Strengthening its offerings
While advertising revenue accounts for 75% of Yelp Inc (NYSE:YELP)’s sales last year, Yelp is aiming to attract and retain advertisers via its new home-delivery service. Popular delivery service providers, Seamless and GrubHub, which merged recently, have expanded to 500 US cities and 20,000 local takeout restaurants, delivering near $875 million in food sales to local restaurants and generating over $100 million in revenue. Analysts, on the other hand, are expecting Yelp to generate near $219 million in revenue for 2013.
Earlier in June, Yelp Inc (NYSE:YELP) also announced the integration OpenTable Inc (NASDAQ:OPEN)‘s online reservation system directly into the Yelp platform. On the other hand, restaurants make up around 29% of the reviewed businesses on Yelp, so it makes perfect sense for Yelp to focus on and expand its restaurant offerings first. By integrating entire review, reservation or order, and checkout process, Yelp can enhance user experiences and make consumers stay longer. Yelp can also convert traffic to revenue via shared transaction revenue with food delivery companies.
Upside potential vs. downside risk
Yelp Inc (NYSE:YELP)’s new food delivery service is starting out in San Francisco and New York through partnerships and is “staging,” as described by Yelp’s CEO, before the platform enters new markets. By making the new service flexible, Yelp is scaling up its offering with minimized risks. On the upside, more categories can be expanded gradually, ranging from spas to professional dental services, following the same model. Yelp is taking a small yet critical step forward to become a commercial service provider, yet remaining focused.
While reviewing remains an essential part of Yelp Inc (NYSE:YELP)’s core value, the company has been stepping up with “Call to Action” and Yelp Deals features. Now, by introducing transaction offerings, Yelp is closing the loop to create a more effective process for users. Consequently, more local communities can get involved achieving a stronger ecosystem. It opens endless opportunities down the road by linking consumers directly to local businesses.
Competitors
While Yelp Inc (NYSE:YELP) continues to evolve, other competitors, such as Facebook Inc (NASDAQ:FB) and Groupon Inc (NASDAQ:GRPN) are not slowing down. Facebook has launched a new graph search, which allows users to search Facebook social graph for people, places, photos and interests faster and easier with more relevant results. Groupon, while struggling, has been reducing its cut from its merchant partners and making its deals stay longer on the site to stabilize its bottom line. As a leading social media company, Facebook Inc (NASDAQ:FB) continues to roll out new features to enhance its value offering. On the other hand, Groupon Inc (NASDAQ:GRPN) may have already found a way to sustain its business. Both companies could be bringing up similar services if Yelp continues to show success with its new partnerships. There are other competitors, such as Google Inc (NASDAQ:GOOG) and Foursquare, who would also be interested in new cash-generating revenue model.
