Yelp should be very concerned with not only Google Hotpot but also other websites such as Yahoo! Local and CitySearch. With many competitors around, Yelp risks being just another review website with not much differentiation. Also, popular websites such as Facebook and Twitter can expand their businesses to include services that are similar or even better than Yelp. Furthermore, these potential competitors have the advantage of well-established names and the network of friends, who users trust much more than several strangers on Yelp.
The first option is charging users for accessing the website. Yelp can charge differently to different groups of users and even give free access to some special groups such as Elite Squad, seniors, or military families. They can also use freemium models. However, due to little switching costs, this will drive away several users, who will likely join competitors’ website. Consequently, in the long term, Yelp is losing market share and can lose ground altogether unless it finds some ways to leverage its website to differentiate itself and bring more values to users. This may mean to turn this website into a high-end place for quality and trusted reviews by hiring “review experts” or giving more incentives to great reviewers. This option is very hard to implement unless it has very creative, innovative and dedicated technical team. This solution may also work only in the short-term since more and more companies offer free access with similar or even better services.
The second option is to invest more money and effort in the sales team, making them greater in number and more aggressive and creative in reaching out businesses for more advertising money. Different from the first option, this one does not guarantee that the time and money invested for the sales team will be made up and the sales team can even bring in more money. Another uncertainty is that no matter how smart and dedicated the sales team is, they cannot persuade businesses to sponsor if Yelp does not create more incentives for those businesses.
The third option is to partner with other applications such as Facebook, Twitter, and Microsoft Bing. This way, Yelp will get more exposure and build its brand name, thus getting more recognition and users. Business will be more likely to spend advertising money on Yelp. Yelp is already listed as a partner site on Facebook. However, it is hard to get the buy-in from other applications since they themselves can expand their services to include reviews like Yelp. Even though they agree to partner, there can be conflicts of interests or different business strategies that Yelp must depend, compromise or sacrifice.
The fourth option is to sell the business to whoever is interested. This is probably the easiest way, no longer worries about ways to get more revenues and be competitive. Then, Yelp just gets one-time money and the price offered may be far below what Yelp perceives. This may be a recommendation given Yelp services and the popular business model of free access from several websites. Also, social websites such as Facebook have more advantages since reviews or requests are among circles of friends, who we trust more than strangers on Yelp.
The fifth option is to reach out further, to countries with fewer competitions such as in developing countries, where there are no or few websites exclusive for reviews with the extensive interface and services in compared with Yelp. Yelp can have its website to be translated into local languages and hire local people to do the job. Since Yelp already has the website, it just needs to translate into different languages, so the cost of this translation is insignificant compared with what it had invested in the website. Yelp may use some models similar to “franchise” so it can reduce risks. This option definitely poses some risks. Doing business in a foreign country, especially with different language and culture, requires the management to be very adaptive and Yelp likely to be dependent on the local people to manage and operate.
Among these options, the third and fifth look much better given the harsh competition and this globalization trend. For the best solution, Yelp should implement both of them.