Yelp: Buy or Sell?

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In a recent discussion with digital marketing experts including brand and agency execs, Location3 VP of Strategy Tom Lynch shared some insights that we thought were worth sharing to a broader audience. The topic of discussion was Yelp and its impact on brand and SMB marketing. Following are some of Mr. Lynch’s insights.

What is your outlook on Yelp for 2016? 

Finance and marketing experts seem to be split on this topic. The recent Yelp earnings statements have them reporting quarterly earnings per share of $-0.29. They had been projected to post $-0.03 earnings per share, and that’s a big difference. The stock price is at $20.34 per share, but forecasts range anywhere from $12 to over $40 in the near-term future, so financial experts seem to be split.

In the marketing world, you get similar opinions. I understand the negative outlook many have had with so much historical bad press on review algorithms and alleged manipulations. Additionally, I understand they have had a hard time consistently generating revenue, but look at Foursquare. I can’t tell you how many times I’ve heard Foursquare is dead, but they keep hanging in there. I think Yelp and Foursquare are really on the same trajectory. Any mobile app with a strong, steady user base has growth potential moving forward.

Whether Yelp succeeds or fails will depend on how agile they can be in expanding beyond their existing features and their “reviews” identity. Foursquare is doing some cool things with IDFA’s tracking integration into apps and leveraging data to build a location-based network. If Yelp can begin to leverage areas like this, or beacon technology, they could be on the forefront of the in-store marketing boom. They have a ton of data, loyal users, loyal reviewers, and the app requires location-based services tracking be turned on. Not only could they track Yelp users through to conversions, but they could market to them at every step along the user conversion path and beyond. So I have a “buy” outlook on Yelp.

Do you think your client’s spend will increase, decrease or remain flat over the next 6-12 months on Yelp?

Estimating clients spends is tough. Brands have finally begun to get really excited about Facebook spends starting last year because it has been converting so well. Currently on average, brands spend about 11 percent of ad budget on Facebook. I’m not sure what that is for Yelp (or for SMBs for that matter since we don’t technically work with SMBs), but I’d guess it’s closer to 2 percent, but it depends on the vertical.

By the end of the year, brands will probably be up to closer to 14 or 15 percent of spend on Facebook. So since I see a lot of growth focused on Facebook in the near term, I would estimate that Yelp spends will likely remain somewhat stagnant over the next 6-12 months.

Has Yelp proven to be an effective channel to win new business for your clients? How does Yelp perform versus other digital channels?

Yelp has really good data when it comes to actions, impressions and reviews. If you’re not doing a paid campaign, then typically those profiles are full of bad data. We have seen historically that when you begin a paid Yelp program, and get more accurate and enhanced content into the profiles, the listings rank better and engagement metrics increase; sometimes up to a 140 percent increase.

On the flip side, the programs can be relatively expensive. We manage some “smaller” brands in the restaurant vertical for example that have around 100 locations or so, and it may not make sense for them to focus on Yelp with their budget limitations. So we will primarily recommend mediums that generate a more certain ROI such as Google with the intention of potentially expanding into areas like Yelp campaigns once we’ve maximized search impression share on Google.

Does Yelp’s volume of reviews give the service an edge over other sites with less content? What are your clients doing to deal with negative reviews?

Yes, other sources certainly feel that Yelp review data is valuable. Google pulled it into their local results until Yelp took them to the FTC, and then they just began to put more focus on users creating their own G+ reviews. Yahoo, Bing and Apple pull in their reviews, which gives Yelp a broader reach into those user networks. So yes, it gives them an edge.

In terms of dealing with bad reviews, we work with brands as opposed to SMBs, and if you have a branded profiles paid Yelp campaign, you’re able to assign users to get new review alerts and then respond to the reviews for any brand location. You can do that without having to claim each business individually and create usernames and passwords for each profile. That’s a really helpful feature for efficiencies of scale in responding to reviews. That is probably the common agency and brand approach: address the negative reviews either offline or online, and sometimes even address the positive reviews as well, when applicable.

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Can Yelp expand its identity and become more than just reviews? And will its current relevance entice brands to spend more, much like we’re seeing with Facebook? It will have to navigate the same complex path as Foursquare. But given the impressive engagement metrics and significant content edge it has over other sites, Yelp is a “buy” in our book with the caveat that it isn’t a one-size-fits-all solution for every business. Stay tuned.

 

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