November 23, 2017

Yelp and Open Table will offer Groupon type service

By any measure, Groupon has been a phenomenal success as a company. So much so that others are following suite – including Yelp and Open Table. This video discusses this as well as the question of the impact of Group Buying on small businesses… specifically, restaurants.

Is group buying going to be the new tech trend like “checking in?” As successful as Groupon is with their extensive email list, what happens if/when Facebook enters the fray?

Groupon – Angel or Devil?

Someone responded to one of my previous posts about GroupOn ROI to share a story of bad experiences with participating in a campaign. To that point, I had never heard anyone complain about their experience so I want to share the link to balance the story out. Hope this helps!

http://www.spaboomblog.com/2010/dont-sell-your-soul-to-the-discount-devil

Groupon Case Study

I have real world numbers from a GroupOn campaign to share with the world! This in combination with my very sexy equation from a previous post and my newly added, downloadable GroupOn Excel calculator allows us to get all kinds of insight.

The businesses I know that have participated in these campaigns have seemed pretty happy with the results, but none of them tracked their numbers. That meant I had to make some assumptions, but no longer.

Case Study

Here are the metrics from a real GroupOn campaign. I would expect that results will vary from business to businesss and especially between different industries. If you need to better understand these numbers, read the previous post.

  • Business Type: Very Casual Dining
  • Business Age: Fairly new business
  • GroupOn offer: $20 certificate for $10
  • GroupOn’s commission: 50%
  • Total Sold: 1,225
  • Redemption Rate: 68% (32% were never cashed in)
  • Average Ticket Amount (with certificate use): $20 (people spent pretty close to the face value amount)
  • Estimated number of new, recurring customers: 75%. This is expressed as a % of the total number of certificates sold. These are people that will come back even without a certificate.
  • Estimated Long term, recurring customer income: $20. Without a certificate, the average ticket is about $10. This means that it is assumed the new, recurring customers mentioned are expected to come in about 4 times over the “long term”
  • Normal Margin on sales: I did a loose calculation because I knew the net result… 230% margin or COGS is about 30% ticket price.
  • Brand Value: $0. This is such a fuzzy number, that I left it as zero.

The real world result is that this business owner was paid $6,000 with costs around $5,000. According to the super-awesome spreadsheet – using the numbers above – the analysis shows:

  • Campaign Profit: $1,076.52
  • Total Long Term Profit: $13,883.33
  • ROI over the “Long Term”: 130.77%

Not too shabby.

Footnotes

There are some notes worth mentioning:

  • The business was paid by GroupOn in three, equal payments over 1-2 months. They were happy with this.
  • Purchases with certificates with Tickets less than $20 don’t get change. Typically, they would order something else to get over the $20 level.
  • Redemption volume was heavy in the first and last month, the numbers were:
    • Month 1 – 225
    • Month 2 – 150
    • Month 3 – 100
    • Month 4 – 50
    • Month 5 – 50
    • Month 6 – 250
  • The number of new, recurring customers is very difficult to determine and is basically a gut-check. Unfortunately, it is largely responsible for the determination of the Long Term Profit… so be careful how you use it.
  • I assumed “Long Term” meant over the course of a year when determining some of the more “magical” numbers. You can assume whatever you want, but make sure you understand what it all means.
  • The calculator is intended to be functional, not fancy. It’s pretty basic, but still very, very sexy.

Is Your Audience Listening?

This is a topic I’ve struggled with over the past few years. There are so many people that measure success based on the number of followers/fans they have, but I question how valuable these numbers are. Those companies that do email blasts to a billion people see success as a 2% click through rate…. they’re playing the numbers.

I’m currently in the camp that believes quality is better than quantity. I actually read the profiles and posts of people I follow on Twitter and I don’t automatically follow people that follow me. If I get a friend request on Facebook, I check to see if I know the person and, if not, I check to see what friends we have in common. The justification I have for both myself and the organizations I work with is, having an engaged audience is more valuable than the raw numbers. I equate people that blindly follow others on social media to someone grabbing one of those business card fishbowls you see in restaurants – you can add all of these people to your contact list, but will most likely never do business with any of them. What’s the point?

The counter argument is that the more people you can reach, the more likely it is that your message will fall on friendly ears. If 2% of those fishbowl contacts is actually interested in what you are doing, then that is one successful connection for every 50 cards you filch.

I like analytics quite a bit, but I think that the real measurements that have value are in absolute numbers, not ratios. How many people are actually interacting with you through retweets, mentions, direct messages, comments, likes and wall posts? If you can push these numbers up that show engagement (without annoying people) by following every single person, then your ratio is shot, but so what? If you can do it by exerting more energy to vet your audience – fantastic.

Here are what I believe are the secrets:

  1. Add value to the conversation instead of just acting as a shill for your interests. So many organizations create accounts and turn on the traditional broadcast tower … “buy my product, visit my business, enroll in my self help program, etc.” What information are you providing that help people pursue their interests versus just another advertisement?
  2. Go deep on the conversations your audience wants to have. Social Media is a two way street and your opportunity to have an ongoing conversation, build relationships, and turn bystanders into passionate patrons.
  3. Focus on the real metrics that measure if people are interested in what you have to say versus how many people are within earshot.

I’d love to know what strategies others are using. Let me know what you think.

GroupOn ROI – the Math

UPDATE 7/16/10: I’ve added an Excel calculator to make it easier to determine how GroupOn might work for you. It’s very simple, but uses all the logic described in this post.

UPDATE 7/16/2010 – I’ve also added a new post with real world numbers with a Groupon Case Study.

How do you know if GroupOn is right for you? I like numbers quite a bit and became obsessed with this, so I’ve put together an ROI calculation to try to answer this question. This post includes the calculation I came up with towards the beginning and the detailed breakdown of what everything means for any masochists that like that sort of thing.

At a very high level, the GroupOn pitch seems questionable. They want you to sell a certificate through GroupOn (say $30) for a deep discount (say $15) and they are going to take a percent of the income (say 50% or $7.50). In this example, you are getting 25% of what you would normally. Why would anyone do this?

  • New Patrons – This is the biggest reason. If you can get new patrons into your organization with a deep discount and they keep coming back and spending big bucks, there is a lifelong value.
  • Cash flow - You get paid the day after the promotion which can help out if you need to buy that new oven or make payroll. Since the certificate is valid until the expiration date, you can expect the loss to be spread out over a period of time – although most of it will probably be pretty soon.
  • Unredeemed certificates - there will be some people that pay for the deal, but never actually use the certificate. That’s just free money.
  • Average ticket value exceeds offer -If you limit the offer to one certificate per table (for example),  what if they bring friends and buy a boat load of food – only getting a deal on the first $30? Nice.

There is one additional cost to also consider, though.

  • Brand value. How do you think offering this type of outrageous deal will affect your image? You might decide this is positive, negative or not a concern.

Define your numbers

So should you do it? Let’s ignore the immediate Cash Flow benefit and make some assumptions.

  • Offer Amount (O) – you are going to offer a $30 certificate and only allow one  to be redeemed per table
  • Sell Amount (S) – the purchase price for these certificates will be $15
  • GroupOn’s Cut (G) – GroupOn’s cut will be 50% of the sell price… for every $15 certificate, they get $7.50 and you get $7.50
  • Margin (M) – your margin is 50%, i.e., if it costs you $20 to make something, you are going to sell it for $30.
  • Average Ticket (A) – the average ticket of people using the offer will be $50
  • Redeemed Certificates (R) – only 80% of certificates will be redeemed
  • Total sold (T) - you expect to sell 500 of these
  • New patron percentage (N) – you expect 40% of the people taking advantage of the offer to be new patrons (the remainder are people that are already patrons). This is a number that you pretty much have to make up, but 40% seems pretty good.
  • New Patron Lifetime Value (L) – We’ll say the average patron will spend $150 with you (beyond the offer) over a period of 1 year (if you choose 2 years, 3 years, etc, your ROI will be spread over that period). Determining this value is a science on its own so good luck coming up with the right number.  Taken in conjunction with your Margin, this can be used to determine profit from your average patron.
  • Brand Value (V) – Some organizations worry that offering such deep discounts will damage their brand and make them look “desperate.” Others might think there is an overall brand benefit that is not captured in the lifetime patron value. This variable is intended to capture this “fuzzy” influence and represents how the promotion will affect revenue over a period of 1 year (if you choose 2 years, 3 years, etc, your ROI will be spread over that period) SEPARATE FROM INCOME RELATED TO NEW PATRONS. If you think it will increase revenue over time, choose a positive number, but since I have heard concerns about the negative effects, I will choose a negative number and that I am making up – -$4,500.

GroupOn ROI Calculation

Here it is… the total long term profit you can expect from this promotion is:

Total initial income … + … Loss from certificate redemption … + … New patron Benefit … + … Brand Damage

T*(S-G*S) …. + …. R*T*[(A-O)-(A-O)/(1+M) - O/(1+M)] … + … T*N*(L-L/(1+M) … + … (V-V/(1+M)) = PROFIT

or ….

500 * ($15 – .5*$15) … + … .8*500*[($50-$30)-($50-$30)/(1+.5)] … + … 500*.4*($150-$150/(1+.5) … + … (-$4,500-(-$4,500)/(1+.5)) = $3,750 … – … $5,332 … + … $10,000 … – … $1,500  = $6,918

For the purists out there, this is not technically ROI, which is defined as (gain from investment – cost of investment) / (cost of investment). Fine.

Cost of Investment

The cost of investment is:

What it costs you to redeem certificates … + … what it costs you to fulfill purchases beyond the limits of the offering … + … your cost of fulfilling lifelong purchases … + … brand value

R*T*(O/1+M) … + … R*T*(A-O)/(1+M) … + … T*N*(L/(1+M) … + … V

or …

.8*500*($30/(1+.5) … + … .8*500*($50-$30)/(1+.5) … + … 500*.4*($150/(1+.5)) … + … $4,500 = $37,833

NOTE: You should move the brand value to Gain calculation if you think it will be positive.

Gain from Investment

The gain can be determined as:

Initial revenue from offer … + …. income from sells beyond the limits of the offering … + … income from life long purchases

T*(S-G*S) … + … R*T*(A-O) … + … T*N*L

or …

500*($15-.5*$15) … + … + .8*500*($50-$30) … + … 500*.4*$150 = $41,750

Official ROI

ROI = ($41,750 – $37,833)/($37,833) = 10.35%

KEEP IN MIND THAT THIS ROI IS FOR THE PERIOD YOUR CONSIDERING FOR BRAND VALUE AND PATRON LIFETIME (if you’ve entered a value assuming 1 year, 2 years, 3 years, etc, this is the ROI for that period).

Also keep in mind that these are hypothetical numbers. Your numbers will most likely be different.

Calculation details for Masochists

TOTAL INITIAL INCOME

How much money do you receive from GroupOn the day after the sell? This is the total number of certificates sold minus GroupOn’s cut, or:

T*(S-G*S) = 500 * ($15 – $15*.5) = $3,750

AMOUNT OF LOSS BASED ON REDEMPTION OF CERTIFICATES

For every certificate redeemed, you are going to have to give away a certain amount of inventory, service, etc (O=$30), but the cost to you will be less than the certificate amount because of your margin:

O/(1+M) => $30/(1.5)=> $20 (what it costs you to redeem a certificate)

You also will be able to make a profit on the average ticket amount above the offer amount, or the total income above this amount minus the cost:

(A-O) – (A-O)/(1+M) => ($50-$30) – ($50-$30)/(1.5) => $20-$13.33 = $6.67 (additional profit per redeemed certificate based on assumed Average Ticket)

So for each certificate redeemed, your profit is most likely negative:

(A-O)-(A-O)/(1+M) – O/(1+M) = $6.67 – $20 =  – $13.33

But some people will not redeem their certificates, which means free money for you! Taking into account the total number of certificates sold (T=500) and the redemption rate (R=.8) leads to an updated equation of:

R*T*[(A-O)-(A-O)/(1+M) - O/(1+M)] => .8*500*[($50-$30) - ($50-$30)/(1+.5) - $30/(1+.5)] = -$5,332.

So at this point, you have gained initial income of $3,750 and, over the course of several months, it is forecasted to cost you $5,332 leading to a net loss of $1,582… but there are some additional potential benefits.

NEW PATRON BENEFIT

We’ve talked about the obvious income and costs, but there are other benefits. The idea of paying for a print ad seems pretty reasonable because it might attract new patrons and you’re willing to pay money for it, so why not GroupOn? It is advertising and seems pretty effective at getting people to show up.

You’ve made an assumption about how much the average new patron will spend at your organization over their lifetime (L=$100). So the amount of profit you expect to make from the average new patron, after you take into account the costs associated with the transactions is:

L-L/(1+M) => $150 – $150/(1+.5) = $50

When taking into account the promotion by GroupOn, people sharing the information with friends, buyers bringing friends with them to redeem certificates, etc., you expect a certain number of new patrons tied to the number of certificates sold (T=500) and a New Patron Percentage (N=.4). This results in an expected increase of profit of:

T*N*(L-L/(1+M) => 500*.4*($150-$150/(1+.5)) = $10,000

There are 3 major things that should be noted:

  1. The lifelong value of a customer is hard to determine and we kind of made up the actual number. We also made up how we calculated the number of new patrons your promotions will generate.
  2. It might or might not take into account the viral nature of new patrons bringing along friends and introducing them to your organization. This is potentially a chain reaction that can greatly amplify this number.
  3. Lifelong value is something that can build up over a very long time. This is not a quick income event and will likely be spread over a period of years.

With that being said, the running tally of the GroupOn benefit is now at a Net Profit (over time) of $10,000 – $1,582 = $8,418 in profits.

BRAND DAMAGE

Do these deep discounts damage a brand’s image and lead to reduced sales? I don’t know, but we’ve assumed it does and have pulled out of thin air a number to represent the decreased regular income from running this promotion (V=$4,500). Since this is “top line revenue,” to understand the impact on the bottom line, we need to consider your Margin.

(V-V/(1+M))=> (-$4,500 – (-$4,500)/(1.5))=-$1,500

Additional Comments

This was a lot of work so please let me know if I made any mistakes. Also, if anyone wants to build a calculator to run these numbers, let me know!

Scoutmob, GroupOn and other Flash Mob Promotions

First, I want to make sure to emphasis that the term Flash Mob is not negative. My very loose definition for this post is “getting a large number of people to act in a certain way, usually through social media.”

There are a number of emerging (or emerged) solutions that follow a basic recipe for what I call Flash Mob Promotions:

  1. Offer a ridiculously amazing special offer for a local business
  2. Promote the crap out of it to people that love these deals
  3. (Optional) Require that a certain number of people take advantage of the offer before it becomes “active”

The motivation for local organizations is to get a boat load of people to visit them in the hopes of turning them into patrons and possibly spend money beyond the terms of the offer. To help you better understand what these solutions are all about, below is a description of a few companies active in this area. The hope is that it helps explain what they are offering so you’re better informed when they come a’knocking.

Restaurant.com

Restaurant.com is what I consider the predecessor of this movement and I don’t technically consider them to be Flash Mob Promotions, but they are worth understanding. From what I’ve heard, patrons love the deals, but restaurants aren’t the biggest fans.

  • Offer and Restrictions – Local restaurants sign up with Restaurant.com and configure their offer. This typically is in the form of a $25 gift certificate for $10, $50 gift certificate for $20, etc. They post the offer on their website and promote in various ways to get people to buy these certificates. Typical restrictions on these certificates are conditions like minimum purchase amounts, valid for dinner only, 18% gratuity automatically added to bill, excludes alcohol, expiration date, etc.
  • Taking Advantage of Offer - The process for patrons is pretty straightforward
    • Go to restaurant.com
    • Search for a restaurant
    • Buy a certificate
    • It gets emailed to you
  • Promotion Channels – mostly through their website and email promotions. They don’t seem to take much advantage of social media.
  • Revenue model - They keep all of the money paid for the certificates.

What they are selling is marketing. You give away $25 worth of food in exchange for new (hopefully) patrons and restaurant.com gets paid $10.

GroupOnGroup On Logo

Groupon has great buzz from both patrons and businesses. They have a video to explain it, too.

  • Offer and Restrictions - You create a “Deal of the Day” with GroupOn (they only have one per market). Typically, these are offers similar to the ones described in the Restaurants.com model, but they seem much more savvy at getting the word out. Also, the ability to buy the certificates only lasts for one day (although they can be redeemed anytime before the expiration date), which creates a sense of urgency. As a final condition, a minimum number of people have to take advantage of the deal before “The deal is on” – if you are offering a $25 gift certificate for $10, you can specify that 200 people must take advantage of it before any can be officially sold.
  • Taking advantage of Offer - The steps a patron follows to take advantage of an offer are:
    • They find out about the deal of the day through email, Facebook, twitter, mobile app,  etc.
    • They indicate how many they are interested in buying and provide credit card information
    • As soon as the minimum number of participants is reached, “the deal is on” and everyone’s credit cards are charged
    • Users can log in to their GroupOn account and print the offer.
    • At anytime before the expiration date, they can use the certificate – subject to the terms of use
  • Promotion Channels – GroupOn is much more savvy about using social media than Restaurant.com… they actually have a separate Twitter account and Facebook page for each city. They also use email alerts as well as their website and a mobile app.
    • Facebook – 7,600 for Atlanta (23,000 fans for Chicago)
    • Twitter – 3,000 for Atlanta (10,000 followers for Chicago)
  • Revenue model – Groupon keeps a portion of the purchase price and gives the rest to the business. I’ve heard this is typically 50%. Business receives their cut immediately after the Deal of the Day expires.

The big benefit I see for businesses is cash flow – you get paid up front for all of the purchased certificates. You also hope the deal will drive traffic, gain new patrons that have a significant life-long value, and that the average ticket price will exceed any offer’s limit.

The concerns I have are related to cost. How many new patrons will you get, what do your margins look like, what will be your average ticket amount? In short, does this make business sense? Unfortunately, you have to decide that. Also, some business have expressed concern about how offering such deep discounts may affect their brand image.

NOTE: There are a few other sites, like LivingSocial that use a similar model.

ScoutMobScoutMob Logo

Scoutmob is a newer entrant into the market and is based in Atlanta (yeah!).

  • Offer and Restrictions - ScoutMob doesn’t sell gift certificates/coupons, they market promotions of ridiculously great offers. You make a deal with ScoutMob to be their deal of the day (generally 40% to 60% discount) and tell them how many people have to subscribe to the offer before the “deal is on” (similar to GroupOn). They then promote the crap out of you and hope the minimum number of people sign up. Another difference compared to GroupOn is that GroupOn only makes the deal available for one day, but purchased certificates have an expiration date. ScoutMob makes their offers available over a period of time (seems like about 3 months), but promote you heavily on the day the deal is announced. On the day your deal launches, people can have the coupon texted or emailed to them, after that they can only redeem the offer through the mobile app and have to be at your location (determined through GPS) to access the coupon.
  • Taking Advantage of Offer – Scoutmob uses a slightly different model than GroupOn for deals. This is divided into how they handle Deals of the Day versus how they handle the offer through their mobile App.
    • Mobile App
      • A person launches the app and can browse all of the deals that are still active – including the deals close to them (determined by their GPS location)
      • If they find a deal they want, they go to the business and “Redeem” the offer.
      • ScoutMob checks their GPS location to see if they are actually at the business and, if so, displays the offer.
      • The offer is shown to the business and marked as “used”
      • Patron gets the discount
    • Deal of the Day – from the ScoutMob website. This only works for the deal of the day, not for deals that launched on previous days.
      • People find out about the deal of the day through email, Facebook, Twitter, etc.
      • They specify they want the deal and receive a text message to their cell phone (you can have it emailed if you want a physical coupon)
      • The patron shows the offer at the business and gets the deal. Both the text message and email have an expiration date associated with them.
  • Promotion Channels – ScoutMob uses similar promotion methods to GroupOn, however, because patrons can opt into offers over a longer time, ScoutMob has added functionality on their mobile apps that allow people to redeem on the go…  based on where they are (this is called Location Based Service or LBS).
  • Revenue model – ScoutMob’s pricing model has 2 parts:
    • Deal of the Day texts and emails – they charge a small fee for each message sent
    • Mobile App Redemption – they charge a few dollars for each offer redeemed through their app. This is more because the business knows that the patron was actually at their location (GPS confirmed in order for the patron to gain access to the offer).

One of the benefits that I really like about ScoutMob is the mobile app redemption… you actually know the number of people that were in your business (or really close by). Similar to GroupOn, the big goal is trying to drive traffic and, since ScoutMob doesn’t require people to pay anything up front, there is an argument to be made that more patrons will take advantage of their offers.

The concern is still cost. Does ScoutMob actually drive traffic, gain new patrons, and lead to ticket amounts that exceed offer limits? Maybe. They might even do it better than GroupOn, but with GroupOn you get the up front cash benefit, although with ScoutMob it seems like you get to keep more of each transaction.

* Special thanks to David Payne from ScoutMob for giving me the 411!

Conclusion

All of this is really, really cool stuff and is only going to get cooler. The biggest problem I see is tying the business decision to ROI… I smell a future blog post!

I would love to hear about people’s experiences using these or similar offerings as well as from the providers themselves!

Twitterville – Book review

I just finished Twitterville: How Businesses Can Thrive in the New Global Neighborhoods by Shel Israel that describes the growth of Twitter with numerous stories about how it has been adopted and used by numerous people and organizations. For local organizations, this might not be the best book, although for a more general understanding of Twitter I would recommend it.

Summary

Twitterville has a boat-load of stories about how Twitter is being used to reach target audiences. This includes heavy hitters like Dell, H&R Block, Comcast, American Airlines, and Zappo’s. There are also accounts of how government, hospitals, and individuals are discovering innovative ways to build communities.

Unfortunately, the stories related to small, local organizations using Twitter – outside of politicians – is limited to about 8 pages (156-164). Because of this, I would recommend this to local organizations if you are looking more for a resource that can explain the Twitter phenomena on a large scale than a strategy guide (there are 4 pages on getting started with Twitter in the Afterward, though).

This book is great for:

  • Learning about the history and growth of Twitter
  • Learning about the tons of creative ways people are using this seemingly basic technology
  • Learning about the Twitter culture and how to behave

Twitter Ads – coming soon

Twitter has released some preliminary information about it’s upcoming ad platform. Here’s what local organizations need to know.

Ads will be in Search Results

Ads will not appear on the right or left side of the page (like Google), they will appear in search stream results. So if you go to twitter and see all of the tweets from everyone you follow, you won’t see any ads. If you search for something (your organization name for example), you will see ads in the results. So if someone searches for “Italian Restaurant Atlanta” and you are an Italian restaurant in Atlanta, you’re ad might appear.

It’s unclear whether ads will appear in any Twitter lists you have created.

Ad size

Ads will fit within the 140-character size of tweets, so make sure you get your message honed.

Self Serve Ad model

The goal is for ads to be self serve, similar to Google or Facebook. That should mean that you will be able to go in and configure your own campaign, but details are fuzzy.

Success Obstacles

First, I hardly ever use Twitter to find information. In my opinion, Twitter.com is mostly unusable. I use tools like Tweetdeck and HootSuite and it is unclear how/if ads will propagate to these tools, although it sounds like there will be incentives for them to include them (revenue share?).

Also, Twitter is striving to mimic Google’s ad model, but Google knows a lot more about users that Twitter does, which allows them to direct ads based not only on search terms, but an understanding of who the searcher is. Twitter could overcome this by having cheaper rates, but it is going to be key to measure ROI!

Launch Date

Who knows.

Summary

It’s yet another place to allocate your marketing budget. We’ll see how it goes and I will keep you informed. Where do you spend advertising money now and how are your results?

Class action lawsuit against Yelp

Over the past year or so, there have been a lot of complaints about Yelp using questionable business tactics when soliciting businesses for advertising dollars. It looks like some businesses have decided that these tactics go to far. TechCrunch announced that two law firms – Beck Lee from Miami and The Westin Firm in San Diego have filed a class action lawsuit against Yelp for unfair business practices.

Quick Yelp Overview

For people that don’t know, Yelp is a “local search” site that allows users to review businesses. Kinda like a yellow pages where people post comments on their experiences. Users can search for a business – like an Italian restaurant in Atlanta – find results and see the business’ profile along with all of the reviews that business has received. Each review is tied to a registered user with their picture and a little bit of personal information about them, which gives business owners a way to better understand who the reviewers are. Users of Yelp build credibility in the system through these reviews that are rated by other users as funny, cool, useful, etc.

Why businesses like Yelp

Businesses seem to like Yelp because there are a ton of people using it, it provides them with feedback, but mostly Yelp lets them advertise. In that search for Italian restaurants mentioned above, at the top of the list will appear a restaurant that is paying Yelp for sponsored ads. As a user browses the site, additional sponsored ads appear on the right side of the page. Yelp provides businesses with information on the number of people that visit their Yelp profile which presumably translates into “butts in seats.”

Why businesses don’t like Yelp

The biggest reason businesses don’t like Yelp is because they sometimes get bad reviews and these are visible to anyone that visits the site. One can convincingly argue that people are entitled to their opinion and Yelp is simply providing a venue for those opinions to be expressed so that other people might make better informed decisions.

For a long time, businesses just had to take the negative reviews. Then Yelp allowed businesses to respond directly to a reviewer to try to address complaints in private. This led to some abuses as users posted negative comments in hopes that business owners would bribe them into changing the review. Last summer, however, Yelp started letting business owners respond in public to reviews. This was a little better, but businesses still don’t like negative comments (obviously). Rooz Cafe in Oakland even created a “No Yelper” policies.

Why are businesses accusing Yelp of “Extortion”?

There are a couple of reasons for this. A minor one that is frequently mentioned is that Yelp will show ads from your competitor’s business (who are paying) on your non-paying business’ profile. This practice isn’t that egregious, though and I think is up for debate.

The biggest reason stems from complaints from multiple businesses, the accusation that Yelp offers to squash bad reviews if they pay for ads (see the comments section on the TechCrunch article to get a feel for this). The business story generally goes something like this:

I had some negative reviews on Yelp and was contacted by a Yelp sales person that said if I paid $300 per month for advertising, those reviews would disappear.

That’s what all of the hullabaloo is about … these alleged sales calls.

Is all of this just business owners that are so upset about bad reviews they are making wild accusations or errant sales people within Yelp offering benefits off script? Maybe, but a quick search of Yelp extortion turns up a lot of results, dating back to 2008:

http://www.switched.com/2010/02/25/yelp-embroiled-in-bribery-extortion-and-defamation-dispute/

http://www.eastbayexpress.com/eastbay/yelp-extortion-allegations-stack-up/Content?oid=1176984

http://consumerist.com/2009/03/more-business-owners-accuse-yelp-of-review-extortion.html

http://blogs.sfweekly.com/thesnitch/2008/11/is_yelp_extorting_san_fran_bus.php

http://www.theregister.co.uk/2008/08/13/yelp_sales_pitch/

There is even a website dedicated to the topic:

http://www.yelpscam.com/press.html

Community Question

Yelp tries hard to present itself as a place to get quality reviews – their tagline is “Real People. Real Reviews.” Although, I guess that is still true, even if some of those reviews are removed. But the community question is: If these allegations are true, even if Yelp is not what we might want it to be, are they guilty of extortion?

Let me know what you think and tell me about your experiences with Yelp – good, bad or neutral.

New Facebook email versus Gmail

Apparently I’m over a week late on this, but Facebook has announced they are working on a revamping of their messaging platform to implement a full on email platform that will rival gmail (Yahoo Mail, AOL, etc.). This is to include POP3 and IMAP support (that means you can use it outside of Facebook).

Why is this such big news? In 2009, the time spent on personal email was surpassed by time spent on social media sites. Email is becoming more and more for business purposes while social media is the venue for personal messaging (even business use is shifting to some degree).

Is Facebook up for the challenge? Keep in mind that Google launched their social media platform – Orkut – one month before Facebook saw the light of day. If you’ve never heard of Orkut, it’s because it failed to gain adoption in the U.S… although it is huge in India and Brazil the same way David Hasselhoff is huge in Germany. One of the lessons to be learned is that huge companies – even Google – don’t always win.

But Facebook already has adoption and knows who your friends are. Plus, people are already using it for some messaging needs. It’s a crazy world.

Are you ready to rumble

So here’s the run down:

Google is doing everything including mobile phones and a new Operating System (Chrome) to rival Microsoft, Apple and even Linux. Plus they continue to try to push deeper into local search as evidenced by their failed attempt to buy Yelp.

Apple is trying to do everything, too. Recently, they have been in talks with Microsoft to use Bing as the default iPhone search engine instead of Google (what?!?!?!). To add insult to injury, Apple refused to accept Google’s Voice app into their App Store. All of this, of course, comes after Eric Schmidt (Google’s CEO) resigned his position as a Director at Apple based on a conflict of interest. Oh yeah, Apple also wants to be your cable TV provider.

Microsoft still has huge market share, but seems to be muddling by on its laurels. Although one of the reasons that Google’s $550 million bid for Yelp fell through was that Microsoft counter offered $700 million.

And Facebook continues it’s march to try to dominate how people interact online.

This is going to be a huge battle akin to the battle for delivering data to homes that pitted phone, cable, and satellite providers at odds when they all realized that fundamentally they were trying to do the same thing – deliver information.

Summation

So… how does this affect local organizations trying to reach their target audience and build patron relationships? Dunno, but unfortunately, I think this is going to get more muddled for the foreseeable future. In the meantime, hang in there and good luck trying to figure out where to put your time and money.

Let me know what you think!