Can Yelp Extend Its Moment in the Sun?
In this regular Street Fight feature, local marketing gurus David Mihm and Mike Blumenthal kick around some of the biggest ideas affecting the local search ecosystem and the broader industry. Send us an email or leave a comment if you have specific topics that you’d like them to touch on in future columns!
David: Well, Mike, we have officially entered the dog days of summer. Feels like a bit of a lull before fall conference season starts. Looking forward to recording one of these in person with you at the Brandify Summit in September!
Mike: I too am looking forward to meeting you in person. I must owe you a beer from some bet or another? If not I will buy you one anyways as long as I don’t have to drink an IPA.
David: We’ll have to find a nice pilsner for you from Angel City! Let’s save our IBU debate for our in-person meeting, though, and move on to news from the local ecosystem.
Speaking of summer, it felt like one of the biggest pieces of recent news was $YELP’s surprising uptick on its most recent earnings call. Investors really seemed to like the Eat24 asset sale (and with good reason — a $150 million profit in two years).
Summer has been a nice moment in the sun for Yelp. Perhaps they should pivot into the SaaS-flipping business. It seems to be a far more successful channel for them than actually selling to small businesses?
Mike: They seemed to have created a solid back-end partner out of the deal although I wonder if providing deliveries via a third party as a transaction will do anything to burnish their terrible image with the SMB world? And I don’t think SaaS-flipping is the way to sustained profits. 🙂
David: That’s sort of my point. Eat24 is more of a consumer-focused product anyway, which Yelp has always been very good at. But unfortunately for Yelp (and for $YELP shareholders), the company basically doesn’t monetize consumers. Their customers are actually small business owners, with whom they continue to have an abysmal reputation, whether from over-aggressive sales or from lack of product performance.
Mike: They have not been very innovative in approaching the many needs of the SMB markets. It would seem that there could be (or should have been?) a raft of functionality that they could provide from appointments to customer follow-up that would be a natural fit.
Google and Facebook both have leveraged their reputations by offering solid free or low-cost functionality that these very same SMBs seem to embrace with enthusiasm. And there seems to be more and more coming all the time. Having one or two online places for the SMB to go that offer the bulk of what they need to market their business seems compelling. And once there, these businesses can be inexpensively funneled into buying ads or boosting posts.
David: Lots of small businesses are on Facebook daily, and Google’s making a concerted effort to get them into the GMB dashboard more frequently than before. You and I both predict, I think, that GMB will become more of a daily or at least weekly habit than it is right now.
I don’t see any similar initiatives coming from Yelp. In fact I’d be willing to bet that most business owners dread logging into their Yelp dashboard, even if they have the time to do so. It’s such a visceral feeling about the brand at this point.
Even for the rational business owner, there’s an entirely reasonable apprehension around getting sucked into a war of words with a Yelper by using the primary feature of the Yelp dashboard: responding to reviews. And there just aren’t any other free tools like Posts or Events or widgets to encourage them to do so.
Mike: I have had numerous conversations on just that issue; their visceral dislike of the company. If Google and Facebook get most of the SMB mindshare around marketing, Amazon gets their procurement business and the vertical marketplaces bring up the rear, I see it very difficult for Yelp to break into the big leagues of sustained profitability and growth.
David: And we haven’t even brought up their asinine review solicitation policy yet, which goes against every normal offline instinct a business has to ask for feedback and referrals from customers. When you provide 1/20th the value of your competitors (Google and Facebook) and expect to sell into that market at the same budget or even higher, you’re not really in a position to dictate how your customers should run their business.
It’s the most arrogant company I’ve encountered in my career.
Mike: Do you think that their attitudes keep them from finding a path forward?
David: Their mindset hasn’t seemed to evolve nearly quickly enough or far enough — I’m not sure they’ve ever admitted to themselves that they’re actually a marketplace company.
Certainly they’re trying to get more into a transactional position where they can monetize both of their audience groups better, but the margins on transactions ain’t gonna be anywhere close to what they get on $600 CPM display ads, and the competition from other point-of-sale providers (not to mention Google and Amazon) will be fierce.
I honestly think that’s a longer-term problem for them though. The first thing they need to do is turn their existing customers’ (SMBs’) perceptions.
Build a better algorithm to combat review spam that doesn’t result in so many false positives, and publicly announce a 180-degree shift in your review policy.
Stop blowing marketing dollars on Yelp Elite events (let alone Yelp “community manager” salaries) and start spending them on grants or mentoring or educational events for small business owners.
Start doing nice things for small businesses instead of trying to sell, sell, sell all the time. The fact that Google beat them to this obvious but valuable initiative speaks volumes — they just don’t put themselves in the shoes of their customers.
Eventually they’ll be forced to move away from a high-cost CPM product, but as long as their reputation remains in the toilet, they won’t be able to lower churn and grow their customer base even with a world-changing offering.
Mike: So if you owned their stock (which you don’t) you would still be selling them short despite the most recent quarter results?
David: Well, there’s always the chance they are acquired by one of the five horsemen (Facebook, Alphabet, Amazon, Microsoft, or Apple) so it’d be risky to bet one way or the other. But if acquisition is not on their roadmap (to date it certainly hasn’t appeared to be), time is running out for them to turn things around.
Google continues to monetize and Knowledge Paneli-ize more and more search results, meaning less organic traffic for Yelp, Facebook’s bonafide local play will come sooner or later, meaning less consumer mindshare for Yelp, and Amazon is starting to encroach on their restaurant turf, meaning fewer transactional customers for Yelp.
Given the competition, I’m not sure there are enough Eat24’s in their SaaS product portfolio to spin off for indefinite runway extensions.
After more than a decade in local search, David Mihm now runs Tidings, an email newsletter platform for small businesses that leverages their everyday social media activity, and his own weekly newsletter, Minutive. In 2012, he sold his former company GetListed.org to Moz, helping over 3 million businesses get better visibility in Google and other search engines. Along with Mike, he’s a co-founder of Local University.