Yelp Business Model: How Does It Make Money

Yelp Business Model: How Does It Make Money

Every small startup requires has needed an opportunity that benefits them in the long term. Every startup needs to utilize any resources that they have in order to get more exposure and attract more customers to their businesses online. Similarly, Yelp is known to be a brand of its own and was created to enable people to access more businesses online. Yelp has been recognized as a verified and accountable entity in which people can place their trust and access good local businesses.

Company Name Yelp
Headquaters San Francisco, California, USA
Founded On 2004
CEO Jeremy Stoppelman
Employees 6030 (as of 2018)
Annual Revenue $942 Million (as of 2018)
Products & Services Yelp Deals, Home Services, Beauty & Spa services, Food, Health and Medical

Yelp users can not only search and review businesses but can also create a profile or become friends other users, chat on different online forums and can go for meet ups offline.  According to a report by the wall street journal, Yelp has set a price for their IPO which will sell at 7.15 million shares at a price of $12 to $14. That would value the company at $838.6 million at the high end of that range. The company has known grown because of getting users to write reviews of businesses, engaging them through social networking features and through search engine traffic.

The logo of Yelp.
The logo of Yelp

Yelp is now known to have 66 million different monthly visitors and more than 5.7 million mobile devices and has collected a total of 25 million reviews since it came out in 2004. As of Dec 31, 2018, Yelp has a total of 177.4 million reviews of local businesses.It also generates almost all of its revenue from advertisements like for example in the year of 2011, 91.4% of its revenue came from advertising.

Not only that, it generates its revenue from two different kinds off advertising. First is the local advertising from businesses that want to be featured on yelp which is 76.8% of total revenue and the second one being Brand advertising that displays ads on in order to get more traffic from search engine.

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Yelp Business Model

Yelp has an average of 28 million mobile application visitors, 74 million unique mobile web visitors and 83 million unique desktop visitors. The yelp business model is something you should definitely be aware of because it is online business directory which lists and makes local businesses visible to users it also differentiates itself with the crowd sourced reviews of those businesses on its platform. Furthermore the company has expanded its business model by adding reservation services and food delivery and take out services. The business model includes factors like:

Customers prefer to use yelp to find local businesses
Customers prefer to use yelp to find local businesses 

Customers of Yelp

Yelp has 3 customer segments or target audience which include Local business, user and content creators/contributors:

  • Local businesses are segmented on the basis of Location, Type of service, Restaurant Cuisine, Price point, hours of operations, food delivery and takeout.
  • Users are divided into demographics, location, interests and spending profile.
  • Content contributors include the community of active reviewers that are constantly engaged in fun social exchanges.
The different ways Yelp helps a customers along with the local businesses
The different ways Yelp helps a customers along with the local businesses

Value preposition of Yelp

  • Local businesses – when it comes to local business yelp is a trusted platform because it gives them the opportunity to engage with a large audience and increases their visibility while also sourcing their target audience. It gives the businesses an opportunity to increase their revenue, provide them business data and take care of reservation and wait list management.
  • Users – the platform helps uses by giving them an opportunity to browse local businesses, discover new places, save time and money, see pictures and videos, compare prices, read reviews and make better choices.
  • For the content creators – Yelp invests a lot in engaging and fun content which makes it easier for the users and businesses to interact with each other but when it comes to content creators it company offers them recognition in yelp elite and they can also get invited to special events and more.

Customer service done by Yelp

The high quality customer service is also one of the reasons why Yep business model is so successful as it offers services like:

  • Self-service platform, which makes it possible for its users to serve themselves anytime easily and effectively.
  • Yelp is also transparent when it comes to reviews, rating, tips, photos and ensuring that it is always easily accessible to its customers online.
  • Build a brand reputation for your local businesses and also makes considerable efforts in managing their brand image.
  • Yelp allows its users to place food orders directly without leaving the platform.
  • Yelp allows businesses to interact with their customers in a friendly and approachable manner with features like Request A Quote, a direct response to reviews, Yelp reservation, etc.
  • Yelp is successful when it comes to establishing a flourishing community of users, content contributors and other local business that interact with each other.

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How does Yelp make Money

The company makes most of its money through service programs which can be both self-service and full service. The other money making strategy is invested in its advertising and profile enhancement services that benefit the businesses greatly. The categories are as follows:

Yelp provides businesses with both paid and free advertising products. It also utilizes its website and mobile app to deliver targeted search advertising to a broader audience. In 2018, 97% of its revenue was generated because it was dependent on advertisement. All the advertising products sold by their partners and business listings are recognized as yelp advertising revenue. It offers services that come under the umbrella of advertising, which are:

The breakdown of Yelp Reviews
The breakdown of Yelp Reviews
  • Enhanced – The purpose of this product is in order to prevent other business ads from appearing on the business listing pages of enhanced profile business customers.
  • Branded Profile – This feature is a business’s purchase a branded profile program to ensure that they are provided with premium features to increase their business listings. This allows the businesses to choose their preferred method advertising  done by videos or images which are best suited to portray their portray their slideshow feature or simply updating their listing information.
  • Yelp verified license – In this feature the yelp business listing page offers a paid upgrade license which appears like a badge. It is specifically only for the licensed advertisers and their local or home services category.
  • Ad Re-sales – Yelp can also resell some of its advertising products to generate more revenue and is done through their partnership with certain agencies like DexYP. It has also launched its yelp ads certified partners programs in 2018 to allow its collaborative agencies so they can manage to sell ad campaigns at the behalf of their business clients.

Transaction revenue

Yelp has come with other tools and features such as ensuring transactions between their consumers and businesses which are facilitated appropriately. This features accounts to 1% of yelps total revenue. These include services like:

Revenue Dec 2018 (in million) % of revenue
Advertising $907.49 97%
Transactions $13.69 1%
Other Servives $21.59 2%
Total Revenue $942.77 100%
  • Yelp Platform – Through partner integration, the company enables its consumers to proceed with their transactions on the yelp website or app. Consumer can order any products they want in the ranging from show tickets to flowers.
  • Grubhub Partnership – The Company generates substantial revenue from their yelp Eat24 business. They did this by placing their orders through yelp Eat24 in which restaurants own arrangements with respective business and are paid a commission percentage fee.  Yelp sold this platform in 2018 and now offer the user to select from a wide range of restaurants.
  • Yelp Deals – This product has now created a large revenue for yelp especially when it allows the business owners to promote its services and products on the platform but at discounted rates.
  • Gift Certificates – The business owners can now sell gift certificates at a full price to the consumers that have yelp gift certificate products. The cost of this service however ranges from $10 up to $500.

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Full service Program

Yelp Full service program provide all Yelp free tools and self-service program tools plus targeted Yelp ads, upgraded business page features and dedicated support. The business who buy full service program get:

  • All the free tools – all the tools of the free suite to showcase the business and connect with the yelp community.
  • Video Production and hosting – Yelp sends a videographer to produce a professional video for the yelp business page on which businesses buy full service program.
  • All the self service program tools – it includes online shopping, reservations, profile enhancements and the deals and gift certificate
  • Dedicated Support – businesses which buy full service program are entitled to dedicate support by yelp staff.

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