In reading the daily update on Stratechery by Ben Thompson, which I highly recommend, he discusses Yelp being on the market. Yelp is definitely underperforming compared to other social network advertising platforms. Their revenue is very small, $377 million in 2014 and the growth is not as large as it needs to be for a corporation the size of Yelp.

What strikes me as interesting in the case of Yelp is their strategy. Yesterday I commented on an article about strategy and how to assess if your strategy is valid. I believe Yelp has a strategy that is destined to fail. Yelp is running the same strategy as the market leaders, which is as an advertising platform.

The issue I see with their strategy is it is not differentiated. In fact, their offering is worse than the market leaders when it comes to their ad product. One may argue their product is differentiated because if a customer is searching for example Mexican Restaurants, then as a Mexican Restaurant it can't get more targeted than an ad for someone looking for that kind of food in a small geographical area. The problem with this is customers aren't looking for ads on Yelp, they are looking for advice. An ad is the opposite of what they desire.

I frequently hear in the tech community that Twitter doesn't understand its product. They want the product to be something other than what it is. I fear Yelp may be in the same boat. Yelp is an aggregator of reviews, they are the trusted source of "where should I eat". That trust comes from customers reviews.

elp has the opportunity to differentiate their business. Their strategy should be the opposite of the strengths of Google and Facebook.

Loyalty

Yelp has a loyal customer base, however they do not take advantage of this. Their product has not really changed much since its inception, especially in mobile. With the advent of technologies, such as beacons, it surprises me that Yelp hasn't taken advantage of its loyal base and struck up deals with local businesses to do a loyalty program with Yelp. Businesses rely on having great Yelp reviews and this can be parlayed into some kind of loyalty program with a beacon backbone that would identify if a customer was at the business and how much was spent using new location aware technologies.

Recommendation Engine

Because of the amount of data Yelp has it is surprising they haven't developed a more intuitive recommendation engine. I am always looking for places that I would enjoy and it would be nice if an app told me where I should go and what I should order or what services I should buy. Yelp is in such a unique position to deliver this.

I believe they have the ability to enhance their product by allowing customers to rate something without writing a review. This is something that doesn't have to count to the external rating of the restaurant, but as a means to gather likes of an individual. This is easy and more customers would rate the businesses in turn. They can then use this information to have the ultimate "lookalike" recommendation engine. This is far more powerful than anything Google or Facebook can do.

Targeted Ads and Data

With this lookalike system in place, Yelp can then sell back to the businesses in the form of ads and data. Since they will have information on all the buyers who are interacting with Yelp, not just the people who take the time to write a review, Yelp can then sell all the information about the customers back to the businesses for a fee. The ads can then become more targeted because advertisers can get on the home screen of the app with a customer that is highly likely to enjoy the businesses offerings. As customers see the recommendations are more accurate and they enjoy the businesses experiences, they will end up buying more items through Yelp advertising because of the accuracy. This will drive higher ad prices for Yelp and bigger returns for the business as they can attract customers that will become more loyal.

I would love the opportunity to innovate at Yelp. They are in such a unique position to do something different, but they are building the exact same monetary offerings as their competition. The problem is they don't have the scale. Just like Twitter, they have to be better and more accurate with their advertising. This will drive advertising dollars their way because it is more efficient spend and that is what advertisers are looking to achieve.

A comment from John Dexter had me thinking even more about the Twitter problem. I think it is clear to me, more than ever, that owning the platform is more important than owning the interaction when it comes to Twitter.

In 2012 Twitter decided it was going to be an app company instead of a platform company. They blew off their third-party developers in hopes to bring all of the eyeballs from the Twitter stream/firehose into their own app and webpage to monetize with advertising. This essentially laid the groundwork for Twitter not owning just the platform, but owning the entire experience. In the case of Apple and Facebook, this is good because it is their core competency to own all the widgets. When looking at Twitter, a big reason they are where they are today is because of innovations by third-parties. They would not be in mobile if it wasn't for other developers getting there first. All of the app innovations have been made by third-party developers, so much so that Twitter had to purchase one of them to catch up.

Twitter should take a step back and develop the platform to generate revenue. If agreements were laid out to developers allowing them to get a piece of the ad revenue generated through their apps, they would be great partners in pushing the ads in new and intuitive ways. Twitter can then focus on knowing the Twitter customer, the logged in user, better than Facebook knows their customers. I believe Twitter has an advantage because they know peoples interests better. The people I follow on Twitter align more to my interests than the people am "friends" with on Facebook. Facebook tends to focus more on real-world relationships and the close knit social graph.

Once Twitter can repair the relationships with third party developers and focus on developing the platform to maximize ad placement, they don't have to worry about innovating apps that sit on top of that platform, which they are not particularly good at doing anyway. This model would bring the most app innovation, while at the same time, allow Twitter to focus on revenue generation for the platform. The third-party developers would have to share all the data back and then Twitter can be the master of the customer, which is where the ad revenue will come from. Focus on being able to deliver the best ad to people consuming the stream.