Yelp Business Model - How Does Yelp Make Money? - Business Model Analyst

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The Yelp business model revolves around offering users reviews of local businesses from real people, as well as offering businesses a way to reach local customers looking for where to make a purchase. Yelp is a community review site where users can rate and evaluate their experiences at local establishments, including restaurants, spas, etc.
Yelp generates revenue through the sale of tailored advertisements to local businesses, partnership commissions, and service tool subscription fees. The business model used by the firm is that of an “aggregator.”
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Yelp, co-founded in 2004 by two ex-PayPal employees (Jeremy Stoppelman and Russel Simmons), is today the most widely used platform for consumer reviews of local businesses in the United States. Before it became what it is now, Yelp was supposed to be an email-based recommendation network, but the idea never caught on with anybody outside the founders’ and consumers’ inner circles. Users were not only replying to emails, but also leaving reviews independently using the “Real Reviews” feature.
When Yelp updated its user interface in 2005, it set the stage for the company’s meteoric rise in popularity among users and investors. By 2010, Yelp had earned $30 million in revenue, 5 million reviews, and $125 million in funding over many rounds.
Yelp began expanding internationally in 2009. By 2012, Yelp had spread to more than 20 countries. At that time, Google and Yahoo also tried to purchase Yelp; however, negotiations fell through. Since 2012, Yelp has been a publicly traded company. Since then, however, Yelp’s stock has yet to do much for its owners.
As part of its commitment to long-term, profitable development, Yelp revealed an extensive, multi-year strategy to change the company’s business operations in 2019. The plan’s goals were to grow the company by developing cutting-edge products, expanding its marketing reach, and opening new locations.
Recently, Yelp has been experiencing a mass exodus of staff due to the detrimental impacts of the ongoing coronavirus pandemic. In April 2020, Yelp announced that it would fire 17% (1,000) of its employees.
Yelp currently has over 220 million reviews from consumers all across the globe. It is utilized in over half a million communities throughout the globe, making it one of the largest review sites in existence.
While the company was founded by Russel Simmons and Jeremy Stoppelman, who remain the company’s CEO, it has become a publicly traded company, with its top 5 stockholders including BlackRock Fund Advisors, The Vanguard Group, Inc., Prescott Investors, Inc., Fisher Asset Management LLC, and SSgA Funds Management, Inc.
The Yelp mission statement is “To connect people with great local businesses.”
Yelp is a website that lists and shows reviews of various local businesses, such as restaurants, salons, and other similar establishments. Yelp users get access to a plethora of information on local businesses, including where they are, when they are open, what they sell, and how highly rated they are by other users.
Yelp’s ratings, reviews, and images of businesses are all contributed by users. Consumers are more likely to buy from a business they learn to trust through the reviews of other consumers. Users may further refine their results by choosing factors like the kind of business, their price range, and any other features they might be interested in (such as outdoor seating, etc.).
Yelp’s revenue strategy is based on the robust user communities that generate the site’s content. These users offer their own experiences using local businesses using a variety of mediums, including reviews, ratings, photos, and videos.
Yelp generates revenue through the sale of advertising space, the facilitation of transactions, and the provision of ancillary services. Yelp’s current role is that of an aggregator. As a result, the company collects data on millions of places and presents it to clients in an insightful format.
The high number of monthly users makes Yelp’s platform enticing to advertisers. Consequently, local businesses are Yelp’s customers.
Below, we’ll take a closer look at how Yelp makes money.
More than 90% of Yelp’s income comes from its advertising services. Cost-per-click (CPC) pricing is how Yelp makes money from businesses. This implies that whenever a user clicks on an advertisement, the advertising business’ spending budget is deducted.
There is a large disparity in CPCs across industries and between geographic regions. Restaurants, for instance, pay a far lower fee than more costly enterprises like those in the financial sector. Ads may be shown in a variety of places across the system. These may show up on the Yelp pages of competing businesses or in the results of relevant searches.
Yelp’s premium profiles are the company’s second advertising option. Two Yelp premium packages are available; these include:
In addition, businesses may establish their legitimacy by having their licenses verified. Verified content is denoted by a blue shield with a white check in the center. Yelp requires a paid subscription for access to these premium profiles. A company’s monthly subscription fee is dependent on its entire advertising budget. The higher their advertising budget, the lower their fee.
Last but not least, Yelp offers a program for advertisers to promote their own partners. These third-party advertisers may then promote the businesses they work with on Yelp’s website. According to the revenue-sharing arrangement, Yelp will get a percentage of the advertising budget.
Commissions on the transactions that Yelp helps facilitate for its partners are how the company makes money. Yelp Deals, gift certificates, Eat24’s partnership with Grubhub, and the company’s own platform are the primary ways in which the firm makes money through transactions.
Yelp Deals are discounted, pre-paid vouchers that consumers may use at local businesses. Yelp gets a cut of the action whenever a voucher is used. The same may be said with gift certificates. Rather than being purchased for one’s own use, they are more frequently used in the context of a gift.
In 2015, Yelp acquired Eat24; then, in 2017, it sold the company to Grubhub. Despite this, there is still a strong integration between the two parties. Customers can still place orders on Grubhub and Eat24 without ever leaving the Yelp site. A commission is paid to Yelp for each successful order made via the site.
Last but not least, Yelp generates revenue from its role as an intermediary in transactions that take place inside the Yelp Platform. Customers may make purchases without leaving the Yelp app or website because of the company’s many partnerships. Purchasing and making payments inside their ecosystem fall under this category.
Business partners may make use of Yelp’s many offerings, which can include software solutions. Other services include subscriptions, payment for API access to Yelp’s data, and making money from partnerships with other companies.
The two most profitable services for Yelp are Yelp Reservations and Yelp Reservations. With the aid of these tools, restaurant owners may enable services like online reservations, text message reminders, waitlists, and more. With Yelp Knowledge, companies may get location-specific, review-specific, and category-specific data-driven insights.
The Yelp Business Model can be explained in the following business model canvas:
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Yelp has three customer segments, namely local businesses, users, and content creators.
The Yelp value propositions consist of:
The Yelp channels consist of the following:
The Yelp customer relationships consist of the following:
The Yelp revenue streams consist of the following:
The Yelp key resources consist of the following:
The Yelp key activities consist of the following:
The Yelp key partners consist of:
The Yelp cost structure consists of the following:
Yelp and TripAdvisor, both popular review websites, provide reviews and ratings from diners about local restaurants. TripAdvisor, on the other hand, is comprehensive, offering not just hotel and restaurant reviews but also reviews on airlines, attractions, tours, and cruises.
Below, there is a detailed swot analysis of Yelp:
Yelp understands the value of the different sorts of user-generated content on its platform. Yelp is more of a data platform than a genuine review site. An abundance of consumer data means it might become the go-to place for businesses of all kinds to get insights into their target demographic.
Yelp has come a long way in establishing and maintaining business ties and partnerships. The appropriate financial investment might help it become a truly global brand, expanding into new markets in Asia and Africa.
There have been scandals in the past, such as review manipulation and intricate relationships with small businesses, but the company has been able to recover because of its strong PR efforts and is only going to get better from here.