So, Is Advertising on Yelp a Ripoff or Not?

Yesterday on VentureBeat Rocky Agrawal inveighed against advertising on Yelp. Citing a Yelp rate card provided to him by a third party he argued the company charged SMBs what amounts to a $600 CPM while charging only a $6 CPM to large advertisers.

Here were the SMB-Yelp rates he posted:

  • $300/mo – includes 500 targeted ads per month
  • $540/mo – includes 1200 targeted ads per month
  • $825/mo – includes 2100 targeted ads per month
  • $1100/mo – includes 3000 targeted ads per month

Agrawal was also critical of Yelp’s model, saying it was more like a yellow pages publisher than an internet company:

Despite ostensibly being an Internet company, Yelp’s business model is closer to that of yellow pages companies: sell a questionable value proposition to many who don’t understand what they’re buying.

Later TechCrunch came to Yelp’s defense on a similar basis:

Yelp sits at the end of the purchase funnel in the demand fulfillment stage. Users often already have a need for a business’ services and are prepared to spend. They go to Yelp to determine which service provider will get their money. When a user searches for “dentists in San Francisco”, Yelp local ads let advertisers put their own search result with a link to their Yelp profile at the top of the results.

This “late in the funnel” or “directional media” use case is what historically made print yellow pages, and later IYP, so successful. It’s also what makes paid-search effective in most cases.

TechCrunch also argued that for many businesses “lifetime value” justified the higher Yelp rates. The TechCrunch writer, Josh Constine, also found a gem in the Yelp S-1 about advertiser renewal rates on Yelp:

From the quarter ended December 31, 2009 to the quarter ended December 31, 2010, the number of active local business accounts increased by 61% from approximately 7,000 to 11,300, and from the quarter ended December 31, 2010 to the quarter ended December 31, 2011, the number of active local business accounts increased by 109% from approximately 11,300 to 23,700.

Of the approximately 23,700 total active local business accounts for the quarter ended December 31, 2011, approximately 15,800, or approximately 67%, were existing advertisers from which we recognized local advertising revenue in the immediately preceding 12-month period, and approximately 7,900, or approximately 33%, were advertisers from which we did not recognize any local advertising revenue in that immediately preceding 12-month period. 

Yelp thus claims a 67% advertiser renewal rate, which is much better than most SMB channels out there. Nonetheless, I’ve always struggled with the question of advertising on Yelp. My view has been that if the SMB service is genuinely good and reviews are positive (and there are enough reviews) that’s sufficient; advertising would be unnecessary.

Yelp argues, however, that advertisers benefit through heightened exposure. It recently produced a video with SMB testimonials touting the benefits of paying for ads on Yelp.

What do you believe? Who’s right: TechCrunch or Agrawal?

Update: I was informed (not by Yelp) that the 67% “renewal” rate is not technically a “renewal rate” — or the company doesn’t characterize it as such. Apparently the advertisers are not affirmatively “renewing” (as would a YP client) but merely still being charged for advertising in the way that a rental tenant on a lease goes to a month to month after the expiration of the lease term.

Yelp cannot publicly comment on the he said/she said debate here because it’s in its quiet period.

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5 Responses to “So, Is Advertising on Yelp a Ripoff or Not?”

  1. Tom says at

    I can see the potential value to the client but how does the lawsuit against Yelp play in (http://www.inc.com/news/articles/2010/02/yelp-class-action-suit.html). How is it that a company can pick and choose what reviews are filtered and which aren’t. I have seen where Yelp has filtered all recent positive reviews and left old negative reviews on listings of a business that choose not to advertise with them.

  2. Greg Sterling says at

    This is an old debate. Yelp has largely been “cleared” of allegations that it manipulated reviews on the basis of whether companies chose to advertise or not. The claim stems from two factors:
    1. Confusion over how Yelp’s algorithm works
    2. The sales-related pitch that advertisers have competitors’ ads removed from their pages

    However it is true that reviews on some sites have been manipulated in the past for sales purposes. I don’t believe that Yelp has done this however. Others have disagreed.

  3. Street Fight Daily: 02.08.12 | Street Fight says at

    [...] viewable to other people in their immediate area.So, Is Advertising on Yelp a Ripoff or Not? (ScreenWerk) Greg Sterling: Yelp claims a 67% advertiser renewal rate, which is much better than most SMB [...]

  4. wiseking says at

    I would not touch this one with a ten foot pole. YELP is a known extortion scheme whereby businesses who decline to advertise wind up with their positive reviews filtered and their negative reviews made prominent. A cadre of so called elite Yelpers (chronically unemployed losers) are Yelps hired guns who do the dirty work of defaming small businesses for them and shilling for advertisers. Thousands upon thousands of Yelp reviews are actually reviews of big chains like Starbuck and Chipotle rather than being genuine reviews of small businesses who lack advertising and p.r. budgets. If you look at the numbers for this IPO they simply do not add up. After all, how can YELP expect small businesses or especially professionals to advertise and drive traffic toward a bulletin board which has already defamed them or threatens to do so? Keep in mind that this MONEY LOSING BUSINESS relies on advertising for over 60% of its revenue! Yelps advertising rates are a complete ripoff. While other online advertisers are charging 60 cents per 1000 impressions, Yelp is charging $600!!! To make matters even worse there are numerous class action lawsuits which have already been filed, one of which has been dismissed but there are many, many others in the works. The nail in the YELP coffin? GOOGLE is a powerful competitor which recently acquired Zagat. The removal of links to Google searches will considerably reduce Yelp traffic.No wonder Jeremy Stoppelman and other top brass absconded with 36M in Series E funding by dumping shares in advance of this sham

  5. Renovations Caloundra says at

    It is a real concern the amount of negative stories going around in regards to the practices employed by Yelp’s sales team. 

    Yelp’s management seem to be top notch, however they do seem to have a cultural problem deep in their organisation.

    I wonder how they are paying their reps? Maybe they are paid on commission only, or highly weighted towards commissions. Sounds like somone’s too sales driven in that organisation.

  6. mitch says at

    Yelp sales reps, lol. Spoke to a girl who wouldn’t leave me alone, told her I didn’t see the value in it for myself or my clients. Two weeks later, she is gone, and her replacement is calling me over and over until I told him to stop. 

    Yelp advertisements are absolutely a scam. 500 views of your yelp at LOL. Many views will be from your competitors eyeballs, checking out their own page with 2-5 reviews and few visits from real visitors. Sometimes I refresh my own page just to punish my competitors for trying to buy space on my page. You should do the same. 

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