Yelp retreats to the US and Canada as international expansion fails

Profile picture for user slauchlan By Stuart Lauchlan November 3, 2016
Summary:
With only around one percent of revenue coming from non-US business, Yelp's taken the decision to retreat to the US and Canada for future growth.

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It’s been coming for a while, but online review site Yelp has confirmed that it is pulling back from international markets, consolidating its operations in the US and Canada.

Yelp had a presence in 31 countries outside the US, but that presence only accounted for 2.2% of total revenues - and that percentage has been sliding for some time, hitting 1% in the most recent quarter. CEO Jeremy Stoppelman characterises the international push as a failure:

It's become apparent the changes in the international distribution environment have impaired the near-term growth prospects of our business overseas. As a result, we have decided to scale back investment outside our domestic market. This was not an easy decision as it may impact up to a 175 of our valued employees abroad. While they perform their jobs admirably, our strategy has not panned out.

In contrast, the domestic operation has been doing well with a 29% rise in total cumulative reviews to 115.3 million as of the close of the firm’s second quarter. That rise helped the firm to a surprise profit of $2.1 million - against an $8 million loss a year ago - on revenue up 30% year-on-year to $186.2 million.

With no need to allocate budget to international development, the firm intends to focus on a number of priorities at home, beginning with improving engagement with paying business clients. Stoppelman says:

With about 70% of paid views coming from the Yelp app in the third quarter, we're focused on driving high levels of app engagement for both consumers and business owners. For example, we recently integrated Nowait which allows users to get in line remotely at more than 3,200 popular restaurants nationwide. We're working just as hard to drive engagement on the business owner app, responding to customer interest in lead tracking and review notifications.

New offerings

The firm is also experimenting with new ways for advertisers to compete for leads, such as its Request A Quote offering. This allows Yelp users to see the rate and response time for a business rather than just messaging it to inquire about a service. Once they receive this information, users can then send on a request to other businesses for comparison. Stoppelman says:

We are just beginning our tests to make it a paid product and build it in that way, and so we're kind of early, we're doing a lot of experimentation. But we are seeing a lot of promise, so we'll keep you posted on that. We've also seen some category expansion as well, so it started with Request-A-Quote, but we also have things like Request an Appointment which works better in a category like beauty or spas, as we've rolled that out now fully and are seeing some traction there.

It's also driving business owner app usage, so that's another positive. There is a pressure to respond quickly and in fact most of our Request-A-Quote get responded to within 24 hours and so that's driving a lot of adoption of the business owner app because business owners are realizing it's important to be responsive.

He adds:

While Request-A-Quote is just one example of the transaction opportunities we're working on, we believe it has the potential to significantly impact our business over the long-term. When businesses advertise on Yelp, they experience compelling results. In fact a commissioned study by professors at Harvard Business School and Lehigh University supports that advertising on Yelp delivers results for businesses. In their study of more than 18,000 restaurants, the researchers noted significant increases in views of advertisers' pages, clicks for calls and directions and traffic to their websites.

With both Google and Facebook turning in stellar numbers around mobile and online marketing and advertising, Stoppelman is phlegmatic about the threat from such providers:

It's pretty much an annual process at this point that Facebook - and also you could throw Google in that bucket - launches something that is branded in the media as a new ‘Yelp killer’. Literally, I have looked in, if you go back every single year, and I think what that says is actually there is a pretty big moat around Yelp's business. We have 150 million reviews, it's up 29% year-over-year, which means a lot of our content is actually quite recently submitted.

So, the insights that we have on local businesses and the ability that we have to connect people with the best ones and help them transact is something very unique in the marketplace. So I feel better than ever frankly about our competitive position right now.

When you think about Facebook as a company, it's like their best people are working on their top priority and it's very clear that local is not their top priority, it's just something that they throw in the mix. At Yelp, we only have kind of one thing that we're focused on, which is this connecting people with great local businesses and that's what our best people are working on every day.

My take

The culling of international business can’t really be considered a surprise, although for those employees around the world it’s clearly not going to come as good news. But from a pragmatic business perspective, it’s a decision that improves Yelp’s prospects for survival and growth in a sector where Stoppelman’s confidence about the lack of threat from Facebook strikes me as overly-optimistic.