Yelp's COO: We want to be independent (for now)

October 12, 2010: 11:56 AM ET
Despite rumored bids from Google and Yahoo and lawsuits from disgruntled small businesses, Geoff Donaker says the popular listings service is right where it wants to be -- connecting with the young and affluent.

Over the last year, popular business listings site Yelp experienced several notable developments -- and not all of them were welcome. The company founded in 2004 by former PayPal employees Jeremy Stoppelman and Russell Simmons, now serves over 30 million internationally, including non-English speaking citizens in France and Germany; its mobile app, which now include a Foursquare-like "check-in" feature, claims three million regular users.But over the last year, rumors and speculation have also cropped up.

In December, the company reportedly spurned Google's half-billion dollar bid because Yahoo (YHOO) jumped in with a $750 million offer. According to some reports, Yelp's management wasn't keen on being shackled to Yahoo and preferred Google (GOOG), but the latter tech giant refused to sweeten the pot. (In the end, negotiations supposedly fell apart.) And earlier this year, several small businesses filed lawsuits alleging that sales reps reached out and offered to hide negative reviews if they bought advertising.

COO Geoff Donaker recently sat down with Fortune to give a status update on Yelp's expansion and to address those pesky rumors.

Fortune: What continues to differentiate Yelp from other similar business listings services?
Donaker: The core point of differentiation has been the same one since the beginning and that's the community. I think that's easy to say, but when you boil it down and look at our reviews and the profiles, what that actually translates to is a nuanced but fundamentally different experience for you because of those user reviews. The average person may have written 50 or 100 reviews of places they've all been to the last couple of months, so you can really get a good picture of who that person is and where are they coming from in addition to if they love that restaurant. I don't want to comment specifically on another site, but when you think about most of those other sort of services, I tend to see a lot of more of what I'd describe as kind of a drive-by review.

The scene on Yelp is different -- there are a lot of three, four star reviews that get written. Because when you're sort of Yelping, you tend to talk like, 'This place is pretty good,' the steak was wonderful, the salad was mediocre, the waiter was fairly nice, and it took an extra 10 minutes to get the check.' That sort of nuance sets us apart.

While Yelpers seem to run the gamut, is there still a specific user profile?

What we tend to see is we skew 25 to 45 and we skew fairly high-income, and we skew extraordinarily high on the education level. Yelp is both a site where you go to write about things very publicly about your experiences. It tends to attract a very educated sect. People who aren't great writers probably aren't going to want to do a lot of writing publicly. On the other hand, who goes out and spends a lot of money on local businesses? People who are relatively young and affluent. It just kind of makes sense  -- you go more places at that time in your life.

Part of the Yelp experience now involves the mobile app. Some of the companies I've spoken with have really prepared well for it, but others have admitted it caught them by surprise. Where does Yelp fall on that scale?

For the first several years, people have been talking about mobile. But until the iPhone, the whole presence wasn't going very quickly. With the advent of the iPhone and the app fest, things sort of changed overnight where we had an opportunity and a challenge frankly to quickly sort of deploy everything that existed on Yelp.com into a totally new device into a new kind of platform and everything that goes with that.

So I wouldn't say I was surprised, but things unrolled a little differently than I might expect.

How so?

Well, given the sort of openness of the web and what the industry went through in the late '90s with regards to bringing up standards and trying to come up with a standard way that you could build a web site that could work universally across browsers and hardware and what not, I think we might have hoped the mobile universe would evolve the same way, rather than having to build a whole bunch of proprietary systems.

So I guess that's the surprise, if you will -- the way things evolved. But we always knew that Yelp would make a lot of sense on the go and that it would be an important transition. When you have an hour to kill, and you're in a town you don't know, that's when you want Yelp. If you've got two hours to kill, you're in a different part of town, and you need to get a haircut, and you need to find someone to do it. Those are the times that you really need to do it.

The company has expanded into several new markets over the past few months including Germany and France. Have there been cultural challenges or barriers you've run up against as you roll out internationally?

No and yes. Admittedly, we're still very new in this non-English-speaking part of our international roll-out. France and Germany are really brand-new for all intents and purposes, and it's going well. We're seeing local communities adopt them. The good news is it's going well so far and people are finding their way to our sites to write reviews. But it's too early to qualitatively talk about differences.

What we can say is it's following a remarkably predictable pattern. We already learned about regional differences. With Houston and San Francisco for instance, there are a lot of differences.

What kind of differences?

The kinds of businesses people go to, the geographic densities of things. Houston has a lot of sprawl, just as L.A. does. Everybody's in their car all the time. Where as in New York, you're probably going to places that are within a block or two, both where you live and work. People have cars in those cities and they going to need to repair them. People are going to tend to be a little bit older, have kids and have the needs that go with them, like say, they need an air-conditioning repair guy, a pediatrician for their kid. Whereas with the New York lifestyle, the average, may be a bit different.

Now along with all that growth, there's also been a flip side: namely the lawsuits. What's your take on those?

As you might imagine, when anyone who comes forward with that sort of allegation, people are sort of like, 'Whoa. What happened there?'' Who said what to whom?' You sort of look through all the records that you can find with all the conversations to the individuals involved. We haven't been able to find any kind of evidence of anything. More to the point, we have a host of systems in place to ensure that doesn't happen, and also, they wouldn't be able to do anything about it.

Short version of it is: there's no amount of money you can pay Yelp for that to happen. It's just that straight-forward.

So if that's the case, why do you think they're suing?

Well first, I think we have every reason to think we're going to be exonerated when all that stuff flushes through the judiciary system. Unfortunately sometimes it takes a while, but it will work itself out.

But I think sometimes, when we're feeling hurt and we've got a negative review and we're taking it personally, we want to strike back at somebody. The good news about freedom of speech is it's really hard to strike back at a consumer for expressing their freedom of speech.

So those are still working their way through the system. I wouldn't want to talk about any specific plaintiff, but it is often true one of the points of confusion can be that we have this review filter. That's the point of contention.

Earlier this year, the company revised those filter policies to appease several small business who were complaining that maybe these reviews were being unfairly sifted through. What happened there?

Well, we've all been at this point where you're in a chatroom that has trolls in it. ... With Yelp, two things have happened: business owners start reviewing themselves and they start reviewing competitors. You can imagine what reviews of themselves and their competitors look like. Any forum is filled with those kinds of reviews tends to not do consumers a whole lot of good. You tend to look at the page and like, OK, there are a whole lot of reviews here. Some of them look like they were written by the business owners' moms, and I think others look like they were written by the ex-employees with a bone to pick.

It is true that sometimes the people who get most upset about the review filter are also the people who writing some of those reviews, and then they say, 'But I know that a customer review wrote that yesterday. How come it's not there today?' How could they possibly know that?

Now, it sounds like we spend a lot of time sort of fighting against business owners, but in fact, it is a tiny percentage of the local business owners out there. ... I think sometimes in these isolated instances, it sort of comes off as though perhaps we were anti-some segment of business. We're just pro-consumer and pro-local business. That's what we're here to do.

In December, there was a big brouhaha over the Google bid. Why did it fall through?

Well, that was rumored, and what I would really say is that at this point, Yelp really wants to be independent and doesn't really have any particular need or reason right now to be a part of a bigger company. What we're up to -- helping people find local businesses -- is part of a really really big market, and we have every reason to believe we can be one of the winners. We never say never -- who knows it can happen at some point? -- but at this point, there's just not a lot of reason to.

So did Google make an offer?

I can't comment on any specific deals.

Yahoo?

Couldn't comment. Though just for the record, we are fans of both of those companies and we have existing relationships with both of those companies and managements. There's a lot of stuff that gets repeated out there -- oh, there's bad blood -- and it always sounds good, but the reality is we have warm relationships with many individuals at both companies.

Earlier this year, Elevation Partners invested up to $100 million. What you can tell  me about that?

Well, Elevation did invest in February of this year. What they did is we brought $25 million into the company as a primary investment into Yelp which we used to fuel our expansion internationally and what not. They also did a secondary transaction which allowed early employees and investors to sell some shares to Elevation if they wanted to.

Given that, how much money does Yelp have altogether?

Well, we certainly have more than the $25 million Elevation put in in terms of cash. The revenue line is doing great. We don't share or breakout specific numbers. What we can tell you is we have tens of thousands of local business advertisers just to give you a sense of scale.

Ok, so Yelp wants to stay independent for now. Where would you like to see the company in another five years time?

I feel like we're still just scratching the surface.

We started out to help Jeremy [Stoppelman] find a doctor, and I think the good news is the mission is partly accomplished with that. We're actually very good now at helping you find a place to get a good cup of coffee in New york or get sushi in Austin, but are we good at helping you find an air-conditioning repair guy in Boise? Probably not. Are we good at helping you find an orthopedic surgeon in Namibia? Definitely not.

If you look at where Disney was six years into its existence, it's like I think Walt moved from St. Louis to L.A. He had just created the Mickey Mouse 'Steamboat Willie' cartoon in six years. Five years from now, we can help users find an orthopedic surgeon -- though maybe not Namibia, yet.

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About This Author
JP Mangalindan
JP Mangalindan
Writer, Fortune

JP Mangalindan is a San Francisco-based writer at Fortune, covering Silicon Valley. Since joining in 2010, he has written on a wide array of topics, from the turnaround of eBay to the evolution of net neutrality. A graduate of Fordham University, Mangalindan has also written for GQ, Popular Science, and Entertainment Weekly.

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