Yelp Files For $100 Million IPO | Hacker News Reader

Yelp Files For $100 Million IPO

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101 pointsllambda59 comments

Yelp's motto: 'Let's legalize extortion!'

Built a review site? Fine, but leave the reviews alone. All of them. No, it is not "OK" to close users' accounts with no warning, thereby demolishing all of their reviews. No, it's not OK to "hide" some reviews or to take down reviews when your blackmail tactics actually work. No, Yelp: it's not acceptable to solicit and harass people and businesses who have explicitly posted "no soliciting" signs on their establishments.

Show investors your business model transparently, let's see it. How is this supposed to work legally? Is this really going to be sustainable or build value in the long-term?

If Yelp's public offering gives them anything substantial, we have a lot to worry about. If the IPO market says it's OK for companies to make money by extorting the little guy and stifling the small voices, we are in a world of trouble.

I am with you on that one... Extortion and abusing small business is their core business.

If these businesses learn anything (Yelp and Groupon I'm looking at you!), it should be that quickly growing a sales force that is paid on incentives is difficult and should be closely managed.

Otherwise the newly minted hundred(s) person salesforce, most whom have less than 1 year with the company, will sacrifice the long term success of the business for the short term success of commissions. Translation: cut ethical corners.

I cannot even imagine how difficult it is to recruit, lead, and manage a salesforce of hundreds of people that are all brought together in a period of months.

Why are all these recent tech companies that have gone through an IPO not able to turn a profit? Groupon, Pandora, LinkedIn, and now Yelp are all valued so highly yet they are not making money off of their services. If you have been in business for over 5 years and don't make a profit when are you expecting to?

It makes no sense to shoot for profitability when you are growing rapidly. Yelp has only just started expanding outside the US. It's cash is much better spent on growth than sitting in the bank.

Amazon did the same thing, if you remember their end of Q3 statement -- instead of profit, they re-invested in themselves (probably Kindle related purchases to have a bigger Q4).

That's not a good analogy. Amazon made a profit, they just chose to reinvest it in infrastructure. The above mentioned companies are still losing money (I believe).

True, it can be a good decision for a starup to optimize for market share first, profitability second. But even an IPO only gives you so much runway. Eventually you need to start turning a profit. And the longer you emphasize market over profit, the bigger the whole you've dug for yourself.

They chose to invest it in payroll, actually, which is why accounting profit did grop. Investment in infrastructure would be capitalized over multiple years and have much less impact on the current quarter, I believe.

How do you know that your rapid growth isn't a result of your service being unprofitable? Wasn't that the lesson that we were supposed to learn with pets.com and kozmo? Also I believe that profitability and rapid growth are not mutually exclusive. I understand the theory of operating at a loss, but it leaves very little room for uncertainty in the marketplace. If you have new competition, capital dries up, or you make any sort of mistake, the company could go belly up. I wouldn't want to invest in any company unless it could show a clear path to becoming profitable.

Accounting profit is not generally a great test of the long-term profitability of a business, because much depends on how revenue from customers comes in, how costs are timed, etc.

Generally, if you have a business where there is a significant growth opportunity / market opportunity, the right strategy is to run at an accounting loss to grow faster. What matters is the cash situation, not the accrual accounting situation (and they are not that closely tied to each other.) Growing slower so that you show an accounting profit would be the wrong thing to do and the market would not consider it a positive indicator for a company coming to IPO.

Pulling out 12 year old anecdotes is not a terrific defense. Yes, there is risk involved. But few companies have gotten huge without taking on that kind of risk. You are welcome not to invest but might want to step aside to avoid the stampede.

Tons of high-growth companies have been profitable from early on(e.g Microsoft). Google and Amazon were exceptions.

Wow, I knew there was some people viewed Yelp negatively, but judging from the comments here, Yelp has a credibility problem more serious than I realize.

The thing that I've found Yelp most useful for nowadways is little tidbits of useful information like store hours and the key combinations to Starbuck's restrooms (I hate having to ask to go the restroom like a 4 year old).

For better and for worse, we are not representative of the population at large. My wife... has never heard of Yelp, so I suppose that's not the most positive sign for them either... but she certainly doesn't hate them.

So I glanced through the S-1 real quick. They want to raise $100 million, and so far this year their revenue is about $55 million?

Those numbers seem off to me.

Also they are only pulling in 50 odd million a year? Seems really low.

Did anyone else have to put in a CAPTCHA in the S-1 to read the potential negatives???

What seems off about the numbers?

I think the IPO is more about an exit for founders/investors than the actual 100 million amount. That's just the float that they're putting out (not a valuation). 100 million is a credible number they can say they need this amount to grow/reach breakeven.

Why do people think they can turn it around, i.e., make profit? Yelp has been around since 2004, that is a good seven years to show that they can generate at least minimal profit, and if Yelp is not profitable yet, there is a decent chance they never will be. Yelp is not Amazon, they are a crowd-sourced review site. Growth is great, but operating in the black is better.

That's just my opinion though. So feel free to criticize.

No criticism here, it's purely to sell it on to someone else, it's bull all the way until someone realizes they're still not making profits!

Yelp is an awesome service, but I am surprised to see that they are still not profitable. Considering an annual revenue run rate of approx. $70m, I am wondering what costs them $70m a year to run the site - with most online businesses salaries and marketing are the biggest expenses and considering Yelp's amazing organic rankings, I doubt they are buying a lot of traffic. Any idea what the other big costs are? Sales teams, perhaps?

Well they seem to be sacrificing ad space for user experience. They only have 1 ad on each page, unlike other sites that have multiple.

Probably paying people to go out and try places to review. Organic traffic (and ad revenue) comes from having content, so it's a good investment.

I doubt they would pay people to review, unless it's a well kept secret. What they do have are Community Managers. They are located in each major city prompting Yelp, providing support for the yelpers in that city and so on. They probably spend a lot on their sales team as well.

I highly doubt Yelp pays people to review...anymore. They did when they first launched (they've admitted to this), but with their brand recognition now, paying people to review would be a giant waste of money. That being said, they haven't reached profitability yet, so who knows, maybe they are making this bad decision.

People are addicting to writing reviews -- some have as many as 3000, with "Elite" being the only reward.

3 offices (SF, NYC, Phoenix), approaching 1000 employees, servers, marketing costs, etc. — gets expensive.

$100 million is less than I would have expected.

They want to raise $100M. They are seeking a valuation of $1 - 2B.

Ah, thanks for the clarification. That makes a lot more sense. (I should have RTFA more carefully.)

Yelp is 1 of 3 apps on my Android that I actually use. They have the best mobile experiences for reviews about a restaurant before you eat there. They have built a strong brand and I hope they do more with it. I for one, am really excited about their IPO.

they are too dependent on Google, which is why they were silly to walk away from their offer.

I love how everyone becomes armchair experts on the decisions tech companies made when they try to IPO.

You're right, they must have done the right thing since they knew more at the time.

That's how online social communities like this work. I like to call it "the democratization of punditry."

I don't disagree with your diagnosis of the prevalence of armchair CEOing around here, but Yelp is indeed concerned about Google.

Yelp and a couple other companies forced in Google to a Congressional hearing where senators attacked Google over having too much power over other sites. Yelp gets a SIGNIFICANT amount of its traffic from google searches. So if Google arbitrarily decided to promote its own restaurant reviews from Zagat after a user search, this would crush Yelp's traffic.

google was offering much less than what Microsoft was bringing to the table ($700M) - and they turned that down too. I think if Google up their bid (at least trying to match Microsoft's) Yelp might have gone for it just because it was Google. http://news.accuracast.com/internet-7471/yelp-turned-down-mi...

I think Google should have just paid more and buy Yelp rather than Zagat.

I'd rather see Zagat succeed than Yelp.

Why?

More ethical behavior.

I've never once encountered a Zagat-related complaint. They seem to have high standards and their ratings have been trustworthy for me for years. Yelp on the other hand.. it's just a big yellowpages where even my own reviews go missing time to time.

You mean, like how every other website on the planet is dependent on Google? Yes, that is true. Just like Ford/Toyota/etc are dependent on BP/Exxon/etc.

That analogy doesn't really work. If BP or Exxon refuses to support Ford's vehicle, there are other people to supply the fuel. If Google drops Yelp's ranking, there is no other search engine who is going to fulfill that traffic source that was just yanked from Yelp.

But yes, I agree that it's a problem that most websites face, not just Yelp.

Actually, I don't think it's a problem.

No, I think the gp is referencing the fact that 75 (seriously, 75!!!) percent of yelps traffic comes in from google [1]. You have to view that as basically a failure of the company and the brand. Instead of going to yelp for a review, people just search in google. This also obviously leaves them enormously exposed to changes in Google's algorithms, whether intended to affect yelp or not. (Cue the google employees with their usual church and state / separation of search from other product lines story. Sorry, not buying it. And even if it's true now, some day a beancounter will win and it won't be.)

There are lots of companies that are far more of a destination than yelp -- the obvious contrast is facebook. I'd bet very little of their traffic is google search driven. Weaning themselves from dependence on Google should be one of the top goals for any web company.

[1] http://techcrunch.com/2011/09/21/stoppelman-75-of-yelps-traf...

To be fair, while they might right now be reliant on Google for 75% of their traffic, they aren't resting on their laurels. Consider Apple and Siri's use of Yelp. With Apple moving away from Google as much as possible, speciality services like Yelp will become more valuable.

This isn't really fair. In Chrome DNS has practically been replaced by google search, and it's great.

Instead of typing yelp.com (or was it yelp.net? www.yelp.biz? http://www.yelp.info?) I can just type "yelp" and get where I'm going without having to remember the exact url and without getting an annoying error page if I make a typo. I suspect for many users even in other browsers the search box gets much more use than the URL box.

Long tail search traffic related to local businesses is the key here, not people attempting to navigate to Yelp through Google.

Exactly. Yelp gets a higher ranking, and may have better info, than the local business's website.

Further to that, it's usually quicker to Google for "yelp las vegas restaurants" than it is to get to Yelp and then search or browse from there.

Not sure I'd want to invest in a company that rings a bell every time they close a sale [1]. Unless of course it's 7-figure enterprise sales. I'd rather put my money into things that ring up sales non-stop.

[1]See the 8:00 mark at http://techcrunch.com/2011/02/03/dogs-unicorns-and-mysteriou...

Yelp seems like another business that would have worked much better for the users as a nonprofit ala craigslist (I know craigslist isn't a nonprofit but it's more or less run as one.) See the sporadic bursts of drama about businesses being forced to buy ads on yelp to influence reviews [1:3]. You have to wonder what they're going to do to get enough revenue to support their desired $1-$2B valuation.

[1] http://www.cbsnews.com/8301-505123_162-42744374/inside-yelps...

[2] http://www.eastbayexpress.com/gyrobase/yelp-extortion-allega...

[3] http://articles.nydailynews.com/2010-03-20/news/27059507_1_y...

But you're forgetting that this time it's different. With social networks, you don't need a business model. Because of the network effects, and increasing number of mobile devices, they will be able to leverage the cloud and produce real-time location-based analytics. So, as you see, Yelp doesn't require a conventional business model to have a multi-billion dollar valuation.

But you're forgetting that this time it's different.

I'm betting this quote was used in the Color pitch-decks to Venture capital prospects.

I honestly can't tell if you're being serious or sarcastic.

Seriously? You can't tell?

It was deadpan. I had to re-read it to see the humor. "Real time", lol.

I had a friend that used to do ironic yelp reviews. His review of the hot dogs at the 7-11 by his house were priceless.

I think I count 15 buzzwords

As a small business, we have never been extorted directly (noone has said 'we will bring your private reviews public'), but the percentage of filtered reviews across different small businesses is RIDICULOUS.

For example, our salon has 89 total reviews. 18 are public, 71 are 'filtered' (hidden): http://www.yelp.com/biz/bloom-beauty-lounge-new-york

A competitor in our area has 81 total reviews. 71 are public, 10 are filtered: http://www.yelp.com/biz/kiwa-salon-new-york

All of our reviews are from legitimate customers and we've reached out to Yelp to try to understand their algorithm. They assure us that everything is 'proprietary' and they 'cannot divulge secret information.'

We previously showed up to 36 positive reviews at one time, at which point we were seeing huge foot-traffic from yelp. Since then it has more or less dropped off.

You're probably not gaming yelp correctly. You can't ask your customers to review you because they'll be filtered since they'll only have one review.

You need to get more Yelpers to your business. If they're elite, that's even better. You obviously have a good product because you have 4.5 stars, so it's just a matter if getting those elites to your place.

I have friend who works hard to cater to the elite Yelpers. He thinks that's the key to his success. I don't know if it does get him more foot traffic though. Anyway, It was a lot of hard work, even though he had a great product. He finally got his place to the magical 4.5 star mark with over 125 unfiltered reviews.

Does this mean self-absorbed hipsters cum wannabe food critics are worth something? The end is near.

Yelp does a great service though. But half the reviewers are just intolerable attention whores. Found this hilarious explication: http://www.freddiew.com/2009/05/22/yelp-is-great-i-just-hate...

The other sites, like City Search and Google reviews, don't attract this element, probably because they don't allow for elaborate "profiles" and don't cultivate a "community."

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