Yelp Business Model | How Does Yelp Make Money?

Small businesses and new businesses require long-term opportunities. Therefore, they need to utilize all available options to increase their online presence and attract more customers. 

Founded in 2004, Yelp helps people find more businesses online and assists them with their local searches.

Throughout this endeavor, trust has remained a vital aspect. People are generally skeptical of websites that advertise themselves as legit. 

Customers will find reputable local companies through Yelp, which is recognized as a trusted and accountable entity.

You can purchase event tickets, order flowers, set up salon appointments, and even have meals delivered using this website, all while getting excellent customer service. 

Yelp has become an important part of the marketing strategy of many companies around the world.

Yelp is a review tool for local businesses. Yelp earns most of its revenue from advertising on a pay-per-click basis, allowing firms to target their ads to users across the site. 

Yelp business model also generates revenue from transaction fees (commissions on deals) and subscription services.

Yelp was founded in 2004 by two former PayPal employees, Jeremy Stoppelman and Russell Simmons. 

The idea was to create an ’email circle’ in which friends could discuss companies.

Yelp has become one of the largest platforms for connecting people with local businesses. It allows users to locate, book, and evaluate local businesses.

In addition to the mobile app, the platform is available on the web and in 32 countries.

What is Yelp?

Yelp is an online business directory that enables users to research and learn about local businesses such as bars, spas, and nail salons.

Yelp is a review website that allows its visitors to learn about local businesses such as cafes, spas, and repair shops.

Yelp Business Model

Yelp earns money by offering targeted ads to businesses on its network, commissions from partners, and subscription revenue.

Yelp is based in San Francisco, California, and was founded in 2004. Since then, it has evolved into one of the world’s largest online review sites. The platform is visited by more than 178 million people every month.

Yelp Business Model

Yelp is a social networking site that allows users to find and review local businesses. 

Yelp is different from other online directories in that it encourages its users to communicate with other Yelp users and businesses. 

Users can also create Yelp accounts, add friends, participate in forums, and attend offline events. 

Those interested in joining the Elite Squad can also write well-written evaluations, upload high-quality images, and fulfill other requirements.

However, Yelp Business Model is geared towards small and medium-sized businesses that can register for free. 

Customers can customize their profile, access company analytics, and reply to customer feedback. 

Furthermore, these businesses can attract more customers by targeting their advertising.

Yelp Reviews

Yelp business model has always been based on customer reviews. Reviews on Yelp are more creative than other review platforms because customers are free to describe their experiences. 

Furthermore, this platform’s review component allowed it to capitalize on the network effect. Reviews help users determine what they truly want; after using the service, these consumers become reviewers.

Considering that reviewers have a vital role in an organization’s working model, the corporation established a new wing of Elite members – the website’s best commentators – in 2006.

Yelp Elite

Yelp recognizes community members who provide quality reviews, great tips, a comprehensive profile, and other factors. 

Verified users are the platform’s elite members. Online contributors earn compensation for their work and constructive feedback.

The method of identifying elite members has been praised on the website numerous times since it was introduced in 2006.

How Does Yelp Work?

Yelp gives consumers information about a business’s location, hours of operation, services offered, and consumer reviews.

You can upload photos and rate businesses on Yelp, which is user-generated content. Creating social proof can help firms generate more leads.

Users can also refine their searches by company type, price range, and additional features like outdoor seating or the option to book ahead.

You can access Yelp through its mobile and tablet app for Android and iOS and on its website as well.

Yelp receives over 178 million unique visitors each month, making it one of the most popular platforms in the United States.

How Does Yelp Make Money?

Yelp earns money by selling advertising products, transactional services, and other products and services.

Since you know the business model of Yelp, it is time to comprehend how it generates revenue. 

You’re wondering about how it produces money, aren’t you? So what are you waiting for then? 

Yelp’s success has been built on its review services. However, this site earns revenue from a variety of sources. In 2016, this review-focused social media network reached more than $713 million. 

That’s shocking, isn’t it? Advertisements are a significant source of revenue for our platform. Yes, you heard correctly. 

As with other social media platforms, Yelp generates revenue through advertising. However, you must keep in mind that this is just one of the numerous sources.

Businesses can place paid and free ads on Yelp. Further, it uses its mobile app and website to reach a wider audience with targeted search advertising. 

Advertising generated 97 percent of the company’s revenue in 2018. 

Revenues from Yelp advertising are based on the advertising items that their partners and companies sell. 

The company provides advertising-related services. Yelp earns most of its revenue from advertising items purchased by companies on its website (more than 90%, in fact).

Yelp charges businesses a cost-per-click (CPC) fee. So, every time a user clicks a business’s advertisement, a price is deducted from its budget.

CPC rates vary greatly by niche and geography. For example, restaurants pay a much lower price than more expensive services such as law firms.

The platform offers numerous options for advertising. For example, you may see them in search results or on competitor’s pages.

You can also advertise on Yelp using improved profiles. In addition, Yelp also offers premium services in the form of two tiers:

  • Branded Profiles come with premium features such as photo sliders, enhanced call-to-action buttons, a dedicated About section, and the ability to post videos.
  • Enhanced profiles offer all of the benefits of standard profiles, including the ability to remove rival ads.

Furthermore, firms can obtain a validated license, which serves as a seal of authenticity. A blue shield indicates verification with a check mark inside.

Yelp charges a monthly subscription fee for access to these improved profiles. Subscription prices are determined by how much a company spends on advertising. 

Pricing is reduced in proportion to advertising expenditures.

Lastly, Yelp’s Advertising Partner Program allows third-party advertisers to promote their partners.

Third-party marketers are allowed to promote the businesses they represent on Yelp. 

A revenue-sharing agreement will result in Yelp receiving a share of that advertising budget.

Transaction Fees

Yelp has added tools and capabilities to facilitate transactions between consumers and businesses better. 

Yelp’s income from this feature is 1 percent of the company’s total income.

Yelp earns commissions from third-party partners when it completes transactions on behalf of them.

Yelp generates revenue from four primary sources: Yelp Deals, gift certificates, Eat24’s relationship with Grubhub, and its platform.

Yelp Deals are prepaid vouchers that offer consumers an incentive to spend money at a specific business. Yelp will also receive a commission every time a coupon is redeemed.

Yelp Business Model

Gift vouchers work similarly. People often purchase them as part of gifts rather than for themselves.

Yelp acquired Eat24’s rights in 2015 and later sold them to Grubhub in 2016. However, the parties were still inextricably linked.

Consumers can now place meal orders on Yelp through Grubhub and Eat24, which facilitate the transaction. Yelp then earns commissions for every order placed through its site.

Lastly, Yelp earns money by enabling transactions on the Yelp Platform. 

Since Yelp’s app and website are integrated directly with partners, users can transact immediately. You can use their platform to purchase products or services now.

Gift Certificates and Deals 

Gift Certificates and Deals are a powerful marketing tool for expanding your reach, helping you to outperform your competition, and boosting your business.

Self-service models are adequate for reaching a more targeted audience with offers and gift certificates. 

An easy-to-use self-service plan allows them to do this easily. However, Yelp charges 30% of the total money spent for each transaction. 

Additionally, they charge 10% of the value of gift certificates. It is also one of Yelp’s revenue streams.

Yelp Reservations 

Businesses can use Yelp bookings as part of the self-service package similar to gift cards. 

This tool will enable restaurants to display the option of making a reservation on their profiles. Yes, you heard it right. 

Users can then book a room immediately after reading reviews-instant results for restaurants. Yelp will also offer restaurants all the necessary hardware and software. 

Yelp, however, charges eateries a small monthly fee. As a result, it will cost approximately $249 per month. 

Self Service Program Tools 

The business that chooses this plan will receive all the services associated with a self-service program. In addition to this, they will also receive all the complementary tools. 

You can view a complete list of the services businesses receive when they opt for self-service above. A few of the services available on the site are reservations and profile improvements.

Profile Enhancements

Self-Service subscriptions include a variety of powerful premium tools such as Profile Enhancements. 

There are other ways businesses can benefit from profile development besides gift certificates,  promotions, and bookings. 

Businesses using this platform can customize their profiles by adding call-to-action buttons and slide shows. 

Customers can also prevent competitors’ advertisements from appearing on their profiles. That’s the best feature, isn’t it?

Online Ordering 

Yelp also makes money from online ordering. But, again, it is a feature that both the free and premium plans offer. 

However, businesses should keep in mind that they will be charged an additional 12.5 percent on the subtotal of each order.

Video production and Hosting 

When a business opts for a full-service plan, it receives this added video production and hosting service. In addition, companies can arrange for a professional film of their operation to be taken. 

Yelp sends a cameraperson to the establishments. You can show off this professionally produced video on your Yelp page, which will give users a better idea of who you are.

Dedicated support from Yelp

The Yelp team will provide you with dedicated support as part of this package. Businesses must have support when unforeseen circumstances occur. 

Yelp Business Model

Through this plan, the business will receive the assistance it needs. In the event of unforeseen circumstances, tIn addition, the crew will be available for service.

Success Story of Yelp

Yelp was founded in 2004 by Jeremy Stoppelman (CEO) and Russell Simmons in San  Francisco, California.

Both founders earned degrees in Computer Science from the University of Illinois.

After graduating from college, they worked for PayPal as software engineers – alongside luminaries like Elon Musk, Peter Thiel, Reid Hoffman, and David Sacks.

They both spent their early twenties as leaders of big technical teams at PayPal.

The two companies parted ways in the summer of 2003, a year after eBay acquired PayPal for $1.5  billion. Simmons developed a fresh startup concept while Stoppelman earned a  Harvard MBA.

Their different ventures culminated in their re-teaming after a year. 

They contacted Max Levchin, a co-founder of PayPal who founded a startup incubator to collaborate on a new idea.

Seeing their potential, Levchin invested $1 million in each of the men to pursue any idea they deemed valuable.

Craigslist was beginning to alter the newspaper industry drastically by absorbing their classifieds sector.

They found that other media verticals had not yet been impacted by the internet’s advent when they scanned the Yellow Pages.

The final spark was Stoppelman’s illness and needed for medical attention. 

His search results contained either irrelevant or obtrusive offers, which is unfortunate.

He started thinking: what if there was a way to collect what other people feel about specific services (ideally in their immediate vicinity) and make them available online?

The founders immediately worked 90-hour weeks to code the initial version of what would become Yelp. Yelp was officially launched in October 2004.

While they received some initial news coverage, many visitors were unaware of the platform’s purpose.

Since there were no written reviews on the platform, new users could not sign up. Additionally,  staff became increasingly dissatisfied and left the company.

They had to start over and come up with a brand-new idea because they failed. So Yelp was created as a Quora-like site, where users could ask each other questions.

As a result, they found that users of the site spent countless hours writing reviews, sometimes as many as 15 per day.

They redesigned the site in February 2005, emphasizing user feedback. Consumers immediately grasped the concept and flocked to the website in their millions.

Yelp’s website had grown to 1.5 million monthly visitors by 2006. 

The company‚Äôs success enabled its founders to raise their first venture capital rounds, a $5  million Series A and a $10 million Series B.

Some Yelpers have even developed a local following. It is because terrific amenities being visited solely to submit a Yelp review. 

A peculiar endorsement came in the form of a mention in a South Park episode (titled  ‘You’re Not Yelping’).

Yelp Elite, a group of hand-selected reviewers known for writing high-quality reviews, contributed to this trend. 

Users’ profiles were subsequently enhanced with badges indicating their membership in that group.

Even other acquirers rose to prominence as a result of the steady ascent. For example, Google allegedly offered Yelp $550 million (plus earnouts) in 2009, but the deal ultimately failed. 

The team chose instead to remain autonomous. In response, Google developed a competing service called Google Places, which eventually became Maps.

Russell Simmons, co-founder, and CTO resigned from his post in 2010 and became an advisor. 

His sole desire was to travel and embark upon new endeavors while away from work.

Yelp gained more users despite his departure. It received more than 22 million reviews by 2011 and now serves 529,000 venues. 

The company had already set up branches in countries such as the  United Kingdom and France.

Yelp’s sustained growth led to the company going public in 2011. 

Aside from this, Yelp’s IPO demonstrated its rapid growth, with revenues jumping from $12.1 million to $47.2 million.

The money Yelp had in the bank allowed it to go shopping as well. The company purchased its most significant competitor in Europe, Qype, for $50 million in 2012. 

YELP entered the food delivery space when it acquired Eat24 for $134 million in 2015 (the company was eventually sold to Grubhub for $287.5 million).

Yelp’s enormous success has not stopped many people (particularly business owners) from expressing strong reservations about the company’s sales techniques. 

Yelp was sued by Cats and Dogs Animal Hospital in Long Beach for extortion in 2010.

According to the plaintiff, a Yelp sales representative allegedly called the hospital and offered to erase unfavorable reviews in exchange for a one-year advertising package. 

As part of their commitment, they also promised to remove negative reviews from  Google and other platforms.

When the hospital declined to purchase the bundle, its profile page received several bad ratings. 

Several other lawsuits have been filed against the firm over the years, but none have been successful. A year later, in 2015, the FTC closed its investigation into Yelp.

Yelp’s business performance gradually deteriorated, while its legal success remained intact. CEO Stoppelman attributed the reason to Google.

The collaboration between these two platforms began during the mid-2000s (Google uses Yelp’s API for its review data) but has now devolved into a full-fledged conflict.

The Stoppelman group (along with many other organizations, including TripAdvisor) have frequently accused Google of using content from their website to deliver to their visitors (in the search results). 

A 2012 settlement even included a promise from Google not to scrape Yelp’s content for use on its platform. 

The corporation regularly violated these agreements, according to Stoppelman.

Therefore, Stoppelman’s responsibilities have gradually shifted toward becoming a prominent presence in Washington, where he regularly speaks with regulators. 

There have been no lawsuits filed against Google so far.

Yelp has also encountered some internal difficulties. 

Talia Jane, an employee of the company, wrote an open letter in 2016 detailing poor earnings received by many of her coworkers. 

She was dismissed less than two hours after sharing the essay on Twitter.

Recently, even more employees have been forced to depart Yelp due to the coronavirus pandemic’s ill consequences. 

Yelp said in April 2020 that it would need to lay off 1,000 employees, or 17% of its workforce.

Yelp has amassed almost 220 million reviews to date. 

Additionally, Yelp is active in over 500,000 cities worldwide, making it one of the most extensive review sites in the world.

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Key Takeaways from Yelp Business Model

Yelp is an online review site that collects reviews for businesses in the vicinity of the searcher.

Yelp gets 90% of its revenue from cost-per-click (CPC) advertising. In addition, businesses can serve tailored advertisements throughout their entire website based on the demographics of their users and the region they operate in. 

Yelp Business Model

Yelp also offers advertising on business profile pages, with fees based on industry and ad spend.

Yelp also makes money by facilitating transactions involving vouchers, gift certificates, and other local platforms. 

Additionally, it supports transactions through Yelp’s app and website.

What is the Revenue of Yelp?

Yelp generated revenue of over 872.9 million dollars in 2020, a significant decrease from the 1.01 billion dollars in the previous year. In addition, the global COVID-19 outbreak severely impacted Yelp’s business.

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What is the Funding and Valuation of Yelp?

Crunchbase reports Yelp has raised $56 million in venture capital funding over six stages. Affirm, Benchmark Venture Partners, Bessemer Venture Partners, DAG Ventures, and PayPal co-founder Max Levchin are some of the company’s notable investors.

Yelp was able to raise an additional $107.3 million at its March 2012 initial public offering. Public investors valued Yelp’s firm at the time at $898 million. Yelp now has a market capitalization of $2.93 billion.

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