The Rise And Fall Of Yelp

Yelp is eleven years old, okay? What have you done to us? Before there was fake news,
there were fake reviews. All of us are critiquing
each other all the time. We’d like to apologize? Local review site Yelp made quite a
mark on how we find restaurants and services. We’ve gone city by city now, over
100 different cities across the world. So it’s actually become
an international phenomenon. It was the first big success story
in the early days of user-generated reviews, and the company enjoyed rapid
growth in those early days. But it hasn’t been so easy for
Yelp lately with increased competition and a stagnant business model. I think you had a lot
of execution errors at Yelp. And you don’t go from tech darling to
tech giant without a few bad reviews. I would stay away. Yelps for sale. Would you buy it? I don’t think so. You have it in the back of your
head that Yelp is out there, lurking. Yelp was founded in July of 2004 by former PayPal employees Jeremy Stoppelman and Russel Simmons to compile word-of-mouth suggestions for local businesses and services. Stoppelman And Simmons originally decided on the name Yokel, but that domain had already been taken. So at the advice of a
colleague, they went with Yelp. Yelp and Yellow Pages kind of sound
familiar and Yelp and help, you know, is another thing that
the site provides. The duo launched the first iteration of
their site in October of 2004, which was basically a
huge email listserv. Seems antiquated, but remember, this was
almost three years before the launch of the first iPhone. Yelp was built almost
community by community. They would send out an organizer,
almost like a grassroots local organizer, to host events in towns
and cities for local businesses, letting them know about Yelp, how consumers
could and would use Yelp, and how local businesses could increase their
business by advertising on Yelp. By 2009, Yelp became so popular that
Google offered the owners $550 million for the company. Yahoo! countered that offer with a
$1 billion check, and Yelp refused both. Stoppelman, according to sources at the
time, never really wanted to sell the company, so they ran this process,
they did get some interest, but he felt like the price that was being
offered for Yelp just wasn’t high enough to merit selling the company. Instead, Yelp went public in 2012 and
stocks surged on the first day of trading. We want to bring Yelp to the world. We want to manage this
mobile transition that’s happening. We want to play a big part of that. And we want to be the broadest
and deepest content’s source for local information. Really, the Amazon of local,
when we think about it. These are Yelp employees that are here
that have been brought in for the day. It’s a big day for them. Priced at $15, now open at $22.01. Important thing is, stock opened
very much to the upside. At the time it had 22 million reviews
on its site and 61 million unique monthly visitors. In 2018, it had 177 million reviews
and 164 million average unique monthly visitors, including the mobile site,
desktop site and mobile app. Originally, Yelp was sort of the only game
in town when it came to reviews. And this goes back to the initial
question of why were investors so gung ho on Yelp originally? They were the only game in town at
first, when it came to reviewing a local business. Amid all of Yelp success, the company
claimed that once suitor Google was favoring its own content in search
results and that Google was scraping data from Yelp for its own
Google Places service, which spurred antitrust investigations. And Yelp released a
pretty convincing presentation to demonstrate how Google was
hurting its business. Let’s be clear, Google is no longer
in the business of sending people to the best sources of
information on the web. It now hopes to be a destination
site itself for one vertical market after another, including news, shopping, travel
and now local business reviews. But Yelp was dealing with
some internal problems as well. Business owners started noticing suspicious
reviews According to a study done at Harvard, which included every
Yelp review for restaurants in the Boston metropolitan area between 2004 and
2012, minus the 1 percent that violated Yelp’s terms of service, 16
percent of reviews were flagged as fake. Rival business owners would write
negative reviews to lower their competitions overall rating and write
positive reviews on their own businesses. Yelp says it deals with
these fake or extreme reviews by filtering them out. Every Yelp review is automatically
evaluated by Yelp’s recommendation software based on quality, reliability
and user activity on Yelp. We try not to highlight reviews written
by users we don’t know much about or those that might be fakes
or unhelpful rants or raves. And since the early days of Yelp,
some business owners have not been too keen with how Yelp makes its money. A majority of its
revenue comes from advertising. So this is no different than, say,
what Facebook or Google does, where they’re all on the same
hunt for digital ad dollars. Yelp’s niche in this is that if
you’re going and looking for a small business or restaurant, those restaurants
can advertise right up there against your search on the site and
therefore you can make money that way. An upcoming documentary that was announced
back in 2015 interviewed local business owners who claimed to have
received shady phone calls from Yelp sales representatives. If the Mafia had done what Yelp
is doing, they’d be thriving in every county and every jurisdiction in the United
States by doing it over the Internet. These reps reportedly offered to move bad
reviews to a lower position on the businesses Yelp page in exchange
for an advertising package and threatened to dock the page
if they didn’t advertise. The Federal Trade Commission looked into these
allegations but found no cause for charges against Yelp. In a blog post, Yelp
commented on the business owners. There’s no relationship between advertising on
Yelp and the reviews that are recommended. Uh, That’s just no way to run a business,
and it’s not how we do things here at Yelp. But documentary director Kaylie Millikin was not convinced, not even by the FTC. I have spoken with a lot of the
lead attorneys in cases brought up against Yelp and the FTC never went to
them for the documentation that those attorneys have, the evidence
that those attorneys have. Dismissing the FTC, dismissing five federal
judges who all found no wrongdoing, dismissing all of that seems a
little weird when all of it has very exhaustively debunked
the claims. You’re willing to dismiss an FTC
investigation which found nothing wrong and say yourself that maybe they didn’t do
a good job and you’re doing a better job. I’m not dismissing what they said. I am going to touch extensively on that
in the documentary and I will let the experts speak for themselves. To this day, there is a divide
between business owners who love Yelp and those who resent it. One business owner who asked to
remain anonymous for fear of retaliation from Yelp hasn’t had the
best experience using the service. It’s an uneasy partnership for those of
us in this business that advertised with Yelp because we kind of feel like
we have to rather than we really choose to. And there’s a, sort of a wink and
a nod and a whisper that it’d behoove you to advertise with Yelp
rather than to a-shoo their advances. Sorry if I sound like I’m talking
about, you know, the mob, but that’s sort of, it’s a little bit what
it feels like to people or business. Other businesses, on the other hand,
have found great success in Yelp’s advertising program. I actually have positive reviews for Yelp,
I’m an advocate for it, so… We are on the 21st floor so advertising
is really big for us being that we’re not on the ground level
for people see where exactly. But, like, it’s just like the quickest
way to get your business out there. Yeah, it’s been very positive for us. I’m happy with it. Despite these allegations and the
encroaching tech superpower’s like Google and Facebook and Instagram, Yelp’s
stock continued to climb. It peaked on March of 2014 at over
$100 a share due to positive Wall Street analysis. But it hasn’t been able
to get back there since. I think you had a lot
of execution errors at Yelp. It’s a tough business to scale. Yelp has had a difficult time
monetizing the business of recommendations into a growthie tech company that can
can compete with the biggest tech companies out there like
Facebook and Google. Investors were chomping at the bit
to see Yelp become an advertising powerhouse, but it fell short
of many investors expectations. Yelp, on the other hand, Scott, I just look
at this name and I look at the fact they don’t make money yet. I don’t know when they’re going to
start making money and when they do,what’s the PE level of Yelp? I think this is one of those
names that’s way up into the stratosphere with plenty of room to the downside. I would stay away. And the products that Google and Facebook
had been creating to compete with Yelp started looking better and better
in the eyes of the investors. Google has increasingly introduced more
more local information, local services information,
restaurant reviews. They’ve kind of, that’s the, that was
the reason for existence of Yelp and Google increasingly starting
encroaching on that. Google took its services and prioritized
them on searches, driving less and less people to Yelp site. This self-favoritism was a setback for
Yelp, but some analysts say Yelp has not been innovating at
the pace it should be. I think Yelp, in a way,
was too slow to innovate. Some of these things that they have
rolled out now, so they called a Request a Quote where you can actually
go on the site and request a quote, they should have been rolling
that out several years ago. I think this company was good on
innovation, but not great on innovation. And I think that slowness is what
really created the opportunity for other companies. A recent wakeup call to Yelp comes
in the form of an activist investor. These investors buy up large sums of
a company’s stock and use it as leverage to get the company
to change its strategy. So SQN has been an investor in Yelp
for more than four years and they decided to go public and in
essence become an activist shareholder. SQN released a 112 page document
outlining Yelp’s pitfalls and what it needed to do to get back on track. And if it doesn’t comply, SQN is
going to shake things up, starting with Yelp’s board of directors. SQN came out and said, look, there’s
a whole bunch of different changes we want you to make, and if you don’t
think you can make the changes, we want you to try to sell yourself. Yelp responded fairly quickly. The first thing they did was
that they actively replaced three board members. They also reported
a very strong quarter. But Yelp is trying to
diversify and gain some momentum. Yelp as a company is going
through a couple of transitions. From a consumer side, it’s going through
a transition of being purely an information or a research site to
one that’s more transactions oriented. If you could actually go to the
site, see those reviews and make a reservation at one of those sushi
restaurants or order delivery through a partnership that Yelp has
developed with GrubHub. So it’s moved from being a purely
information site to being more of a transaction site. And as for Yelp’s future? This is the $64,000 question, right? Can Yelp survive as
an independent company? At this stage, I would say Yelp is
probably too small to survive as an independent company. I would not be surprised at all
if they sell to a larger competitor. There’s always a chance for companies to
catch up, and that’s what Yelp is finding out now. Whether it’s too little, too late. I don’t know. But I don’t know why you would-
why one would have to reach that conclusion.

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