VP Ghaffary: Yelp Is the ‘Local Layer’ of the Internet

It’s been a good year so far for Yelp. In January, the reviews site recorded 100 million unique visitors, giving it a bigger audience than the USA Today, New York Times, and Wall Street Journal combined. Meanwhile, the company cut its losses in half from a year earlier as revenues jumped by 67% in the quarter. Its stock price has responded as well, soaring by 60% since the beginning of the year.

But amid the sea of pleasant numbers, the company faces new competition. With its rebuilt app, and some money in the bank, Foursquare is openly gunning for Yelp in its attempt to be the go-to app in the local discovery space. And an even bigger threat may come from Facebook, which launched Nearby in December and appears poised to make a further push into local discovery by year’s end.

Mike Ghaffary, a grad school friend of CEO Jeremy Stoppelman who helped to write one of Yelp’s first advertiser contracts, now serves as the company’s vice president of business development (and will give a keynote address at Street Fight Summit West in San Francisco next month). Street Fight caught up with Ghaffary recently to discuss the relationship between content and data in local discovery, and why competitors will have a hard time “killing Yelp.”

Foursquare has focused a lot of its media outreach recently on trumpeting the power of its location dataset, an asset that the company says is unique in the industry. If data is critical, why has Yelp been so quiet?
Historically, we didn’t open up our entire database to developers. So in the past, that might be something that you heard from developers. But, it does not mean we do not have the data. It just means that early on in our company’s life, when we were starting and local was more competitive, we thought it would be in our strategic interest to hold back our dataset. So we didn’t share. But now we’re opening up our data significantly because we’ve realized that we’ve won. We’re the de facto leader [in local], and I think everyone sees that. And for smaller startups who want to build on top of us, we’re happy to open our data. We’re really doing our best to make sure to open our resources as much as possible available to other people.

But just like Facebook is the social layer of the web, I think Yelp is, logically, the local layer of the Internet. I’m sure there are a lot of startups out there that would also like to be the local layer of the Internet, but it makes sense that the largest company with the highest quality of data would emerge to that position.

What’s the net benefit for Yelp in opening up its data? How does an investment in improving an API translate to a better product, and better return for Yelp’s shareholders?
Corny as this may sound, there’s a book by Adam Grant called “Give and Take.” He’s done all this research showing that giving to the community is in your best interest. We’re all startup people here, we have one of the youngest management teams of any company out there. There’s good karma in giving back to the startup community and making that data available. We didn’t have that luxury when we first starting out, when we were a tiny startup trying to survive. Some people do now. After us, Twitter came out [and opened their API], but they’ve already had public cases in which they’ve had to pull the content back. Now we’re in a leadership position, we’re the clear global leader in local, we can be pretty liberal with it.

At its core though, Yelp is a content company. Others, like Foursquare, are pitching a data-first approach. Give us some insight into the way Yelp views the relationship between data and content in local discovery?
It’s important to understand the distinction between the two. Any company in local needs to start with the base layer of data to provide some of the basic data coverage. Even before Yelp came around, those data have become commoditized. The hallmarks of commoditized business is that you have a lot of competitions and a lot of companies offering a very similar directory-like product and they sell it as a standard licensing fee.

If you’re a data guy, do you want thumbs up or thumbs down, or do you want to have a well-written review and a five-star rating? All of these signals are far better than saying “has someone gone there, or has someone gone there x amount of times?” Maybe someone has gone to the dry cleaner across the street, and they go to it a lot, but it’s not good. You need a community of people giving in-depth content. If not, you don’t have the quality signals to find great local businesses.

So let’s talk about those thumbs up and thumbs down. Why is Facebook’s still-nascent push into local not a potential Yelp-killer?
A big part of our success is the community we built. We’re the only community that has invested in putting employees in over 100 cities around the world. When investors and analysts look at our businesses, that’s a big part of what they see as a differentiator, and it’s an investment that takes a long time to pay off. You have to go market by market and build out a human — not virtual or online — community. It’s a big investment to build a community of users who are engaged offline then electrified by the tools available online. Facebook is missing that component, and it’s going to make it very difficult for them to compete and generate the quality content contribution that we’ve got.

The other problem is that comparatively, you just don’t have enough Facebook friends to make [social recommendations] work. Yelp has used Facebook’s instant personalization to try to look at at what a user’s friends are reviewing to see what they like. At the end of the day, though, I just don’t have enough friends to make it work. What’s more valuable is [aggregating] what the community at large thinks, and then [using] an algorithm take that all in and turn it into useful info for me. I see it as a very different value proposition.

Yelp has not done much to move deeper into the purchase process by offering other services like delivery or payment. Why not?
There have been some transactional things we’ve done but it’s mostly through partnerships. We worked with Opentable and help drive people to make table reservations and that’s been very successful. We do hotel bookings on our site. And, we also do transactions through Yelp deals. Are we going to expand the partnership model to other verticals when the time is right? We’re always looking to deliver a better user experience for our users.

How about on the monetization side? Wouldn’t the addition of these kinds of products allow Yelp to build out a more effective performance-based ad model?
I helped Jeremy write one of Yelp’s first ad contracts many years ago, before I joined the company, and it was an action-based contract with a hair salon. But we found that business owners are just used to paying by subscription, and as long as a majority of them want that, we’ll deliver it. When business owners start asking for more action-based products, we will [adjust accordingly.]

So would you say that much of the hype around “closing the loop” in local is a bit overblown?
“Closing the loop” is a very enticing future in local, but I would say that it’s a little early to call it a problem since business owners are still primarily interested in advertising on a subscription basis. You’re going to see a shift toward call-to-action, and we’re already seeing that in our advertiser panels.

But I think you see a lot of companies ahead of their time that have offered it. From a tech perspective, every closing-the-loop solution is already out there. The question is when local businesses will adopt these new technologies.

Steven Jacobs is Street Fight’s deputy editor.

Yelp’s Mike Ghaffary will be giving a keynote address at Street Fight Summit West in San Francisco on June 4th. Don’t miss the chance to meet him, as well as hundreds of other top hyperlocal industry executives. Register now to reserve your place!