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.