Shareholders of the consumer review site Yelp are none too happy with the company’s performance in the second quarter of 2015. Yelp announced today it lost $1.3 million. That follows equally disappointing losses the quarter before that. Truth is, there are now plenty more places people can go to find the best cheesesteak in Philadelphia or the hottest tapas place in San Francisco. And the competition for Yelp is only getting stiffer.
Neeru Paharia, who teaches marketing at Georgetown University, opens the Yelp app on her mobile phone. Her query? Simple enough: restaurants in Washington, D.C.
“It’s sorted by best match, which, you know is … like, what does that even mean?” she says.
What does that even mean? Critics of the site claim that Yelp filters search results based on its advertisers. The restaurants and businesses that buy ads get reviews closer to the top, they say. In reality, Yelp bases its results on what it knows about you, says John Byers, a computer science professor at Boston University.
“So are you a four-star diner?” he asks. “Are you somebody who wants to do something more casual?”
Yelp’s algorithms do suppress a significant number of reviews, Byers says — the ones that it thinks are fake.
“Those algorithms are imperfect, so they do make mistakes,” he says.
Another company that loves algorithms? Google. Which brings us to Yelp’s other problem, according to Ben Edelman, who teaches tech strategy at the Harvard Business School.
“When you type in the name of a restaurant, it’s by no means guaranteed that Google will send you to the Yelp page about that restaurant, nor for any other local business,” he says. “Indeed, these days Google likes to send you to its own page.”
Yelp has the traffic. Every month about 83 million users visit Yelp from their mobile devices.
“But how does that translate into actually making money, into selling ads, into convincing advertisers to pay or into something else?” Edelman asks.
He said those are details Yelp has yet to figure out, along with almost every other social media startup.
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