[Freelanced article written for The Motley Fool]
I like feeling that I have some power as a consumer. Nothing makes me more frustrated than knowing that I lack choice and that voting with my pocketbook doesn’t matter at all.
What’s particularly intriguing is the bevy of social media tools and apps at our disposal and how they have changed the dynamics for consumers. Three very consumer-oriented tools that I’ve used are Yelp (NYSE: YELP ) , Open Table (NASDAQ: OPEN ) , and new kid on the block Google (NASDAQ: GOOG ) Plus Local. While for some this might seem confusing and even daunting as to which site to rely upon, for those that value local and care about transparency, this leveling of the playing field is a good thing.
All three companies offer investment opportunities. According to Bloomberg BusinessWeek, OpenTable’s third-quarter profit ticked up 28% as consumers continued to enjoy its online service allowing them to book restaurant reservations.
In fact, the number of restaurants now using OpenTable’s software increased 17% and now sits near 31,000. Eaters booking reservations increased 30%, and that total is now at 38.5 million. The company’s revenue is derived from fees paid by restaurants using its software.
Google’s Local app is another reviews and ratings site that lets consumers rate and review anything from hotels, shopping and other local options, including restaurants. Actually, Google acquired old school rating site Zagat in September 2011. Since then, they’ve integrated it with Google Plus, creating what is now Google Plus Local.
Google Plus Local leverages Google’s search engine technology to create unique summary reviews; these are displayed at the top of your screen, so users don’t have to scroll through hundreds of reviews just to get a general understanding of the venue.
When it comes to search, Google is a monster. While I’m a fan of all-things-Google, I find their Local option confusing, and consumers don’t want to be confused. For me, at least when it comes to ratings and reviews, I want usability.
That’s why I really like Yelp. I’ve been writing reviews on the Yelp site since July 2010, and it’s become my go-to app when it comes to choosing restaurants, hotels, and many other local consumer options, as well as being especially helpful while traveling and finding myself in a city that I don’t know very well.
If you’ve been living under a rock, Yelp is an online review site founded in 2004, designed to provide free, detailed information and user reviews about a broad range of local businesses, restaurants, retailers, home service providers, etc. Yelp generates revenue by charging a CPM (cost per thousand impressions)-based subscription fee to local businesses who want to advertise on its site. Yelp had an average of approximately 117 million monthly unique visitors, according to third quarter reports, and Yelpers have written over 47 million local reviews. The bottom line is that Yelp elicits passion from its fans.
While passion can certainly be a force for good, it can also fan the flames of criticism, which has happened with Yelp. There have been a number of stories that reviewers and businesses are “gaming the system.” If that’s the case, then wouldn’t it call into question the veracity of the entire review protocol of Yelp? Some business owners, especially small business owners that received bad reviews, claimed that Yelp actually “filtered” reviews, posting favorable reviews and removing unfavorable ones, based on whether a business advertised on the Yelp site or not.
Yelp CEO Jeremy Stoppelman, in an attempt to address some of these charges, held a reddit AMA (Ask Me Anything) the other week, addressing some of those claims and criticisms and to talk about the company.
Addressing claims that Yelp holds positive reviews hostage by not allowing them to be viewable, Stoppelman said,
“There has never been any amount of money you could pay us to manipulate reviews. We do have an algorithm that highlights the most useful and reliable reviews on our site which is about 75% of contributed content. I started Yelp to solve my own need of finding a great doctor, obviously we needed to protect consumer(s) against fake reviews and spam to make sure the site is actually helpful (anyone remember CitySearch?). That’s why we pioneered the development of a review filter, a technology that other competitors like Google have since tried to mimic.”
Yelp’s stock price has soared in 2013, up more than 240% for the year. At the same time, the company posted a third quarter loss of $2.3 million, or $0.04 a share, on revenue of $61.2 million (attributed to surging marketing costs); this obscured another double-digit revenue increase for the company. This raised concerns about Yelp from some in the investment community, thought others were more optimistic.
Yelp is promising additions to its service to attract more users. The company recently purchased SeatMe, which will allow diners to make reservations at businesses on the site. That’s a similar feature offered by chief rival OpenTable.
Analysts at Jefferies are hopeful that these features will make it easier for Yelp to generate more advertising revenue. Jeffries’ analysts wrote in a report that they are a “low cost way” for Yelp to make more money from its “large and growing traffic to its properties.”
Major stock price gains for companies like Yelp up the ante on the investment side, forcing it to live up to expectations and even the hype.
Fool contributor Jim Baumer has no position in any stocks mentioned. The Motley Fool recommends Google and OpenTable. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.