Yelp Business Model and SWOT Analysis – How Does Yelp Make Money?

Overview

Businesses on the internet still rely heavily on building trust with their customers. When an internet organization claims to be legitimate, most consumers are distrustful.

With Yelp, customers can find and read reviews on a wide range of local companies, including anything from coffee shops to salons to handyman services.

This corporate is a significant player in its field. In the eyes of the public, it has been established and acknowledged as a verifiable and reliable source of information with good access to quality local enterprises.

Company Profile

Company Name Yelp Inc
Website http://yelp.com/
Founded 2004
Founders Jeremy Stoppelman and Russel Simmons
Key People Jeremy Stoppelman – CEO / President; Laurence Wilson – Chief Administrative Officer; Carolyn Patterson – Senior Vice President of Revenue Operations; Jason Brown – Senior VP & GM of Restaurant Marketplaces; Jason Fennell – Senior Vice President of Engineering; Kayti Sullivan – Senior Vice President of Customer Success; Matt Halprin – Senior Vice President of Business Operations & Strategy.
Headquarter San Francisco, California, United States
Company Revenue $1,032 million
Key Competitors Google, Yahoo!, TripAdvisor, Foursquare, OpenTable, and Meituan.

What is Yelp? A Brief History

When it was first launched in 2004, Yelp was one of the most widely used internet directories for finding anything from restaurants to bars, hair salons, salons, and convenience stores.

Jeremy Stoppelman became ill with the flu in the fall of 2004. A few weeks after moving to San Francisco in the summer, he went on the internet in an attempt to retrieve a doctor.

In the year 2004, Jeremy Stoppelman was struck down with flu. A few weeks after moving to San Francisco in the summer, he went online in an attempt to locate a doctor.

All Jeremy could find were a few basic folders and a few meaningless tidbits. However, this bad experience gave him a huge inspiration to create this business idea.

When two ex-PayPal workers, Jeremy Stoppelman together with Russel Simmons, came up with the idea to enable friends to exchange company ratings freely, then they obtained $1 million in investment for a sophisticated “email loop”.

It was given the name Yelp. It is already ten years since the site was launched, with a remarkable $5 billion market capitalization and about 130 million active users every month to celebrate.

Shares in the company are now trading at about $68 each.

How Does Yelp Work and What Does it Offer?

So how exactly does Yelp work?

Yelp engages them through social networking tools and benefits from search engine traffic. Then customers can post evaluations of establishments on the platform.

Listed businesses are classified according to their category, and results are further refined based on their price range, location, and unique characteristics such as delivery service,  outdoor seating, or the capacity to take reservations.

To help you locate and interact with your pals, the company leverages Facebook immediately once you register.

You may look for the platform reviews on the company’s official website or throughout the company’s official applications for intelligent devices, both iOS and Android.

What does Yelp offer to its consumers?

On top of that, users of Yelp may be able to do as follows:

  • Domestic companies may be explored in a fun and educational way.
  • Avoid wasting your money and time.
  • Quickly viewing images and videos.
  • Take the time to browse customer evaluations before making a purchasing decision.

Yelp Business Model

Yelp’s business strategy is designed to benefit both companies and consumers. By linking customers with nearby establishments simultaneously, they are making a purchasing decision. There is a reason behind this.

Value Proposition

Exploration: The majority of customers may find domestic companies near them to satisfy their daily requirements. The company offers a framework for community businesses to promote their goods and services to potential buyers.

Interaction: Consumers interact with each other by posting reviews, suggestions, images, and videos on social media. Customers may also leave reviews and send messages to local companies.

Transactions: Using the platform, users can purchase meals or make reservations more closely with domestic stores, all from the comfort of their own homes.

The act that the contributors provide their content on the platform is the foundation of the company’s business strategy, and these communities are at the foundation of the company’s growth.

In addition to customer feedback and rating, these contributors, including reviewers, tipsters, photographers, and videographers, contribute extensive and first-hand information about local companies.

When it comes to Yelp, customer satisfaction is at the top of its list of priorities.

Yelp Unique Selling Propositions

According to the company’s 10K filing in 2020 claims that its capability to provide excellent content, a solid network, and the efficiency and dependability of its goods and services set it apart from the existing players in the market.

Also, its readership has a high likelihood of buying a product and is usually well-off. It predicts that more than half of our readership has a family income of at least $100,000 annually.

How Does Yelp Make Money?

Yelp has three primary income sources, including cost-per-click advertising, transactions, and additional services.

In 2020, this online-review platform produced $873 million, with advertising accounting for 96 percent of that total.

Let’s take a closer look at each of these sources of income.

Advertising

Small and large companies alike may benefit from the platform’s free and premium advertising options. Using these solutions, you may reach a big domestic market with highly focused search advertising.

When it comes to income, the company considers the money it makes from business listings and advertisements, including those offered via advertising revenue and partnerships.

In addition, the company generates 96% of its income from advertisements.

Among Yelp’s advertising options are primarily focused on Cost-per-click search ads and multi-location ads.

Setting up a company online account and claiming a listing site for every location is free of charge to companies, which is under the category of “Business Listing Page Products”.

Transactions

Additionally, the company provides consumer-connected solutions to make it easier for customers to transact with the Yelp-listed local businesses they are interested in.

Partner integration is the primary route to accessing these functions.

Customers may buy meals for pick-up and delivery via the company’s collaboration with Grubhub, which accounts for most of the company’s income and transaction volume, respectively.

In 2020’s report, only 1.5% of the company’s income will come from transactions.

Additional Services

Extra income sources for the company include licensing fees and subscription services for getting Yelp data accessibility and other non-transaction and non-advertising relationships.

Yelp SWOT Analysis

Managers at Yelp may conduct a situational strategic analysis using the SWOT analysis.  

When evaluating the areas of strength, weaknesses, opportunities & threats that the company. is experiencing in its competitive market, this method is beneficial for business decision-makers.

Strengths

  • Mergers and acquisitions of complementary companies have a history of success. Recently, it has effectively merged a variety of technology firms to simplify the process and create a trustworthy supply chain.
  • A thriving network of dealers: Among distributors and dealers, it has established a culture in which the dealers advertise the business’s goods and spend coaching the sales force to demonstrate to the client how to derive value advantages from the products.
  • A well-established distribution system: Because of its extensive distribution, the company can access the large bulk of its target market with relative ease and reliability.
  • Yelp’s goods have become more consistent in quality because of automation, which has allowed the firm to grow and shrink in response to market demand.
  • High Rates of Return on Investment: When it comes to starting new initiatives and bringing in new income sources, Yelp has had a great deal of success.
  • Extensive experience creating new products in product development and innovation.

Weaknesses

  • Products offered by the firm do not meet all customer needs. As a result, a new player in the market may be able to gain an advantage.
  • Compared to the industry average, the company has a lower profitability ratio and a lower net contribution percentage.
  • Not very good at merging companies from diverse cultures.

Opportunities

  • As consumer habits change, Yelp may expand into other markets and different categories of products, which would allow the company to generate new income streams.
  • Inflationary pressures have eased, allowing the company’s consumers to borrow money at reduced interest rates.
  • Technological innovation gives a chance for the company to develop a distinct pricing approach in the emerging market and keep its loyal consumers by providing exceptional services.
  • Increased trade as a result of a decision by the government: This is an excellent chance for the company because of the implementation of new technological standards and the free trade agreement from the government.

Threats

  • Over the previous two years, a fierce rivalry has placed a dead weight on earnings and overall revenue.
  • Accountability towards different laws and currency rates in different nations is shifting. Yelp may be susceptible to varied liability claims due to varying regulatory policies and unpredictable political atmosphere in those regions.
  • Replicating low-quality and counterfeit products poses a significant risk to its business, particularly in developing and low-income markets.
  • The company’s profitability might be threatened by increasing raw material costs and a scarcity of workers.