Yelp is Looking For Buyers

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.

Does Twitter Need A New CEO?

Twitter is all over the news after its big misses in Monthly Active Users (MAU) and Revenue.  While this is not a good sign for Twitter, does it really need a new CEO and a revamp of their leadership?  In todays article on Stratechery, Ben Thompson outlines his case for new leadership in the ranks, and I don't disagree with his sentiments.

TWITTER’S FUNDAMENTAL PROBLEM

Twitter’s fundamental problem is that their active user growth is simply too small given their current size. Twitter yesterday reported the service had 302 million Monthly Active Users (MAUs), an increase of only 18% year-over-year and 5% quarter-over-quarter (and the company said the current quarter would be worse!). This is a fraction of Facebook, half of Facebook Messenger, fewer than Instagram and not that much bigger than SnapChat; presuming the latter service passes Twitter later this year, Twitter will be only the 5th most popular U.S.-based social networking service looking to monetize through advertising. This distinction — which excludes WhatsApp, at least for now — is a critical one, because the issue with advertisers is most don’t have the time or ability to work with multiple services; it’s likely most digital advertising spending (which I believe is set to expand greatly) will be consolidated onto the biggest networks (along with Google’s properties), with Facebook taking the lion’s share. Were that to happen, it’s easy to see Twitter as the odd network out.2

302 million MAU's is a lot of people, yet it's too small for advertising?  I agree with Thompson here.  Even though I have said before Twitter has enough users to monetize efficiently, they are being dominated by other networks when it comes to size and reach for advertisers.  Without the reach, advertisers will not use Twitter in their bag of tricks, they will opt for the platforms that give them the most return for their time and money.  

This is where I believe the argument for new leadership is warranted.  They need the reach because they are trying to play the same game as all of the other social networks.  The game is garner the most active users and create the reach that advertisers will jump all over.  What if that is not the game Twitter should be playing?  When in a position of weakness, which Twitter clearly seems to be in at this point, the strategy has to change.  By following the lead of Facebook and the like, Twitter can't win.  Facebook will always win in this scenario.  Facebook as the leader can follow competitors, because they are the biggest.   Facebook's competition has to find a different strategy to make the most profit in the social arena.

Instead, Twitter should redouble its efforts to acquire new users even as it redefines what Twitter the company is all about. I wrote about this in What Twitter Might Have Been: 

Alternatively, Twitter could empower third-party developers to build these sorts of applications that feed back information into the Twitter interest graph. An application like Nuzzel, for example, which uses your Twitter graph to create a news app, has much more of a one-way relationship with the social network: Nuzzel is getting all the benefit, and not sending much information back to Twitter. Twitter would be better off retooling their API and developer agreements to ensure they are learning from every application they interact with, and in return sharing their graph along with advertising in the form of their MoPub or Namo Media-derived offerings. The advantage of this approach is that the imagination and ingenuity of a massive developer ecosystem will always be far faster and more innovative than anything any one company can do on its own — just ask Apple.

I really like this strategy.  Third party developers are what made Twitter in the first place.  The firehose which is Twitter is better served as a platform for news and advertising that any third party can reach into and intake.  They just have to intake the advertising to be a part of the program.  I use Tweetbot and I don't see a single ad.  This should never happen for a company like Twitter.  Tweetbot, for the right to make a living off of the Twitter platform, should be required to show me advertising.  

My issue with Twitter is the firehose.  When you start to follow enough people, it is too hard to keep up with everything you want.  Facebook uses their algorithm to eliminate this phenomena, yet it does so in a way that doesn't create a bad experience for the user.  In fact, the user experience is greater because over time the user will see what they want as Facebook learns.  Third Party apps could do wonders with the firehose.  There would be so much innovation with the Twitter platform if Twitter embraced their third party partners.  This I believe would triple the MAU's for Twitter as the third party innovations would bring different ways to interact with the Twitter firehose.

Twitter also needs to eliminate partners that don't provide it with as much value as they provide.  When Steve Jobs took over he killed many projects and I believe Twitter cannot let other parties use their social graph for nothing in return.  There needs to be an ad platform that is established for this right.  When a partner uses the social graph, they have to use the Twitter ad platform.  

TWITTER’S ABANDONED USERS

The trouble for Twitter is that awareness of the service has long outstripped its usability. And yet, despite the fact that Twitter has struggled with new user growth for years, almost nothing was done to improve the product or on-boarding experience until just the last few months, when the company finally rolled out a new logged-out page meant to entice people with Twitter’s content, as well as an instant timeline that helped people get started. Unfortunately, both efforts seem to be too little too late: Twitter admitted on the earnings call that neither improvement had increased retention.

This isn’t a surprise: Business Insider reported last year that Twitter likely had 697 million abandoned accounts (and that number, presuming it was correct, has certainly grown). The problem is that those 697 million users, having already decided that Twitter isn’t a useful service for them, are much less likely to even experience things like the new logged-out page or instant timeline, even though Twitter @-handles and hashtags continue to be plastered all over TV and the web.

The focus should not be on finding new users to the service.  If these numbers above are correct, it is much easier to communicate and bring back these users ten it is to constantly find new users.  Any new users at this point would be low margin for Twitter at this point anyway.  They are more than likely new to the web, in emerging markets that don't have the income compared to the 697 million users that have already used the platform.

While inactive campaigns are very hard, it is essential to get these inactive users back on the site.  Step one is to find out why they abandoned.  Is there a common theme from inactive users that can be fixed by Twitter or a third party?  Next step is to get the word out on changes.  Twitter needs to jump at making changes to accommodate the inactive users and then let the inactive base know.  They have the emails from all of these users already, unless they spammed them endlessly and they have unsubscribed.  Email is a great tool and Twitter uses it poorly in keeping users active and getting return business.  

While I agree with Thompson that these changes aren't impossible to implement, the current team seems to be focusing on making Twitter, Facebook.  For that reason alone I would let them go.  Twitter should focus on service the customers that it has and providing an ad network that targets users so specifically the returns for advertisers is more compelling than the other networks.  Then the MAU problem goes away.  Easier said than done I know, but they have all the data and information to do it.  Plus they have the platform already built.    

Windows 8 and the Cost of Complexity

The WSJ – and prevailing wisdom – blames two factors for the decline of PCs: PCs have become “good enough,” lengthening the replacement cycle, and more and more time is being spent on tablets and other appliance-like devices.

However, I don’t think these factors are independent; it’s not just that tablets occupy more of a user’s time, but that by doing so they make any performance issues on one’s PC less pressing simply because you use it less. To put it another way, users are likely to have a higher standard for their primary computing device than they are a secondary one; as PCs become secondary devices for more and more people the standard for “good enough” becomes lower and lower.

Ben Thompson has been on a kick as of late talking about his Chromebook, but I believe he hits the nail on the head with the title of the article.  However I have to disagree with his statements above.  I don't believe it's that PC's are good enough because they are now secondary devices, I believe most people were using their computers to do things that are better served in the tablet form-factor.  

People have been using computers to do email, browse the web, go to Facebook.  Most people who owned computers were not using them up to their full capabilities and didn't need all the complexity that is inherent in a PC Operating System, Mac or Windows.  Most people just want to be able to do a few things on a computer and it has to be very easy.  While I am very computer literate, I love my iPad because it is totally simple.  I enjoy the simplicity because I just don't have the time to tinker.  So the iPad model solves problems for all levels of users.  

The downturn in the PC industry is simply because a technology (product) came out that made it easier to do what users wanted to do.  If the iPad was more complex (like Android or a Chromebook), we would not have seen this downturn in PC sales.