Yelp reviews are very popular with consumers who trust Yelp’s reviews more than many other review sites. Yelp claims to use a proprietary algorithm like Google’s formula that ranks search engine return pages, but Yelp uses their formula to filter out reviews that don’t seem authentic, seem to praise restaurants too lavishly or vilify restaurants so thoroughly that it’s suspected the restaurant’s competitors wrote them. Yelp rates businesses from one to five stars based on the average review rating after applying its formula to weed out suspicious appraisals.
Only businesses that earn at least three stars qualify to advertise with the company, which is how Yelp partially monetizes its site. These local ads for small businesses account for about 85 percent of Yelp’s revenue. The company also earns 9 percent of its income from national brand advertisers for financial services, automobiles, consumer goods and health products, and 6 percent of Yelp‘s sales comes from related services that the company offers, such as online bookings and restaurant deliveries.
Yelp’s Company Background
Yelp was founded by former PayPal employees Jeremy Stoppelman and Russel Simmons — who recently left the company — as an email-referral service in 2004. The original business model didn’t work, so the company refocused on providing online reviews in the latter part of 2005. The new business strategy quickly attracted notice by consumers and funding from investors until it began generating $30 million in annual revenue by 2010. Google tried unsuccessfully to acquire the company in 2009, which may have led to the long-standing feud between the two major Internet marketing companies. In 2012,Yelp became a publicly-traded company, and as of 2014, the company serves 142 million monthly visitors.
The hospitality industry is among the most prevalent company types that advertise with the Yelp because its unsolicited and unbiased reviews are trusted by consumers and frequently consulted before booking hotel or restaurant reservations. The company expanded to the United Kingdom, France, Germany, Austria, Spain, the Netherlands, Australia, Turkey, Denmark and a total of 20 counties by 2012. The first wholly Asian countries where Yelp expanded were Singapore in 2012 and Japan in 2014.
Yahoo and Google competed to buy Yelp in 2009, but both deals fell through due to Google’s refusal to match Yahoo’s offer and a subsequent disagreement between Yahoo and Yelp’s board of Directors. Yelp bought SeatMe, flat-rate reservation-booking service, in 2013 for $12.7 million and in 2014, the review site acquired Cityvox, a French reviewing site, and Restaurant Kritik, a German company.
Yelp has lost market share and profits recently, which leads to investor speculation that the company is ripe for a hostile or friendly takeover in late 2015 or 2016 by Google,Yahoo, Facebook, GrubHub, Apple, Amazon or one of the travel-booking websites like Expedia, TripAdvisor or Priceline. Any kind of buyout or takeover could result in major policy changes, so savvy restaurateurs might prefer to wait before committing major dollars to Yelp advertising.
Yelp began a Yelp Deals service in 2011 but decided to cut back on the initiative because of extensive competition, market saturation and business dissatisfaction with the high costs of running daily deal promotions. In June of 2015, Yelp poured gasoline on its conflagration with Google by publishing a study that accused the company of fixing search results to benefit its clients and marketing services. Interestingly enough, the same charges have been made against Yelp by many businesses.
Yelp unfortunately suffered net losses for three consecutive years before earning $36 million in 2014. The company’s highly publicized feud with Google stems from the fact that Yelp also offers local searches and Google doesn’t seem to rank the company’s reviews as highly as Yelp feels they deserve. any business owners also criticize Yelp for similar practices — such as refusing to publish favorable reviews for companies that don’t advertise.
Businesses have filed several lawsuits accusing Yelp of extortion, but each case has been dismissed before reaching trial. A class-action lawsuit in 2010 alleged that Yelp promised to suppress or delete unfavorable reviews in exchange for advertising, but San Francisco U.S. District Judge Edward Chen dismissed the suit in 2011 by claiming that the Communications Decency Act of 1996 protected the reviews and Yelp’s policies, a decision that was upheld in 2014 by the Ninth U.S. Circuit Court of Appeals.
Yelp’s business model depends on reaching increasingly larger global audiences to expand and grow, a process complicated by a steady stream of Internet companies offering product and business reviews. More users encourage local businesses to advertise, which attracts even more consumers.Yelp continually refines its mobile apps, increases its database of business intelligence and expands its services to include food deliveries, digital payment processing, coupon deals and other accommodations that have tremendous appeal to the hospitality industry.
Yelp’s goal of reaching $1 billion in sales by 2017 hasn’t changed, despite evidence that the company’s business is actually slowing down and increasing backlashes from restaurants against the high costs of advertising daily deals through third-party companies. While delivery services, reservation-taking companies and apps, reservation bookings and other hospitality services are gaining popularity, daily deal specials and review sites seem to be leveling off or losing percentages of the digital market.
How Yelp Ads Work
Yelp allows any restaurant with three-star ratings or higher to advertise with traditional advertising or listing-type ads that appear at the top of searches within Yelp for local restaurants. Consumers can search for restaurants by nearness, reservation availability, type of cuisine, price range and other criteria.
Any restaurant can respond to Yelp reviews with public comments or private messages, regardless of whether they advertise. Responding often provides advantages because consumers can change their reviews or public documentation of the steps a restaurant took to correct a problem could favorably impress people in spite of a bad review.
Restaurants can respond to reviewers publicly or privately and often convince people who post bad reviews to change their ratings if the restaurant makes things right with them. Although this leads to charges that restaurants can bribe negative reviewers with discounts and free food, Yelp insists that these situations rarely occur.
Yelp’s full-service marketing programs include dedicated support services, upgraded business home pages, free marketing tools and geo-targeted Yelp advertising. Restaurants also get some great features from Yelp that include consumers being able to make direct reservations or schedule restaurant deliveries.
Advertisers get a suite of services that include Yelp sending a videographer to take pictures and produce professional videos for the complimentary Yelp business pages that all advertisers receive. Businesses also get other tools to showcase their businesses, attract customers, market their services on smartphones and track visitor engagement. Advertisers get a dedicated Account Manager to optimize advertising results and can remove ads from nearby competitors from their business pages. Yelp also has apps and features that allow consumers to check health department inspection data and find special incentives from local businesses.
Yelp Deals and Gift Certificate Program
Restaurant advertisers can sell full-value gift certificates through Yelp to increase their gift sales, which comes in handy for holiday marketing and generating steady gift card sales. These certificates can range in value from $25 to $500 and are sold at full value while Yelp Deals are discounted vouchers that might sell for 75 percent of value or some other percentage.
Customers can broadcast their visits to your restaurant with Yelp’s check-in feature that allows people to tell their friends where they’re dining. The company’s Android and iOS apps integrate with Twitter and Facebook, so check-ins get broadcast extensively in real-time and can attract more customers to a restaurant. Restaurants can also create check-in offers through Yelp’s mobile apps. Examples of these incentives might be a free appetizer with a full-priced meal, a free dessert or a 20 percent discount.
Effectiveness of Yelp Advertising
Whether or not you agree with Yelp’s critics that the company favors advertisers in its reviews, you can advertise on Yelp and certainly raise your restaurant’s profile while possibly getting better exposure in Yelp searches. That said, you would need to analyze your results, assess how much restaurant traffic increases and whether the advertising and incentives at Yelp produce real profits or only discount menu prices for regular customers through daily deals, check-in offers and other dining incentives.
Advertising on Yelp enhances your free profile page, but advertisers get mixed results that include hard-to-use analytics and audiences who are more intent on reading the third-party reviews than responding to advertising. Yelp requires advertisers to commit to an advertising contract. If your profile page generates lots of high-value, repeat customs, then it’s worth the risk of committing to a advertising for an extended time. Otherwise, being cautious could prove the best strategy. Yelp’s numbers seem to be dropping, the company receives lots of complaints that it extorts people into advertising and you can always get a free profile and encourage your customers to write favorable reviews to raise your Yelp profile and rating.
You can always claim your free profile and put your advertising dollars to work in other promotions to reach more people and increase the effectiveness of your marketing campaigns. If you want to advertise with a company just because of its reach, then Google PPC campaigns and Facebook reach more potential local customers every day than Yelp, even though Yelp customers are often looking specifically for restaurants.
Yelp reaches more than 142 million monthly users who actively engage the site to read restaurant reviews, find hospitality specials and locate local restaurants based on cuisine, prices, location and other search factors. Few service providers keep ahead of the technology curve more effectively or profitably for their customers than Yelp and its advertising program.
Comparison to Competitors and Marketplace
Regardless of where restaurateurs decide to budget their promotional dollars, each restaurant should claim its profile on Yelp and keep it current and accurate. Restaurateurs should encourage customers to write reviews, even if they decide not to advertise. You could still receive some free publicity and a boost in Internet visibility to search engines. However, don’t expect too much influence on Google searches because the two companies are major rivals. Yelp supports Yahoo as its search engine of choice and has partnered with the company in several business deals.
Google and OpenTable rank as major competitors for Yelp’s advertising program. Google is expanding its reviews and is no longer identifying them in local SERP displays as Google-sponsored, so consumers may well begin viewing Google reviews as favorably as Yelp reviews. Not many people think of Yelp as a search engine, but the company often serves that role when consumers search for Chinese restaurants nearby or hotels, bars and dining venues in other cities. To this extent, Google, Bing and Yahoo are Yelp competitors. Facebook, with which Yelp integrates well, is also a competitor because it has an even larger database of local members to target for marketing purposes.
Restaurateurs have myriad choices of where to spend their advertising dollars, and any marketing strategy needs to be considered as to actual and relative costs, features and benefits, conversion rates, targeted audiences and how any ad program integrates with other marketing efforts. Generally, Yelp advertising offers strong benefits that include:
Dedicate account manager and support for all customers
Effective marketing resources
Dedicated business page to market to customers
Access to Yelp’s extensive local customer base and mobile marketing apps
Ability to make reservations through Yelp or its partner service, SeatMe
Almost every website seems to offer provide reviews these days, so it’s not clear how long Yelp will continue to dominate the market. However, restaurateurs should keep in mind that about 59 percent of restaurant reviews now come from other sources like Google, delivery services, reservation companies and related restaurant and hospitality businesses and websites. Yelp’s key competitors include Google, Facebook, Zagat, OpenTable, GrubHub and Foursquare, which leads the market for social check-ins and competes directly with Yelp’s check-in deals. TripAdvisor specializes in pinpointing restaurants for travelers and vacationers, and its restaurant section is highly regarded.
Cost-Benefit Analysis of Yelp Ads
Yelp listing and display ads, check-in offers, Yelp Deals and gift certificate sales give restaurateurs multiple advertising options for their money. Yelp is a great way to engage local diners who read the reviews and use Yelp’s search functions to find certain kinds of restaurants. Restaurants have much to gain by advertising. If you’re cynical about whether Yelp gives preference to advertisers, it makes sense to advertise at least minimally to reach Yelp’s audience as long as the company remains the top review site.
Even advertisers who spend minimal amounts get the same level of service, support and marketing resources that the biggest advertisers receive, so we recommend getting a listing ad at the least. You should also fill out the information to claim your free profile for so that consumers can make reservations at your restaurant and you can receive any benefits that the listing might generate.
Yelp offers some distinct advertising advantages for restaurateurs by providing targeted local customers who are looking for places to dine. The company’s vast database of users makes it a force in local marketing, and the company’s favorably reputation with consumers makes advertising with the company effective for restaurants, which are among the most popular reviews with consumers.
What We Like
We like the big local audience that Yelp reaches and many of the ancillary advertising services, such as check-in deals and sales of gift certificates at full value. We also like the idea that restaurants can supposedly get free referrals and unbiased reviews.
What We Don’t Like
There are allegations of Yelp extorting customers into buying paid advertising, and we don’t like the company’s complex formula for including or rejecting a review, which could always be written by an ardent supporter or thoroughly dissatisfied customer.
Whether you feel Yelp extorts restaurants or not, the advertising is an effective way of reaching local diners, engaging their friends and inviting people to meet at your restaurant through check-in deals and the latest mobile marketing tools and apps.