Yelp’s Stock Took a Dive. It’s the Beginning of the End.
When was the last time you used Yelp? If your attention (and/or ire) has wandered more toward instantly accessible Google reviews or meticulously curated Instagram feeds in recent months, you’re not alone: Yelp revealed during an earnings call last week that the review site is struggling to attract and retain advertisers — the primary way it makes money. That revelation resulted in a 30-percent stock plunge, leading some to wonder if the era of Yelp is coming to an end.
Launched in 2004 by former Paypal employees Jeremy Stoppelman and Russel Simmons, Yelp was the first big success story in the early days of user-generated reviews, fueling rapid growth that led it to a 2010 IPO. These days, competition is much stiffer: “It’s not just Google Maps and location-based sites that Yelp has to compete with, but social media channels as well,” says Jenifer Ekstein, a senior consultant at Vivaldi. “If you want to see what the food looks like or who has been eating there, a quick search on Instagram will pull up thousands of pictures and ‘reviews’ in a different form. There is definitely not a shift away from user-generated content or reviews, people are just looking for them in different places as new channels and ways of sharing come about.”
Part of the Yelp’s woes seem related to its new no-term deals, meaning advertising clients are not locked into a contract. While that move initially resulted in a jump in new accounts, it also means businesses aren’t obligated to continue to advertise if they’re not impressed with the results of their advertising — and seemingly, more and more business owners are taking their ad dollars elsewhere, especially as diners flock to other platforms. “I opened a new restaurant a few months ago, and for every five Google reviews we get, we get maybe one Yelp review,” says Danny Teran, co-founder of the NYC-based Watson Hospitality Group. “Three or four years ago, that wasn’t the case.”
Teran says he’s shifting his advertising dollars toward Instagram and working with influencers, avenues where he says he sees a better and faster return. He cites a recent collaboration with NYC-based Instagrammer @foodbabyny, who has 308,000 followers. Teran says that collaboration netted one of his restaurants 400 new followers and dozens of new customers who said they came in after seeing the influencer’s post.
Dallas-based restaurateur Jay Jerrier, who owns 10 pizzerias across Texas including Cane Rosso in Dallas, Houston, and Austin, says he and his staff hardly ever look at Yelp anymore: “Maybe every two or three months to see if there are any specific service issues,” he says, “or to spot check food quality from real guest photos.”
“For us it seems like we get more [reviews and feedback] activity on Google, Instagram, and Twitter,” Jerrier says. “It gives a much better opportunity to start a dialogue with someone who was happy or disappointed. Yelp seems very reactionary compared to other platforms.” The site has become notorious for retaliatory and spiteful reviews, frequently politically motivated and written by people who have never visited the business in question — such as the flood of bad reviews that were posted for Colorado’s Masterpiece Cakeshop after the bakery’s refusal to bake a cake for a gay wedding was upheld by the Supreme Court. While Yelp does police such things, typically posting an “Active Cleanup Alert” to notify users of the situation while it works to remove fake reviews, it has nonetheless affected perception of Yelp from a legitimate review site to a venue for social protest.
The human behind @foodbabyny, Mike Chau, says his enthusiasm for Yelp has “definitely waned a bit [over the last few years], but that’s more because of growing awareness that ‘Yelper’ is a dirty word in the restaurant industry and mostly everybody in food thinks that people that write reviews on Yelp are morons.”
He believes Yelp’s popularity amongst the average restaurant-goer is still going strong, though: “I don’t ever hear anybody talking about reviews they’ve seen on Google, but Yelp still remains as a common verb people use when they want to check out a new place or find out where to eat lunch,” Chau says. “I often get ideas on where to eat from stuff I see pop up on Instagram, but many people don’t follow food accounts and still need to use the local search features of Yelp to figure out where to go eat.”
Chau’s anecdotal evidence is seemingly supported by Yelp’s user numbers, which it says continue to grow each year, largely thanks to increased engagement on its mobile app. (Traffic from desktop users is down significantly year-over-year, which the company attributes to changes in Google’s search algorithms.)
But users undoubtedly now have many more options for uploading their food photos and reviewing restaurants, and many business owners have soured on the review site. As MarketWatch writes, “The bottom line seems to be that Yelp has a big trust issue, both with consumers and the businesses who advertise.”
Yelp’s also been navigating a long-standing rivalry with Google: In 2014, it accused the search engine company of prioritizing its own search results, even in user searches that included the word “Yelp.” It’s also no secret that Google and Facebook now dominate online advertising, with the two giants now responsible for 25 percent of all ad sales (online or off). Google has made numerous moves to make its restaurant search results increasingly useful to diners in recent years: Googling a specific restaurant now brings up a vast amount of data on the search results page, from address and opening hours to the menu, excerpts from reviews, and data on the business’s busiest times, including how long a diner can expect to wait at peak hours. That makes users searching for information on a restaurant less likely to bother clicking out to Yelp, unless they’re already a habitual user of the site or the app.
“I think their business model definitely has to evolve for them to survive,” says Judge Graham, an entrepreneur with a focus on digital marketing and advertising. “Right now, we’re in what I would a call peer-to-peer affirmation economy, and the ability to get your peers’ data or feedback is in so many more platforms now versus five years ago when Yelp was really popular. The competition has become so fierce for Yelp and there’s so many other [options] to get information and reviews [that] feel more authentic… On Yelp, you may not know the individuals with the reviews and now with social media, you can literally ask about anything on Facebook or Instagram and you’re immediately going to get feedback. You can go to a brand’s page, drop a comment, and get tons of feedback from people you actually know and/or people that you know for sure are real.”
Yelp has seemingly looked to streamline its business recently, selling delivery service Eat24 to GrubHub, but it still offers users the ability to order delivery through its app and website, as well as the option to make a reservation or add themselves to a restaurant’s waitlist. Stoppelman said on the company’s third-quarter earnings call that use of the reservation and waitlist features has grown 150 percent over the past year.
“With so many different avenues that people can now look to for reviews, Yelp needs to take a step back and evaluate the customer they are trying to reach,” says Ekstein, “and how to best target and engage with them to create a user experience that will differentiate them and allow them to capture some of the market share they have lost.”
“I would be sad to see Yelp die out because I’ve invested a lot of time into it over the years,” says Chau.
But like many restaurateurs, there’s been no love lost between Jerrier and Yelp, and his view of the company’s long-term viability is a bit more fatalistic: “If their stock is diving, I would just like to thank karma, give a hearty LOL, and a cheerful ‘Bye Felicia,’” he says.