Deal Radar 2008: Yelp

Yelp is a popular site where users review trendy and not-so-trendy local businesses in their city. Yelp users can write reviews, read reviews, discuss topics and share their opinions and experiences with others on an endless list of topics such as restaurants, stores, hairstylists and real estate brokers. Started in 2004 in San Francisco, the site has expanded to cover cities in 37 states, with an aim to go international.

Founded by Jeremy Stoppelman and Russel Simmons, both formerly of Paypal, Yelp has carved out a niche for itself in the world of review sites. It has overtaken its closest competitors like Citysearch, who now seem like the Yellow Pages in comparison. What Zagat guides were to restaurants, Yelp is to an assortment of local businesses.

I am a fan of Yelp. Among other such stories, my most recent delight was finding an absolutely fantastic but carefully hidden Japanese restaurant in San Francisco called Eiji where we had authentic delicacies from hamachi kama or yellowtail cheek to ankimo or monkfish liver. On Yelp, readers had raved about oburu tofu.

Yelp’s angel round was funded by previous employer Max Levchin, co-founder of Paypal. The company raosed a $5 million Series A from Bessemer Venture Partners and a $10 million Series B from Benchmark Capital. In an attempt to expand its presence in more cities nationwide, Yelp has garnered $15 million from DAG Ventures in a fourth round of funding at a valuation in the range of $200 million. Revenues are in the sub $10 million range. (Source: TechCrunch) Ads and sponsorships range from $200 to $2,000 a month.

$31 million in funding, $10 million in revenue, and a $200 million valuation … pretty bubbly? The thinking driving Yelp’s investor euphoria is the holy grail of local search and advertising, a $100 billion a year market that was previously dominated by the Yellow Pages, and is now turning. [Read Cal McElroy’s It’s About Place.]

The driving force behind Yelp’s popularity is its simple user interface, wide fan base of reviewers and the opportunity to get recognized and complimented by others for one’s reviews. Yelpers are rated on a star basis, and Elite Yelpers very often get invited to previews or opening parties at shops, galleries and restaurants.

The stats are noteworthy: approximately 8.3 million uniques for February, and over 2.3 million reviews. (Source: TechCrunch) With a free ‘content producer workforce’ of reviewers, relatively low operating costs, and wide popularity, Yelp is an attractive acquisition target for one of the large Internet companies like Google that are going aggressively after the local search/advertising market. Microsoft and Yahoo, currently busy elsewhere, could also find the company attractive, as could IAC and News Corp.

On the other hand, if Yelp can scale an ad sales force, they also have enough user uptake momentum that scaling the company as an independent property would also be very interesting proposition. However, scaling an ad sales force isn’t easy, and most publishers have difficulty with this part of their business. Especially, in Yelp’s case, advertisers are a highly fragmented bunch.

This segment is a part in the series : Deal Radar 2008

Comments

I was told that lots of their reviewers are paid reviewers. Also, they like to organize parties in cities and invite reviewers so that they feel obliged to review after that.

vanguyafo Tuesday, April 1, 2008 at 1:12 PM PT

That’s a lot of paid reviewers, then.

Sramana Mitra Tuesday, April 1, 2008 at 1:31 PM PT

I have a question. Do you think that all of these product, restaurants, local biz, travel review type sites actually have people who are ready and willing to review/contribute for free and that frequently. Seems too good to be true. I think money talks, but I don’t know what percentage are free willing reviewers and what percentage are paid reviewers. Any insights?

vanguyafo Tuesday, April 1, 2008 at 2:25 PM PT

I don’t think Yelp has been as popular in other areas as in Bay Area.
The “content producers” are completely different crowd, usually in the late teens and 20’s and credit to yelp for keeping them engaged with extravagant parties and stuff like that
Still, I am not sure they are catching on lot of serious folks ( I mean older !!). But Facebook didn’t either and someone made the company a $15 billion value one. Strange world !!

Balaji Ganesan Tuesday, April 1, 2008 at 6:32 PM PT

Yelp wasn’t started in 1994. Maybe 2004?

Eric Wednesday, April 2, 2008 at 10:47 AM PT

yes, thanks, eric.

Sramana Mitra Wednesday, April 2, 2008 at 10:50 AM PT

I was dumped off Chicago Yelp, unceremoniously, after daring to call out an Elite member for being quite brutal towards me. Their answer was to get rid of “the trouble maker”.

With great power, comes great bs.

Here is the blog:

http://heavenyelpus.blogspot.com/

Max Power B. Monday, April 21, 2008 at 8:43 PM PT

Initially I had great fun using yelp as a means to journal for posterity. Reviews stacked up to several hundred and I enjoyed a couple events and hung out with a few. Then I decided to symbolically wipe it. When I came back my ID was taken by another. I opened under a new account and wondered why the culture had become more unfriendly. I found the name I selected wasn’t as original as I thought. 🙁 It wouldn’t have been a problem if they weren’t in my state and was as opposite a person as possible! Then came pure viciousness and I observed negativity like never before. I remained silent. Yikes. What happened to what used to great fun?

JB Tuesday, April 22, 2008 at 4:57 PM PT

Live and learn.

JB Tuesday, April 22, 2008 at 5:01 PM PT

A good 50% of the reviews are written about fast food places, frozen yogurt and hamburger joints. A huge portion of reviews don’t focus on the food or business, but some personal story about the reviewer. Many reviewers enjoy writing about themselves more than the place they visited. There is a lot of foul language and filth talk in the reviews. There is also a large number of fake reviews posted by the business owners trying to game the system for a 5 star rating. This is more comedy than serious information.

Jake Wednesday, April 23, 2008 at 10:15 AM PT

Yelp can’t be taken seriously. It’s just like AOL chat for kids and hip 20 somethings. Most seem to be unemployed or in college. Businesses need eyeballs from people with money to spend. Yelp is not the place to advertise for folks in the 30 to 50 age bracket. If you’re a bar or trendy place perhaps.

There are tons of fake reviews, paid reviews and worthless reviews.

As in anything, you get what you pay for.

David R. Friday, October 10, 2008 at 10:59 AM PT