Question: Analyze the lean start-up process (build-measure-learn feedback loop) of Yelp in the market.

12:26 PM 91 Case 2 - Yelp.pdf American in 2011), contrast to There are numerous websites where one can review restaurants online, including for example Yelp and Foursquare. Prior to online reviews, people generally found reviews in printed guidebooks. This genre became popular in the nineteenth cen- tury, when transportation technologies and increased private wealth made it easier for people to trave internationally There was a major impetus to the publication of guide books between the two world wars on account of the increased availability of automobiles to middle class Americans. The most popular guidebook in America between the two world wars was Adventures in Good Eating (1936), written by the travelling salesman Duncan Hines . After the Second World War, books appeared in America, including popular series published by Eugene Fodor and Arthur Frommer. In recent years, the four most important guidebooks in have been those from the Mobil oil company (now published by Forbes) the American Automobile Association, Michelin, and Zagat (purchased by Google w It is useful to discuss the Michelin and Zugat guidebooks briefly, for they offer to Yelp's reviewing model, which we discuss in detail below. The Michelin guides were first published in France in 1900 but only introduced into the United States in 2005. Michelin reviews only the very highest quality restaurants. Its reviews are written by professional reviewers employed the company, who visit the restaurants anonymously to gather information for their reviews. The Zagat guides were created in 1979 by lawyers Tim and Nina Zagat, a husband and wife who quit their day jobs to build their guidebook company. Zagat collects reviews of restau- rants from a wide set of volunteers. These reviews are severely edited and rendered into numerical scores on food, cost, service, and ambience - and presented together with short quotations from a few of the individual reviews. While Zagat reviews a larger number of restaurants than Michelin does, still it is only a minority of restau- rants that receive reviews. Like Michelin, Zagat's focus is on higher end restaurants (Breidbart 1999: Leonhardt 2003; Willett 2012). Yelp provides an rovides an interesting contrast to Zagat in the way that it carries out its reviewing. Yelp was created in San Francisco in 2004 by Jeremy Stoppelman and Russel Simmons, two friends who had worked together as software engineers at PayPal, and who cashed out when PayPal was sold to eBay (Foremski 2004). These friends began to look for something else to do. The creation myth is that Stoppelman was seeking a doctor but did not know how to find a good one. He conjured a con- voluted scheme of emailing friends to ask for recommendations and then placing 33 Ce: Yelp their responses on a public website where all could read them. Max Levchin, one of the cofounders of PayPal, provided $1 million to develop this email recommenda tion system. The system did not work out, but in the process of trying it out, Stoppelman and Simmons found that people were writing reviews for fun, and thus the basic idea for Yelp was born. The goal of Yelp is to allow crowds of people almost anyone who wants to contribute to review any kind of business that has a street address. While there are reviews of all kinds of businesses - bookstores and hair cutting salons, for example - the largest category of reviews are of restaurants As Stoppelman explained "Yelp just democratizes the reputation of a business... Rather than a single arbiter of taste, it's hundreds of peop ying whether they like the business or not" (as quoted in Sutel 2007) An entry for a typical business includes its average rating on Yelp's five-point rating scale, basic information about the business (name, category, business hours, telephone number, accessibility, and parking situation, and written reviews of the business (Graham 2007, Hansell 2008. McNeil 2008: Restaurants and Institutions 2007). Most reviews are shown on Yelp's website, but there is an automatically applied algorithm that filters out reviews that are deemed suspicious. Examples of 12:27 PM 91 Case 2 -Yelp.pdf : 3.3 Case 3: Yelp 47 cutting their responses on a publie website where all could read them. Max Levchin, one of the cofounders of PayPal, provided Sl million to develop this email recommenda- tion system. The system did not work out, but in the process of trying it out, Stoppelman and Simmons found that people were writing reviews for fun, and thus the basic idea for Yelp was born. The goal of Yelp is to allow crowds of people - almost anyone who wants to contribute to review any kind of business that has a street address. While there are reviews of all kinds of businesses - bookstores and r examplethe largest category of reviews are of restaurants, As Stoppelman explained: "Yelp just democratizes the reputation of a business. Rather than a single arbiter of taste, it's hundreds of people saying whether they like An eness or hot" (as quoted in Sutel 2007). An entry for a typical busin cludes its average rating on Yelp's five-point scale, basic information about the business name, category, business hours, telephone number, accessibility, and parking situaties), and written reviews of the business (Graham 2007: Hansell 2008. McNeil 2008, Restaurants and Institutions 2007). Most reviews are shown on Yelp's website, but there is an automatically applied algorithm that sout reviews that are deemed suspicious. Examples of suspicious reviews are ones that are tare overly supportive as though they may have been written by the friends and family of the business owner, or overly negative ones that seem as though they may have been written by competitors or people who hold a grudge against the business owner such as disgruntled former employees. Reviews that are otherwise not helpful are also filtered out. The filtered reviews are not t instead appear on a page that is hidden unless the reader seeks it out Profiles are given of the reviewers, which can help readers discriminate among the possibly hundreds of reviews of a single restaurant Readers can mark individual reviews as useful, funny, or cool and a tally is kept of how many of each of these particular kudos each individual reviewer has received. Individual reviewers are also given credit for being the first to review a particular business, or for having written the best review of the day. Individual reviewers can also have a friends group, just as on Facebook or other social networking websites, where their reviews to their friends and they can chat with them (Porter 2008). Individual reviewers can also have fans, people who remain anonymous to the reviewer but who follow this individual's reviews. The profile page also contains photos, bookmarks, other content, and information about how long the individual has been a member of Yelp. The intention is to provide enough information that a reader can get a sense of the reviewer's interests and background, but not enough information that the reviewer can be personally i identified. Yelp does not want a business owner who has received a negative review to be able to personally identify the reviewer. This privacy goal is difficult to achieve. One problem for the reader is that having hundreds of reviews of a particular restaurant can offer an overload of information. Yelp has addressed this issue by building up a small core of reviewers who post reviews frequently, write particularly engaging reviews, or have large groups of friends and fans. This core is known as the Yelp Elite Squad (McCarthy 2007; Owyang 2008, Stross 2008). Being selected for the Elite generally regarde the regular use of Yelp expunged but instead 12:27 PM (91) { Case 2 -Yelp.pdf : considerable home, and the reviews written by members of the Elite Squad tend to be read much more often than those written by others. Yelp pampers its Elite Squad members, giving them special recognition online, offering them their own newslet- ter, and holding in-person social events exclusively for them (free dinners, open hars. etc.) in order to to build community strong these select reviewers. The New York Times profiled one Yelp reviewer (Megan Cress, known online as Megan C.) who as of 2008, had written more than 300 reviews (95 of them "firsts), and who had 957 friends and 151 fans on the Yelp website (McNeil 2008). (A profile of a diller- ent Yelp Elite member can be found in Chap. 1.) The social networking aspects of the website and the success of the Yelp Elite Squad have contributed to Yelp's popularity. One Yelp Elite member (Ellen M. from Chicago) wrote: "I love to write reviews, but I think the social networking and inter action with yelp friends is what really compels me to continue." Yelp has much higher online traffic than other online restaurant reviewing websites. As of 2011, it had published 18 million reviews of businesses and was receiving 50 million unique visitors to the website each month. Yelp's founders, Stoppelman and Simmons, were interested in social network ing, and they used it as the foundation for their business Actually, Stoppelman and Simments weren't just looking for a new doctor A pair of unre pentant party boys.. they were in a parpetual search for the greatest restaurants and clubs in San Francisco. To Yelp ground, they decided to started hosting Yelp parties at local establishments... (Flickr is littered with mucous snap- shots from Yelp events featuring har dancing and endless trains of women hanging all over the co-founders.) More important, the revelry got people writing reviews, building up the website's content Today Yelpers seem to live on the website, messaging one another about their social lives, reacting to reviews, and planning get-togethers. That's the social networking part. As is the case on most social networks, Yelp nife with self-concus patter. But there's a point to all the yamaning: finding cool stuff that's not too far away. It's a mission everyone seems to take seriously. (O'Brien 2007) It is instructive to compare Yelp and Zagat (as Zagat operated prior to its acquist- tion by Google in 2011). In Yelp the ratings and comments of every reviewer appear in complete foem and are attributed to the particular reviewer (unless they have been filtered), while Zagat only publishes snippets from a few of the reviewers of a par- ticular restaurant - and those reviewers are not identified. In Yelp, readers have free access to all reviews, whereas most of Zagat's ratings and reviews were availat only to subscribers who paid for online service. Yelp accepts reviews about any restaurant and posts them, while Zagat accepts comments about any restaurant but only gives a rating and posts an entry on a small subset of the restaurants, as selected by its editorial statt. web traffic is large and continues to grow rapidly, while Zagat's web traffic is much smaller and continues to grow at a moderate pace. While this chapter emphasizes the aspects of Yelp as a restaurant reviewing web- site. if one focuses more on the business model, one can see Yelp's business as being one of capturing the local advertising market, which one scholar has valued at $100 billion annually O'Brien 2007, also see Sutel 2007). O'Brien notes that Yelp's model of using crowdsourcing to pecduce business reviews, is only one of several possible business models. Others include a directory model (e.g. used by most tra ditional hocicon in which are colec frants to mercharhin mun. Another 12:27 PM 91 Case 2 -Yelp.pdf : for more possible business models. Others include a directory model (e.g. used by most tra ditional businesses), in which a large sales force attempts to persuade business own- ers to buy additional and more expensive ads: a proprietary model (eg. CitySearch), in which a company creates proprietary content and sells ads in support of it, or a search engine model (c.g. Google), in which a company crawls the web and tries to automate the sales of advertisements to those businesses uncovered in the trawl. When viewed in this way, Yelp can be seen in trying to take over some of the market currently served Yelp's creation myth, in which Sioppelman had become fascinated with the way in served by The Yellow Pages. This analysis squares with another part of which Craigslist had undermined traditional classified advertising in newspapers Over time, the company needed extra funding primarily for office space and additional sales staff as it expanded into new cities and countries. As of 2010, the company employed 600 workers and was sponsoring 900 events per year for its Elite Squad (Stoppelman 2010). The company has successfully raised funds in sev eral rounds of funding. In addition to the initial sl million from Max Lenchin, the company received 5 million in 2005 from Bessemer Ventures, a sponsor of Skype. round of funding came in 2006 from Benchmark Capital. a sponsor of cBay. A third round of funding in the amount of $15 million came from DAG Ventures in 2008, a sponsor of Friendster (McCarthy 2008: McCarthy 2008). In 2009 Google came close to purchasing Yelp for than 5500 million (Arrington 2009). When the deal fell through Google began to devekip its own Google Places business in competition with Yelp. Google was strongly criticized for using Yelp reviews on its Google Places searches without a licensing agreement with Yelp, and this was partly rectified when Google purchased Zagat, which gave i a legitimate source of reviewer content to post (Barth 2011: Chan and McBride 2011; de la Merced et al. 2011: Kincaid 2011). In late 2011 Yelp filed with the Securities and sand Exchange Commission to raise up to 100 million in capital. The company had a successful public offering, with the stock value rising 64% on its first day of trading in March 2012 (Evangelista 2012: Tan and Kucera 2012). wwever, the company has not seen a profit since 2007 and despite a large increase in revenue it lost more than $16 million in 2011. One of the company's successful strategies was to focus its early efforts on build ing critical muss in the San Francisco area before moving into the markets. There are over 19,000 reviews of restaurants in the San Francisco area, and there is a gen- Yelp has rather thorough coverage of of the San Francisco restaurant scene (Laninin 2011: Maddan 2005). As Yelp first expanded into other cities, such as Los Angeles, San Diego, Boston, New York, and Washington, it adopted a practice employed by several of its of its competitoes (including Epinions, Judy's Buck, and Insider Pages) to pay people to write reviews so that there was suf- ficient content on businesses in the expansion cities to attract users (San Francisco Business Times 2006). This method did not work well for Yelp, so it dropped this practice in 2008 to focus on building up Elite Squad presence in these expansion locale, using in person events to build the community of reviewers. The company waited until 2008 to expand outside the United States - first to Canada and then to Western Europe and Australia (Mawby 2011; Schonfeld 2011). The low-profile cral sense that complete and 12:27 PM Case 2 - Yelp.pdf : Comments not is advertising style was intended not to offend reviemers or readers as being too commercial. Yelp posts no banner ads, for example. Most of the advertising revenue comes instead from business listings and in particular from providing preferred placement to companies on the search paves. To keep the focus on quality busi- nesses. Yelp only accepts ads from businesses that received an average score of at least three stars (on its five-star scale). One can access Yelp by smartphone as well as computer Jensen 2005). Yelp has had a number of competitors. Los Angeles-based City Search which generally publishes more moderate reviews than Yelp, was the market leader when Yelp entered the field, but Yelp surpassed City Search within 2 years. Yelp learned some of its social network business model from Epinions, which differs from Yelp in that its website allows not only on restaurants or other businesses, but also on specific products (eg. vegetable peelers) and on non-profit institutions (eg. colleges) . The interaction between reviewers and other consumers is a valued feature of Epinions: "The cool part of Epinions is waiting and seeing how people rate your review (quoted in Frauenfelder 2007). Epinion reviewers could sign up for email to alert them when somebody has rated their reviews. Some of the early entrants went out of business quickly, such as Seattle-based Judy's Book and Intuit's Zipingo (Arrington 2007). Other competitors includedgeneral-purpose InsiderPages, travel websites such as Gogobot, and Afar, and restaurant website MenuPages (Yu 2011). The blending of Yelp's online reviewing with its in-person social events is similar to the online social event calendar Going the online website for finding dates and drinking buddies I'm In Like With You, and the social action mobilization website Meetup, Eat-A-Rauma, which runs as an application of Facebook for restaurant discovery, might also be considered a competitie Restaurant Hospitality Restaurants , and businesses in general, have a love-hate relationship with Yelp (Trapunski 2011). Favorable reviews on Yelp can generate extensive customer traf fic to the restaurant. But unfavorable reviens can be harmful to custom, and the restaurant owner might not even be aware of the reviews or even of Yelp itself. In 2008 Yelp wanted to improve its relations with husinesses, so it provided them with some new tools: a system to send messages to reviewers, a way to find out how many people viewed their business page an an Yelp, a tool to their business entry more easily and quickly, and a way to receive notification reviews of their business were posted (Duxbury 2006: Gonzalez 2008). There are speculations in the literature that some businesses have tried to use to bolster their business by surreptitiously publishing their own favorable reviews or paying a service such as write and post favorable reviews on behalf of the business (Streitfeld 201 la). Yelp wants to prevent this from happening, the large number of postings means that Yelp's first line of defense has to be an automated filtering tools and at times spurious reviews pass muster under this auto- mated scrutiny Leung 2010: Lewis 2011; Labin 2012). Writing such reviews is against Federal Trade Commission rules passed in 2009, which han undisclosed paid endorsements, but a small business owner is unlikely to get caught. There are 2008, 2011a). to update when new as Fivert 10 but the contract, negative review Lawsuits against Yelp... 20 million or so in the United 12:28 PM Case 2 - Yelp.pdf : reports of business owners offering discounts ar free products to customers who write good reviews on their behalf. It is unclear how widespread these activities are What is much more common are complaints by business owners about pressure tactics from the the Yelp sales force to buy advertising to help them manage negative reviews. In one well-publicized court case, Dr. Gregory Perrault, the owner of the Cats and Dogs Animal Hospital in Long Beach, California, sued Yelp for extortion (Zetter 2010). The story begins with a request to Yelp from Perrault to pull a nega tive review. Yelp obliged because the incident that was discussed in the review had aceurred more than 18 months prior to the posting of the review and thus did not meet Yelp's timeliness spolicy. However, soon a new negative review appeared on by someone signed on as nas Kay K., and shortly after this, Yelp sales staff called on Perrault to sell him advertising with the assurance that they could help him to manage negative reviews like the one from Kay K. Perrault declined the advertising the 18+ month old review reappeared on Yelp, as did another by Kay K. that made personal attacks on Perrault. Perrault com plained, but Yelp left offending reviews online. At this point Perrault sued Yelp for extortion and fraudulent business practices, claiming that Yelp sales people used high-pressure sales tactics on hirr, offering to remove or place negative ads in a less place on the Yelp website if he would purchase a 1-year advertising con tract at the cost of $300 per month The case was amended in 2010 to a class action suit when nine small business , including a Chicago bakery, a Washington, DC restaurant, and a Califomin furniture store joined Perrault as plaintiffs (Ali 2010). US District Court Judge Marilyn Patel dismissed the extortion charge against Yelp in 2011 because the com munications from Yelp brought into evidence did not meet the criteria for being extortion (McCarty 2011). Yelp CEO 11). Yelp CEO Jeremy Stoppelman used combative language in rebutting these charges on the official Yelp blog he wrote: "Last year [2010], a few small businesses States filed mis Although the lawsuit was settled in Yelp's fawor, the suit brought to light a num ber of other complaints from jusumalists and business owners about Yelp's sales actices (Falconer 2011: Metz 2008). CBS Channel 5 in San Francisco, the British online science technology journal The Register, Wired online, and the newspaper East Bay Express all ran articles reporting on complaints about Yelp similar to those lodged by Perrault (Pavini 2008). In an East Bay Express article Kathleen Richards reported that she had heard from six small business owners who claimed that Yelp sales staff had promised to move or remove negative reviews if the business would sign up for an advertising contract, and another six reported that positive reviews disappeared or negative ones appeared after they refused a Yelp advertising contract (Richards 2009a). Stoppelman derided the article. criticizing it for using anony mous sources. Richards then wrote a follow-up article in the same newspaper that identified two sources, the owner of M&M Auto Werkes in Campbell, California and Calvin Gee, the owner of Haight Street Dental in San Francisco, who both com plained about similar treatment (Richards 2009). accessible owners. example, on the from 12:28 PM Case 2 -Yelp.pdf : Several of the online articles had comments posted from business owners complaining about Yelp's sales tactics. Here is a comment to the Wired article, posted by Gloria Kardong, an M.D. in Palo Alto, California I am a buss owner. I had all star unsolicite from my clients. Thessed to receive attressise advertising calls. I refused to advertise in exchange for good ratings because I don't need to do so and hecause it is thical. I also told them that everyone know about the extortion yelp perpetrates on small business owners who don't advertise with them. One week later. I received a one starting. My 10 and 20 year clients who are me all star Iwi were put into the filtered categy and the one star rating was left hehind. When I complained about this and made the connection between my refusal to advertise with them and the plummeting rating from 5 star to 1 star led to them filtering mother 5 star rating. I also asked them to remove the 1 stur riting because it was a fabrica lion that violated their wa policie They oponlod by filling mothers star rating I have ten 5 star ratings and one I starnuting. They list only 2 of these 5 star ratings along with the one starting, cutting my overall rating in halt. All of you who are complaining below simmeretition. Thanks for speaking up anyway. Yelp has also been sued for patent infringement by Earthcomber, a Chicago based company that received a patent in 2006 for a process to use software based on global positioning system technology to match a person to a nearby place of interesi (an event or a particular kind of business). Earthcomber appears to be a patent troll because it also sued OpenTable Groupon, and ten online real estate businesses including Zillow and Trulia on the same grounds (Roberts 2012). When sued, Zayat licensed with Earthcomber, causing Earthcomer to become more aggressive in its lawsuits In another well.covered story, one can see how the tension between negative reviewers on Yelp and small business owners can erupi in violence. Sean C. wrote a negative review on Yelp of Ocean Avenue Bookstore in San Francisco. The book store owner, Diane Goodman, wrote a nasty message to Sean C using the tool that provides enabling a business owner to write a one-time email reply reviewer. Sean C. posted screen shots of Goodman's message on flickr. Goodman was able to ascertain Sean Cs identify from his flickr user profile and came to his house with bagun. They had a tussle when she tried to force herself in his house, and during the alteration she fell down several stairs. Police charged her with battery, and Sean C. took out a restraining order. The bookstore subsequently closed (NBC Bay Area 2010: Yoo 2009). Some restaurant owners are deeply unhappy with Yelp and the nature of the reviewing process, viewing Yelpers as "fork-waving mob of know nothings." (McNeil 2008). Consider ? the case of well-known Chicago chef Graham Elliot Bowles (known professionally by his first two names) who has appeared on several television cooking shows and holds a Michelin star for one of his restaurants (Stein 2010). Bowles has been kicked off of Yelp three times for replying to Yelp reviews that he believed to be factually incorrect. His disgust with Yelp was cemented when he received a Yelp review of his new restaurant (Grahamwich) before it apened. Somebody had read in a Chicago magazine that Bowles was opening the new restaurant walked down to the location to try it out but found it had not opened yet. 91 @ Case 2 - Yelp.pdf : Ray Area 101 Restraining and The bookshequently closed NBC 12:28 PM based company that received a putent in 2006 for a processo e software based on global positioning system technology to match a preto nearby place of interea an event or a particulat kind of business Ecomer appear to be a patentral because it also sud OpenTable Groupon, and ten online real estate businesses including Zillow and Tralom the same grounds (Roberts 2012). When sued, at licensed with Barthcombes, coming home to become more aggresive in its In another well.covered story, one can see how the tension between negative reviews on Yelp and stall business we can rupt in violence. Scan Culea negative review on Yelp of Decan Avenue Hookstore in San Francisco. The book store owner, Diane Goodman wrote a nasty message to San C ming the tool that Yelp provides subling a business owner to write a me time email reply to a review Scan posted screenshots of Goodman's message on flickr Goodman was able to ascertain Sean identify from his lickr wer profile and came to hin house with a gun. They had a tassle when she tried to force herself in his home, and during the alten she fell dowe oralais, Police charged her with battery and Sean Cocktai Some restaurant owners are deeply happy with Yelp and the nature of the Viewing process, viewing Yelpefork waving meb of Know nothings Bowles (known professionally by his first we sames), who has appeared on several McNeil 2008. Consider the cool walkwa Chicago chef Gesham Elliot television cooking shows and holds a Michelin star for one of his restaurants (Stein 2010. Bowles has been kicked off of Yelp three times for replying to Yelpreviews that he believed to be factually incorrect. His disa sith Yelp was cemented when he moeived a Yep view of his new restaurant (Grahamwich) before it opened Somchody had read in a Chicago magazine that Bowles was opening the new restaurant walled down to the location to try it out but found it had not opened yet. targeted at a Second, Yelp made, but So the person gave a negative rating (1 star out of 5) and referred it his review of a pleasant walk ruined" (Brion 2010). Four other general criticisms have been lodged in the press about Yelp. The first is that Yelp's reviewing process can discourage food innovation or menu that are at a narrowly focused audience. Apparently an extra star in the Yelp rating system translates to an average of 9 % of additional business. So a restaurateur may be risk averse in deciding what to serve, so as to appeal to the typical Yelp reviewer Yelp might harm restaurants by premature reviewing. Most restaurants take a t the kinks out of their operations when they first open. In earlie there was typically a grace period before the first review visits to be the first to review a business and restaurants often receive encourages people Yelp Yelp reviewers on their opening night. Third, Yelp may damage the thrill of explor- ing a new restaurant . A person might decide not to go to the restaurant after taurant from the reviews that decide to go, she might know so much about the res an instance of what author Edward Tenner calls counter-serendipity, where little new to experience when she gets there. advanced knowledge of something reduces opportunities for fortuitous experiences (Doig 2012). Finally, Yelp reviews may also represent a segment of the population that is mismatched with the interests of a particular reader or the target audience of the restaurant. The reviewing population is generally young (Yelp says that 42 % are between the ages of 18 and 34) and without children (63%). The reviewers tend to be value-conscious: they are not generally willing to pay premium prices for premium products. Thus, reviewers of a restaurant designed to cater to an older, wealthier clientele might not review favorably on Yelp. Because of the nature of its reviewers, Yelp reviewing ignores the fact of market segmentation and applies its standards to segments that might have different values (Simester 2011). This