and free merchandise, many customers have been vocal about their aversion to receiving bribes, especially in their Yelp reviews. Politically, Yelp has changed the game mainly because many small businesses feel that they have been slighted by the app, and that a bad Yelp review is disproportionately detrimental to their business. Furthermore, many small business owners feel that it is the businesses who buy advertising space with Yelp that receive the highest ratings and best reviews. The Yelp public relations team vehemently denies this and the Federal Trade Commissions has never been able to prove that Yelp in fact provides preferential treatment for the businesses that advertise with them. One can argue that Yelp inspired cultural and social change purely because small businesses are hyper aware that they are constantly being judged. While one should always strive to provide top-notch service and products to their customers, it seems that many business bear a heavy burden of responsibility and pressure to always be at their best. The social balance between patron and proprietor has shifted since every customer has the potential to leave a damaging and permanent review. As a result, small businesses are put at a much higher pressure to consistently provide quality service. Yelp has also played a part in changing the culture of shopping around for a product or service. In this day in age, most customers already know quite a bit of information before walking into a store or restaurant. Meanwhile on the business side, the incentives have changed. A good Yelp review is the end goal, not the satisfaction of serving a customer well.
How has Yelp changed the way we live, work, or play? Now for those who do not use Yelp, or who do not own a small business, Yelp has had no effect on their lifestyle. However, for those who do own a small business, Yelp has very much affected the way they work. Small business owners now have to operate with the knowledge that every one of their customers has the same relative power once held by a professional critic. For users of Yelp, the app has definitely altered the way one lives, works, and plays. Yelpers live with a vast source of information at their fingertips, which inevitably affects the choices one makes regarding any time a transaction takes place. All transactions whether they be for work, play, or just general living expenses are subjected to a Yelp review, at least for the most adamant Yelp users. Furthermore, Yelp adds to our modern day culture of feeling the need to comment on everything, and to share every thought or moment that we go through.
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