2/8/11 Yelp, Will They Make a Profit?

Yelp has taken a unique position in an effort to diversify itself from its largest competitors.  The company relies and succeeds on its position to be a site where reviewers can post freely and readers can learn about all the local hot spots.  Yelp attracts both reviewers and readers because of the brand’s ability to create a sense of community.  Many of Yelp’s most loyal reviewers were drawn to the site because of the limited constraints placed upon them.  Reviewers want to write about how they feel and what is on their mind to both inform readers and have fun sharing their witty comments.  I believe Yelp’s efforts to turn to a sponsorship program where company’s pay sponsorship fees in order to have access to an account manager caused controversy for a reason.  This idea that company’s can pay to have negative reviews moved around has not only given establishments negative views of Yelp’s purpose, but it could also take away from the sole reason reviewers want to continue posting through Yelp.  I do however believe Yelp can make money from impression or click through based advertising, but the sponsorship system seems to take away from their current positioning. 

I think Yelp’s best option is to solely charge establishments for impression based or click through advertising without the sponsorship system or change the monetization model completely to charge readers for access to Yelp reviews.  Charging readers does present a new challenge for Yelp which will be to retain their reader base despite additional costs.  Yelp will only be able to do this if they are confident that their readers are loyal and will continue to stay loyal despite the added charge.  Before taking action Yelp must study their visitor habits and determine if visitors read reviews infrequently and spontaneously or if they continuously search Yelp for their needs and answers. 

It is inevitable that Yelp be worried about Google hotpot because they are essentially in the same business and are using a friend based approach to finding reviews which is similar to Yelp.  Google however already has a much larger customer based which Yelp has yet to gain.  The international aspect on Google hotpot also poses a challenge for Yelp.  Customers who travel a lot for business or pleasure will choose Google over Yelp since Yelp has not yet expanded internationally.  I also think Google’s addition of recommending places based on a customer’s previous ratings and posts is extremely effective and allows for customers to feel like Google understands or knows their preferences thus creating a more personalized customer experience.  In order to be successful with Google hotpot lurking around, they need to maintain their position as a tightly held community where reviewers have complete freedom to make posts.  Thus I stand by my recommendation that Yelp avoid Sponsorship fees.