Yelp is a user-generated online review platform that allows users to find and learn about local businesses such as cafes, spas, and home repair services.
Yelp makes money via selling tailored advertisements to companies on its network, commissions from partnerships, and service tool subscription revenue.
Yelp, founded in 2004 and is located in San Francisco, California, has evolved to become one of the world’s most popular online review sites. Every month, about 178 million users access its platform.
How Does Yelp Work & What Is It?
Yelp is an online directory marketplace that allows users to find and learn about local businesses such as bars, cafes, spas, nail salons, and many other types of establishments.
Users can learn about a business’s location, hours of operation, offered services, and how others evaluate their service on Yelp.
Users are the ones who upload images and rate services on Yelp, so the content is user-generated. It generates social proof, which can assist firms in generating more leads.
Users can further narrow down their search based on their choices, such as business kind, pricing range, and other amenities like outdoor seating or the ability to make bookings.
Yelp can be accessible through the company’s website and its Android and iOS mobile and tablet applications.
Every month, approximately 178 million unique visitors visit Yelp’s website, making it one of the most popular platforms in the United States.
The History of Yelp
Yelp was created in 2004 by Jeremy Stoppelman (CEO) and Russel Simmons in San Francisco, California.
Both founders studied Computer Science at the University of Illinois and graduated with honors.
After graduating from college, both worked as software engineers at PayPal, among people like Elon Musk, Peter Thiel, Reid Hoffman, and David Sacks.
Both Stoppelman and Simmons ascended the ranks at PayPal, commanding major technical teams in their early twenties.
Both of them chose it was time to move on in the summer of 2003, a year after eBay acquired PayPal for $1.5 billion. While Simmons was pursuing an MBA at Harvard, Stoppelman dabbled in a new startup idea.
They agreed to team up again after a year in their different ventures. They reached out to Max Levchin, a PayPal co-founder who had recently started a startup incubator, to collaborate on a fresh concept.
Knowing how talented the guys are, Levchin gave them $1 million to explore an idea they thought would be profitable.
Craigslist was beginning to fundamentally disrupt the newspaper industry at the time by taking their classifieds business away.
When they looked at other older media verticals, they discovered that the Yellow Pages had not yet been affected by the internet.
The final jolt occurred when Stoppelman became ill and needed to consult a doctor. Unfortunately, all search results were either obtrusive offers or had nothing to do with his situation.
The founders started to work right away, working 90-hour weeks to create the first version of what would eventually become Yelp. Yelp was finally launched in October of 2004.
What is Yelp’s revenue model?
Yelp earns money via selling advertisements, transaction deals, and other services. Let’s take a closer look at each of these streams below on how does yelp make money.
The majority of Yelp’s revenue (more than 90%) comes from advertising items that businesses buy on the platform.
The cost per click (CPC) varies considerably based on the niche and region. Restaurants, for example, pay a far smaller price than more expensive services like law firms.
There are various places on its platform where an advertisement could appear. These could appear in search results or on competitor company pages.
Yelp’s second advertising opportunity is improved profiles. Yelp has two premium packages to choose from:
- Premium features such as photo slideshows, enhanced call-to-action buttons, a dedicated About section, and the ability to post videos are included in branded profiles.
- Enhanced Profiles, which provide all of the features of branded profiles plus the opportunity to block competitor ads.
Additionally, firms can get a verified license, which serves as a seal of approval. A blue shield with a checkmark inside signifies verification.
On transactions that Yelp handles on behalf of other partners, Yelp earns commissions. Yelp Deals, gift certificates, the Eat24 collaboration with Grubhub, and the company’s platform are the company’s four primary revenue sources.
Yelp Deals are prepaid vouchers that provide consumers attractive discounts and encourage them to shop at a specific business. Yelp will receive a commission every time a voucher is redeemed.
Similarly, gift certificates operate. Rather than utilizing them for oneself, they are frequently purchased as a gift for someone else.
As previously noted, Yelp purchased Eat24’s rights in 2015 and sold them to Grubhub two years later. Despite this, the parties remained tightly intertwined.
Users may now order meals directly from Yelp’s platform, with Grubhub and Eat24 assisting with the order. When an order is placed on Yelp’s platform, Yelp receives a commission.
Finally, Yelp makes money by facilitating transactions through the Yelp Platform. Users can do transactions immediately on Yelp’s app or website because it is directly integrated with partners. Paying for a product or service directly on their platform falls under this category. It is how does yelp make money.
Businesses that Yelp collaborates with can make use of a variety of services and technological solutions. Subscriptions, license charges for access to Yelp data, and revenue from various partnerships make up the other services.
Its Yelp Reservations and Yelp Reservations products provide for the majority of its services revenue. Restaurant operators may use these tools to make online reservations, send SMS reminders, set up waitlists, and more. For access to these items, businesses must pay a monthly subscription charge.
Second, Yelp Knowledge provides businesses with data-driven insights into different locations, review types, and rating data across categories. Businesses must pay a charge to have access to this information.
Funding, valuation, and revenue for Yelp
According to Crunchbase, Yelp has raised $56 million in venture capital funding in six rounds. Benchmark, Bessemer Venture Partners, DAG Ventures, or Affirm and PayPal founder Max Levchin are among the company’s notable investors.
During its IPO in March 2012, Yelp was able to raise an additional $107.3 million. The company was valued at $898 million by public investors at the time. Yelp now has a market capitalization of $2.2 billion.
Yelp announced $1.01 billion in earnings for 2019, increasing 8% over the previous year. Profit for the same period was $40.8 million.