San Francisco-based Yelp.com has built a Web site that allows users to read and write reviews of local businesses while building a vibrant community of like-minded individuals.
Its challenge looking ahead, according to analysts, is creating greater revenue for a company that has yet to reach profitability.
“They have been very successful in the cities that they have entered in attracting a viral, free audience,” said Matt Booth, an analyst of online directories with the Kelsey Group. “One of the questions early on is, ‘Can they take what they’ve done in San Francisco and extend it to other cities?’ and the answer is yes.”
Yelp was founded in 2004 by Jeremy Stoppelman and Russel Simmons, both formerlyof PayPal, after Stoppelman unsuccessfully looked online for a doctor with good recommendations.
"Nobody had it,” Stoppelman said. “My obsession became … how do we bring word of mouth to the Web?”
It is common for directory-style sites such as Yelp and its Los Angeles competitor Citysearch.com to offer user reviews. Yelp differs in its ease of use and its creation of a very enthusiastic community, users said.
“There was a social aspect to it. It wasn’t set up to become a social networking site, but it’s become something of that, because there’s a lot of opportunities to interact in person” said Yelp user Todd Eby, who organizes an unofficial weekly happy hour for Yelp users.
That factor is something Yelp supports, with elite membership for frequent and popular reviewers. Stoppelman said part of the social factor is that people tend to identify with and express themselves through the types of businesses they like to frequent.
With around 50 employees, Yelp has concentrated marketing efforts in eight cities, three of them new this month. It sells advertising in Los Angeles, San Francisco and Chicago. Businesses can pay for better placement or to upgrade their Web pages, but they cannot separate themselves from their reviews. The site also sells banner advertising to national brands.
The challenge will be to balance user experience with revenue, Booth said, explaining that increased ads after searches can please advertisers — but turn off users. Another challenge is that high-paying advertisers, such as doctors and lawyers, tend to be reviewed less frequently than restaurants.
Citysearch, which has 14.9 million unique visitors per month versus Yelp’s 3.9 million unique visitors in April, only broke even after a decade, Booth said. Stoppelman said the firm is on track to reaching profitability, but did not state a timeline.
The company received $10 millionin venture funding in November, Stoppelman said, and is presently focused on improving the user experience. For instance, it will soon allow searches by particularly qualities, such as whether a restaurant is child-friendly.