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Yelp: An example of a high-value advertising model

I’ve been following Yelp in the news for quite a while now. In particular, their Alexa stats have been impressive to watch. As an aside, Alexa stats are really interesting to follow, particularly in the 1000 to 5000 range. That’s when sites reach a critical mass of typically more than a million pageviews per month – some internally modeling we’ve done at work shows that 4500 is about the magic number for 30 million pageviews/month. That’s the "up and coming" group of sites.

Anyway, Yelp will be very easy to monetize. In fact, in my opinion, it’s a textbook play for high-value direct response advertising. The reason is that, like search, review sites are only used when people are going through some sort of purchasing cycle. And sites like these (Zillow being another example) monetize very well because they are capturing this intent and can funnel leads to other websites in a manner that results in high conversion rates.

The main changes I’d make to the site – they need to focus more on organic search indexing. So all the URLs should list the titles of the reviews. That’s a huge part of the strategy, to make sure they get high ranked pages in all the search engines – if they don’t have people specifically to guide strategy around this, they are missing out. Then secondly, they need to figure out how to monetize these users in the backend. Throwing up text ads is probably one idea – they probably want to cut a special deal with Google to pass them specific context to finely target the ads – or they can hook into a pay-per-call company that charges these businesses by dynamically rewriting an 800 number that reroutes to the company.

Either way, it’s clear that Yelp is a company to watch – not only will they have the Web 2.0 hipness and audience to match, I predict they will have strong revenue traction. If they don’t turn out to be a multi-hundred million dollar acquisition or better, I’d be disappointed.

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