Yelp is cashing in on your reviews5/20/2015
Imagine you wake up tomorrow in Des Moines, and it’s 1985. Never mind searching for plutonium to power your flux capacitor, how would you figure out a good place to eat? There’s no Facebook to bounce ideas off your friends (who coincidentally are probably infants in the mid-’80s), just two options: look in the newspaper and ask strangers for their local favorites. Thankfully, there’s no need for you to find a way back to the future as we already live there. In 2015, recommendations and opinions abound on Facebook, Twitter, online circulars, blogs, and pretty much everywhere else that has the “www” prefix. Still, the majority of online review seekers turn to one site: Yelp.com.
Since 2004, Yelp has been the online site to discover public insight on practically any storefront, including restaurants, bars, grocery stores, pet shops, barbers, hardware stores and probably a handful of lemonade stands. Yelp has become so popular, it currently has more than 130 million users, generated more than $319 million in revenue last year and is a publically-traded company currently valued higher than Twitter. The Yelp tide is so high that the Wall Street Journal is reporting the company is looking to cash in on the wave of tech acquisitions by industry giants.
Since the Journal leaked Yelp’s potential sugar daddy hunt, its stock price has noticeably jumped, and whispers of suitors have come out. If rumors are to be believed, everyone wants a piece of the Yelp pie. Amazon, Google, Facebook, Apple, Yahoo and Alibaba (China’s version of Amazon) have all been outed as having interest in the review site. While Yelp’s user base is less than 10 percent the size of Facebook’s, it does have one thing these sites value — unfettered views into user attitudes and consumer data.
All of tech’s big dogs are perpetually hungry for user data. Why do middle-class females prefer to shop at Target instead of Walmart? Why are diners avoiding a particular local Mexican joint? Why are guys willing to drive across town for a specific barber? All of these questions are answered in-depth on Yelp by everyday consumers. Plus Yelp’s data will help larger companies drive new advertising metrics and attract new customers. So if Yelp’s data is valuable to the point where a company is about to grossly overpay for it, why does Yelp want to sell in the first place?
Well, as deep as Yelp’s data well goes, it has been a litigious nightmare to manage. It’s a funny thing about reviews: negative ones almost always get the reviewee furious, and in 2015, that equates to filing lawsuits. Over the last few years, Yelp users have been sued by business owners for honest, but negative, reviews. Yelp itself was sued in federal court by business owners for allowing anonymous reviewing, and there was even a class action lawsuit over bogus business reviews by customers who were never patrons of the business they rated poorly.
Accounting for all the legal costs, why would anyone want to acquire a legal mousetrap? Because Yelp’s data is just that valuable, and the potential buyers employ an army of attorneys ready in wait to pounce at the whiff of legal trouble. On top of all that, Yelp is a known brand that has stood for over a decade, and its fortunes have come on the back of small business ads, not the unfulfilled promise of social media billions. So next time you turn to the Internet to blast some hapless restaurant for a less than stellar burrito, know that your opinion is helping someone else make billions. CV