Yelp business model. All you need to know

Have you ever heard of the Yelp business model? In the next few lines, you will discover all the benefits of this application and you will learn to use it like an expert. So, do not stop reading all our content that you will not regret it, we assure you.

But what is Yelp? Let’s start there. Yelp is a digital platform that allows you to locate and learn about local businesses. It is completely generated by user updates and publishes reviews of various business premises. Just to mention a few, there you can find information on cafes, spas, home repair services, among others.

Yelp relies on sophisticated, fully automated software that verifies user reviews. The platform strives to produce the most reliable opinions possible for the information of its users. To achieve this, daily analyzes of more than 100 million reviews updated by users. In the end, it divides them into two groups: the recommended and the non-recommended.

This online platform has been headquartered in San Francisco, California since 2004, the year it was founded. From there it has had a process of constant development that has led it to be considered one of the most popular online review sites in the world. Specialists estimate that its platform is accessed by about 178 million users. The Yelp business model has definitely become a benchmark in the market.

What is Yelp? What is the so-called Yelp business model?

As we told you in previous paragraphs, Yelp is nothing but an online directory market. Its main function is to provide conditions for users to search and obtain details about different local businesses. From bars and cafes to barber or nail salons fall within its area of ‚Äč‚Äčoperation. It also covers many other types of commercial establishments.

According to the Yelp business model, revenue comes from selling personalized ads to businesses in its network. Additionally, it receives other income from commissions from associations and from subscriptions to service tools.

Among the data that users can obtain are, in addition to the location of the company, the hours of operation and the services offered. They can also read other users’ evaluations of the quality of the service they provide. The latter, definitely, is an added value of great weight.

Users, apart from rating services, are enabled to upload images and generate content for social networks. This, of course, benefits the evaluated businesses because it gives them the opportunity to increase their clientele.

Users can further filter their searches according to their needs. They can search by type of business, price range and other filters. Looking for a business that has outdoor seating? or Are you looking for where to make reservations? Yelp gives you those options. You only access the platform through its website or its applications for Android and iOS mobiles and tablets.

Let’s see a little more about the history of Yelp

Yelp business model

This platform was created in 2004 in San Francisco, California. Those responsible for this birth were Jeremy Stoppelman and Russel Simmons, both graduates of the University of Illinois in Computer Science. They both graduated with honors.

After graduation, they both worked as software engineers at the well-known PayPal company. There they had the opportunity to work with professionals such as Peter Thiel, Elon Musk, Reid Hoffman and David Sacks.

Both Stoppelman and Simmons had successful careers in the PayPal ranks. Being both in their twenties, they were in charge of important technical teams. They were there until they felt that PayPal was no longer enough for their personal projects that they already had in mind.

Come the summer of 2003, both decided that the time had come to move forward on their own. This decision was made just one year after eBay acquired PayPal for $1.5 billion. Stoppelman dabbled in the new startup idea while Simmons was finishing an MBA at Harvard.

After a year, both managed to get together to form a team to start working on ideas for their different ventures. They then contacted Max Levchin, a PayPal co-founder who liked to support startups, who gave them $1 million to explore their new idea. The results were seen in October 2004 when they pitched an idea for what would eventually become Yelp.

Yelp business model. Where does your income come from?

We have already said it and we will repeat it now. Yelp makes money through the sale of ads, transaction offers, and other services. Let’s take a closer look over the ways Yelp receives its revenue stream.

Online advertising

Let’s start by saying that over 90% of Yelp’s revenue comes from the ads that businesses buy on the platform. The CPC (cost per every click) of these ads varies considerably taking consideration on the niche and region. Restaurants, for example, pay a much lower price than other more expensive services, such as law firms.

On the web page, advertisements may appear on different sites. They can, for example, be placed as review results or on pages of competing companies

But there is a second way to insert advertising on the Yelp platform. This is, in the enhanced profiles. These profiles offer two packages from which advertisers can choose the one that suits them best.

1. Premium features. This includes photo slideshows, improved call-to-action buttons (CTAs). They also have a section for posting videos and other useful tools to develop brand profiles.

2. Improved brand profiles. All the features of brand profiles plus the opportunity to block competitor ads are provided here.

Additionally, if they wish, companies can obtain a legal license. This license will serve as a stamp meaning approval that users will see. Businesses that have this license will be identified with a shield in blue with a check mark inside.

Transactions are part of the Yelp business model

Yelp earns commissions on all transactions it handles on its own behalf or for other partners. Yelp’s top 4 sources of income through transactions are

1. Yelp Deals

2. Gift certificates

3. Eat24 collaboration with Grubhub

4. The platform of the Company

On the other hand, Yelp has prepaid coupons that give consumers attractive discounts and encourage them get products and services at certain businesses. In each of these purchases, the platform will obtain a commission each time one of these coupons is redeemed.

Gift certificates and prepaid coupons work the same way. The difference here is that you do not get certificates for yourself, but they are frequently bought as a gift for another person.

As stated above, Yelp got in 2015 the rights to Eat24. It later completed its sale to Grubhub after past 2 years. Despite this, both companies remain closely linked.

From the Yelp platform, consumers can now order meals, with Eat24 and Grubhub assisting with the ordering. When the Yelp platform registers an order, a commission is generated in your favor.

Last but not least, Yelp makes money by making easier transactions through its website. In this way, it is directly related to its partners, so paying for a service or product. So, also here, a commission income is generated.

Another suppliers

Yelp offers the companies with which it collaborates, a wide variety of digital services and solutions. These include subscriptions and license fees to access Yelp data

There is one product, Yelp Reservations, which provides the platform with a substantial percentage of its revenue. For example, restaurant operators can use this tool to manage reservations online mode, SMS reminders sent, create waiting lists and more. Anyone who wants to use this tool must pay a subscription per month.

There is also another product, Yelp Knowledge, that offers data management. Interested businesses can manage location information, review types, and rating data. To access all this information, they must pay an annual fee.

Yelp Valuation, Financing & Income

According to information supplied by specialized sources, Yelp raised around $56 million in venture capital funding in just six rounds. Its notable investors include Bessemer Venture Partners, Benchmark, DAG Ventures, and Max Levchin (PayPal founder). Can you believe it? whoever lent the money for the startup is now one of their main investors.

In March 2012, during its initial public offering, Yelp raised more than $107 million. At that time, some investors stated that the company was about $898 million. Yelp currently commands a market cap of close to $2 billion.

In the year 2019, Yelp announced more than $1 billion in profit. This represented a profit increase of 8% if compared to the previous year. The profit for the same period was reported as $40.8 million.

Yelp Business Model FAQ

When do Yelp reviews expire?

They never expire. All reviews of any particular business are taken into account towards your overall rating. This is done regardless of its age.

How much does Yelp cost?

It’s totally free. You can create a commercial page with only paying $0. If you then add a button for your customers to ask you for quotes on your products or services, then you will only pay $1 per day.

How long does it take for a Yelp review to post?

Usually between 24 hours and a week. Once a user updates a review, Yelp will take 24 hours to a week to review it. Reviews removed or not published due to violations of the regulations will be immediately notified.

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