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Friday, March 30, 2007

Trendwatch: Yelp Poised for Breakout?

Yelp has been the most-watched company in the seemingly-narrow but fast-growing niche of user-generated content specifically with regard to bars, restaurants, and clubs, and "youth" oriented hotspots and retail. For them, it's beginning to expand to the point where they're a bit of a social community and a "go-to" site if you're looking for local review content.

Sure, there's a lot of room in this space for competition, but it isn't looking good for Yelp's competitors.


(Alexa is unscientific, I realize - but roughly accurate at the higher volumes. The bottom two sites are InsiderPages and Judy's Book. The blue breaking-out line is yelp. The top two are CitySearch (red) and SuperPages (cyan).)

It's fairly well known in insider circles that Yelp's startup competitors, InsiderPages and Judysbook, have struggled. This isn't the place to further examine why, but an easy and true answer is that there can only be so many winners in a space. As always, would-be destination sites are competing for valuable user attention and loyalty.

There is also a potential vulnerability in the bigger traditional (superpages) and nouveau (CitySearch) listings providers. Their support seems to be gradually eroding.

Meanwhile: new startup local search and review services are launching (such as ZipLocal, just launched in Canada). Established local portals are redesigning their interfaces and spending more dollars on marketing and ad sales. Huge media companies, I hear, are set to launch their own little Yelp-like experiments.

In this chaos, if Yelp can emerge as a clear leader, it makes a user's choice a lot easier, and makes it that much harder on Yelp's competition. But depending on your location you may not see Yelp as a clear leader yet.

The other variable is business models and longevity. Any number of scenarios can play out. Ambitious startups that are bleeding money, like InsiderPages, are likely to flame out. Traditional media companies running breakeven-or-better local portals aren't likely to go away, and they already have sales forces in place. Larger media companies launching new experiments *seem* to have staying power, but if there is zero adoption of their new ventures, then they'll just be folded up. And Yelp is no doubt burning cash too fast for its current monetization model, so it relies on a favorable buyout price as its "business model."

Another business model consideration is that sales effort alone can't sell these listings. If local business owners - confused about online to begin with - are being besieged by salespeople for local listings sites, it's only those with strong brands or those with "hot" brands that can really rely on business owners paying attention to their sales pitches.

Putting it all together and looking at the strong indicators in the user numbers, I'd conclude that Yelp will triumph amidst the chaos and will likely get its favorable buyout price.

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