At this point, Yelp can pitch itself as a cost-effective advertising platform for local businesses.Īlthough it may sound a bit far-flung, this can and has worked in certain markets. Users then begin to write reviews, which in turn spurs user adoption and more reviews, creating a snowball effect until Yelp becomes the definitive guide to local businesses in their market. Yelp enters a new market and begins creating profiles for local businesses (what they call ‘claimed business locations’). In other words, Yelp thinks its depth and breadth of customer reviews create a network effect. This increase in consumer traffic improves our value proposition to local businesses as they seek low-cost, easy-to-use and effective advertising solutions to target a large number of intent-driven consumers. Each review that a user contributes helps expand the breadth and depth of the content on our platform, in turn drawing in more consumers. As more people use our platform, more of them write reviews. Our platform helps people find great local businesses to meet their everyday needs. What is Yelp's network effect? According to the S-1:
( Read our note on the limits of online network effects.) What's a network effect? A network effect is what happens when a product or service becomes more valuable the more people use it.
It often indicates a user profile.Īlthough Yelp is not currently profitable, the company believes that its user-generated "network effect" will drive revenue growth and sustain future profitability.
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