Jason Del Rey

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Yelp’s Recipe for Conquering Local Advertising: Partnerships With a Dash of M&A

Media and advertising people love talking about the future of local advertising. One common thread is the ability to prove to a local business that someone who clicked on your online ad later became a customer. “Closing the loop” is a common refrain.

Yelp, which reports its second-quarter earnings on Wednesday, has made several recent moves — an acquisition and some partnership announcements — that it hopes will help it do just that.

Yelp CEO Jeremy Stoppelman

Yelp CEO Jeremy Stoppelman

Let’s get the earnings preview out of the way first: Analysts are expecting the company to lose four cents per share on $53.3 million in revenue in its second quarter. In the same period last year, Yelp lost three cents a share on revenue of $32.7 million. Not huge top-line numbers yet, but growing fast.

The vast majority of Yelp’s revenue comes from local advertising — business-listing ads that sometimes contain user reviews and appear at the top of Yelp search pages and also on the profile pages of similar businesses in the advertiser’s geographic area.

To do well, Yelp is trying to prove to those local advertisers that it is turning its readers into customers.

Back in 2010, for example, it struck a deal with OpenTable that lets Yelp visitors make a restaurant reservation directly from the business page of customers. Its pitch to restaurant owners who use OpenTable: Advertise on Yelp, drive people to your business page and let them reserve a table without leaving the site.

Then, two weeks ago, Yelp paid about $13 million to buy SeatMe, another restaurant-reservation startup.

And although Yelp already had that OpenTable partnership, in an interview at Yelp’s San Francisco office last week, CEO Jeremy Stoppelman said that SeatMe will “open up the reservation space for a whole host of restaurants and nightlife establishments that couldn’t afford a high-end … solution.” OpenTable is that high-end solution, apparently, but Yelp needs both.

“Absolutely, we want that relationship to continue,” Stoppelman said of OpenTable.

Also recently, Yelp announced Yelp Platform, which will integrate more booking and transaction services directly into the service. Initially, Yelp has partnered with local delivery services to let its readers order food directly from a business page on the site. The delivery partnerships are expected to eventually cover thousands of restaurants.

Other deals will soon allow visitors to schedule appointments at spas, dentist offices and yoga studios, to name a few types of establishments.

“We can’t be everywhere,” Stoppelman said. “We don’t think it’s realistic that we’ll build out a vertical for every niche of local out there.”

Translation: Expect these kinds of partnerships to continue.

Wall Street seems to like them. In a research note, RBC’s Mark Mahaney wrote of Yelp Platform: “We view this service, which will eventually expand to other businesses, as likely to enhance the overall consumer value proposition and local business engagement.”

Yelp still has a long way to go. Compared to Google, which continues to stand in Yelp’s way via a series of search innovations seemingly aimed directly at it, the reviews site still holds just a small piece of the local advertising pie.

But Yelp is pushing hard to “close the loop” for local advertisers in all major categories, and it hopes investors will think its partnerships strategy is a good start.

(Image courtesy of Flickr/Brian Giesen)


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— Om Malik on Bloomberg TV, talking about Yahoo, the September issue of Vogue Magazine, and our overdependence on Google