Executive Summary
Yelp needs to provide broaden its sources of revenue to order for income to exceed operational costs. Currently, almost all revenue comes from advertisers. Yelp can diversify revenue by monetizing its vendor or customer relationships. Vendors are the more lucrative market. Yelp can tap that market by charging fees for being listed on the mobile app (currently a free service), or charging subscriptions for new services. Because other companies like Netflix saw backlash for charging for services that were previously free, we advise against a wholesale switch to a paid directory model. Instead, we recommend charging for new services or extended listing areas only, and testing this shift in a limited arena - just restaurants in New York. This pilot is called Tell Me Now. Fees for listings on an extended part of Yelp’s existing mobile app, social media outreach, and a pooled food delivery service could bring in $5.75 million by Year 3. We also recommend making free enhancements to Yelp’s customer mobile appand a call center to handle complex queries. These added services will also benefit Yelpers and drive growth in the user base, fueling over $5 million in banner ad revenue and a combined weighted ROI of 215%. We recommend investing $1.25 million to develop necessary software enhancements and initiate new vendor services.
Business Context
Yelp went public in early 2012 to strong demand from investors. Yelp provides free consumer-written reviews of local service providers, particularly restaurants. There is no fee to use the site, either for consumers or for businesses listed on the site. The site is incredibly popular - Alexa.com ranks Yelp as the 29th most visited site in America, with 66 million Yelper vists per month. Its reviews have grown 44% year over year, to a total of 57 million customer reviews in the database. However, the company has not turned a profit since its founding in 2004.
Yelp’s main source of income comes from local advertisements, both banner ad revenue on the Yelp.com website or to local advertisements that show up when customers search for related services. In 2014, Yelp reported 74,000 local advertisers, indicating that businesses see Yelp as a good investment. Unfortunately, Yelp is so dependent on advertising revenue that it also eats into profits because a huge portion of ad revenue goes right back into sales teams (70% of the staff) to recruit and maintain advertisers. Yelp’s operating expenses continue to exceed revenue through 2014 due to this huge sales force.
Proposed Solution
The first part of Tell Me Now is an extension to the Yelp mobile app. Restaurants make up the strongest share of Yelp’s reviews and the quality of reviews strongly influences restaurant success. The extension creates an additional listing for restaurants only. Restaurants pay to be listed andhave more control over their business listing than they do now. Tell Me Now will be pushed to users with accounts registered in New York City so there is no switching cost in terms of how users interact. The team will pilot the application in New York City, with the end goal of expanding.
The second part of Tell Me Now is a suite of services to restaurant subscribers: social media outreach, customer data feeds from a cell center that handles customer queries, and a pooled fleet of coordinated delivery drivers to control operational costs.
|
New user features of the extended mobile app |
New vendor features of the extended mobile app |
|
-Enhanced business information, including happy hours, specials, dishes of the day, etc -Call center that can perform more advanced searches like “happy hours in this neighborhood today that include wine” and send results via SMS to save customers time |
-More control over what is displayed on business account -Social media team that reaches out to customers to build local customer base -Yelp food delivery team to cost-effectively give restaurants a competitive advantage those that cannot staff delivery personnel -Customer information (name, phone, and preference) for call center users |
New revenue streams:
- Vendor subscriptions to secure listing space on Tell Me Now restaurant extension
- Vendor subscriptions to Yelp’s social media outreach program
- Vendor subscription to enroll in Tell Me Now delivery service
Benefits to Yelp include:
- Increased revenue from tiered vendor subscriptions
- Stabilized cash flow from long terms contracts in social media, delivery services, and listings rather than reliance on banner and local advertising
- Organic increase in cost of banner ads as a result of a larger user base
- Improved relationships with vendors as the logic behind listings becomes more transparent
Alternatives
Alternative 1: Move all of Yelp to paid directories.
Pros: Could be a quick source of income, with hundreds of thousands of vendors
nationwide.
Cons: When Netflix began charging for streaming in 2011 (previously included in the
basic plan), customers rebelled. Backlash from charging fees for a free service
could create negative attitudes.
Conclusion: We have decided to offer new value services in exchange for fees, and only
in Yelp’s strongest market - restaurants. Because local markets are segregated,
Tell Me Now can be tested in a limited geographic area before expanding across
the entire national market.
Alternative 2: Charge customers for Tell Me Now app
Pros: Customers would see more value and some would be willing to pay.
Cons: The app price could not be more than $4, which means 120,000 customers would
have to buy the app just to pay for the development in Year 0.
Conclusion: Yelp depends on its user base to draw vendors, click on advertisements, and
write reviews. The higher value comes from vendor subscriptions - and vendors
need to see engaged users before they pay. Therefore, Yelp will offer Tell Me
Now as a free app extension.
Alternative 3: Outsource the marketing, application development, and call center
Pros: Application work could be performed with VPN access. Marketing and call center
work has been outsourced for years. Wages are lower in India than the US.
Cons: None of these processes are stable enough in years 1 through 3. It will take time
for overseas employees to learn the current app and database architecture.
Conclusion: Tell Me Now will be developed by Yelp employees who are familiar with the
mobile app and database architecture. Outside field marketing representatives
will recruit restaurant managers and need to be able to go door to door. The call
center will be outsourced in Year 3 once processes are measurable and stable.
Financial Analysis -
Anticipated revenue streams due to Tell Me Now:
· Revenue from vendor basic subscriptions - $750/vendor/year
· Revenue from vendor delivery subscriptions - $4,000/vendor/year
• Increase in banner ad revenue due to new features - percentages based on reported $70 million in banner ad revenue for 2013
Expenses that are involved from the time of project development to year 3:
• Expenses for yelp application development (Large initial investment)
• Expenses for call center software development (Large initial investment)
• Payroll for new teams- call center personnel, delivery staff, field marketing representatives, and social media staff (Ongoing
• Expenses for advertising (Ongoing)
· Some expenses for necessary equipment: (vehicles, gas, endpoint computers)
Tell Me Now requires an initial investment of $1,244,500, which should be paid back after a year and a half on the market. There are roughly 9,000 restaurants in New York City. Tell Me Now expects that in year 1, 10% of those restaurants will pay to be on the listing ($675,000) and 125 will subscribe to the delivery service ($1,012,500). Yelp will see a 2% increase in banner ad revenue due to the app ($350,000). After expenses are accounted for, Year 1 brings in $350,000. In Year 2, it is most likely that 15% of restaurants will pay to be on the listing ($1,012,500), 250 of them will use us to deliver ($1,000,000) and there will be another 2% increase in banner ad revenue ($1,757,000) while development costs drop way off. In year 2, the initial investment is paid off and expected profits reach $1,812,500,. By Year 3, 20% of restaurants will list ($1,350,00), 300 will use us to deliver ($1,200,000), and there will be an additional 2% increase in banner ad revenue ($3,192,140) for a cumulative three year profit of $3,835,000.
This sensitivity analysis shows our best, middle, and worst case scenarios. The best case scenario is that delivery subscriptions double every year. The worst case scenario is that additional revenue from banner ads stagnates at $1 million in years 2 and 3.
|
NPV |
Weighted outcome |
ROI |
Weighted Outcome |
Payback Period |
Weighted Outcome |
|
|
Best case - 10% chance |
$4,158,475 |
$415,848 |
434 |
43.4 |
1.7 |
.17 |
|
Most likely case - 60% chance |
$1,880,697 |
$1,128,418 |
251 |
150.6 |
1.6 |
.96 |
|
Worst case - 30% chance |
-$432,278 |
-$129,683 |
70 |
21 |
1.3 |
.39 |
|
Total: |
$1,414,583 |
215 |
1.52 yr |
Risk analysis and mitigation plans
There are four risks that must be mitigated before moving forward.
|
Risk |
Cause |
Mitigation |
|
Incorrect vendor information |
-Businesses move and don’t update addresses -Restaurants don’t update accounts |
-Sales reps check in on businesses -every month via phone Restaurants included in UI testing to make updates as simple as possible -Updating service in social media package |
|
Slow delivery |
-Traffic -Combining too many stops in one driver trip |
-Bikes in congested areas -Testing with 5 to 10 restaurants before launch to determine trip averages |
|
Database failure |
-Server crashes -Structural errors |
-Redundant servers -Mirror current structure, include round of vendor testing |
|
Busy phone lines at the call center |
-Not enough staff, peak hour traffic -Poor phone service |
-Track time waiting, call volume per hour to hire staff and schedule -Higher bandwidth service |
Timeframe:
It will take one year to recruit talent and develop and test the app extension, delivery driver system, and call center software. Tell Me Now will launch as a comprehensive service in January 2016 and is expected to break even by July 2017. In July 2018, Tell Me Now will be assessed for profitability. Based on that analysis, Tell Me Now will expand to other geographic markets.
|
Timeline |
Milestone |
|
1st jan 2015 |
· Start of recruitment Process · Start date for Infrastructure and setup process |
|
28th feb 2015 |
· End date for Recruitment process · End date for infrastructure and setup process |
|
1st march 2015 |
Start date for project development , design and testing phase. |
|
1st july 2015 |
· Start date for field marketing · Start setting up team and infrastructure for food delivery |
|
1st oct 2015 |
Start of recruitment and infrastructure setup for call center team. |
|
31st dec 2015 |
· Food Delivery team. · End of Recruitment and infrastructure for call center. · End of Development and testing phase. |
|
1st jan 2016 |
Product launch |
|
1st july 2017 |
Expected break even point |
|
1st july 2018 |
Assess tell me now for expansion. |
Appendix A:
|
Failure Modes Effect Analysis |
|||||||||||||||
|
Item |
Potential Failure Mode |
Potential Effects of Failure |
SEV |
Potential Cause(s) or Failure Mechanism(s) |
OCC |
Current Design Controls |
DET |
RPN |
Recommended Actions |
Responsible |
Due Date |
SEV |
OCC |
DET |
RPN |
|
Vehicle accidents |
Driver failure |
Liability costs, increase in business insurance, maintenance, driver turnover |
5 |
Rushing to deliver |
7 |
None |
7 |
245 |
Yearly financial incentives for good driving, restructure financial incentives for speedy delivery to take account of geography |
Delivery manager |
1/1/2016 |
5 |
3 |
5 |
75 |
|
Drunk driving |
Bad PR, liability costs, increase in business insurance, maintenance, driver turnover |
10 |
Unprofessional drivers |
3 |
Background check |
10 |
300 |
Random UA |
Delivery manager |
1/1/2016 |
10 |
1 |
1 |
10 |
|
|
Environmental conditions |
Increase in business insurance, maintenance |
5 |
Ice on roads, tropical storms |
7 |
None |
5 |
175 |
Snow tires in winter |
Delivery manager |
1/1/2016 |
7 |
3 |
1 |
21 |
|
|
0 |
0 |
||||||||||||||
|
Late Delivery |
Drivers getting lost |
Fewer customers order delivery, fewer vendors subscribe to service, service declines as subscribed vendors get farther apart |
7 |
Drivers unfamiliar with neighborhood |
10 |
GPS units in all cars |
7 |
490 |
Training runs to get acquainted with all restaurants in territory, one dispatcher as part of delivery team to help |
Delivery manager |
9/1/2015 |
5 |
5 |
3 |
75 |
|
Late Delivery |
Traffic |
Fewer customers order delivery, fewer vendors subscribe to service, service declines as subscribed vendors get farther apart |
7 |
Peak traffic hours after work day, construction |
10 |
None |
5 |
350 |
Bikes for short runs in bad traffic |
Delivery manager |
9/1/2015 |
5 |
5 |
5 |
125 |
|
Late Delivery |
Combining two many stops on one trip |
Fewer customers order delivery, fewer vendors subscribe to service, service declines as subscribed vendors get farther apart |
7 |
Combining trips badly, not looking at georaphigc distribution of restaurants and customers |
7 |
None |
7 |
343 |
Gather information about average number of restaurants in trip, average distance of customer houses to enhance coordination, project pilot before launch |
Delivery manager |
6/1/2015 |
5 |
5 |
5 |
125 |
|
0 |
0 |
||||||||||||||
|
Busy phone lines at call center |
Not enough call center representatives |
Customer frustration, fewer people use this service (less profitable) |
5 |
Too few employees on staff |
7 |
Call tracking |
1 |
35 |
Ramp up call center staff throughout project |
HR |
1/1/2017 |
5 |
1 |
1 |
5 |
|
Peak hour traffic |
5 |
Too few employees on shift |
5 |
view missed calls, avg time on home by hour |
1 |
25 |
Rearrange schedules so more people are available for peak hours - 6 months |
Call center manager |
6/1/2016 |
3 |
3 |
1 |
9 |
||
|
Bad connections, missed transfers |
5 |
poor phone service |
5 |
Review missed calls (avalaible from provider) |
3 |
75 |
Purchase higher bandwidth service |
Call center manager |
6/1/2016 |
3 |
3 |
3 |
27 |
||
|
0 |
0 |
||||||||||||||
|
Database failure |
Temporary loss of access to database |
Customer frustration, vendors updates not showing, cancelled subscriptions |
7 |
Hardware issues (Yelp servers) |
3 |
Redundant servers (considered moving to cloud) |
3 |
63 |
Ensure redundancy on at least 3 machines in case of failure |
9/1/2015 |
3 |
3 |
0 |
||
|
Data being placed in wrong spots |
Customer frustration, increased maintenance costs, vendor updates not showing, |
7 |
Errors in structure |
5 |
Testing, mirroring current structure |
5 |
175 |
Include round of new vendor testing (update accounts) before go-live |
Marketing manager will arrange testing |
11/1/2015 |
3 |
3 |
5 |
45 |
|
|
Endpoint equipment failure |
Unable to access backend database - call center loses porductivity, software team unable to work on database |
7 |
Viruses, inferior computers |
5 |
Put computers on same antivirus plan as rest of company |
3 |
105 |
Purchase multi year warranty on all endpoints given to new staff |
Call center manager |
1/1/2016 |
3 |
3 |
3 |
27 |
|
|
0 |
0 |
||||||||||||||
|
Application failures |
Interface glitches, cant make calls from mobile |
Customer frustration, fewer advertisements, vendors cancel subscriptions |
7 |
Software bugs |
7 |
Customer service tracking, ongoing maintenance budget |
3 |
147 |
Include testing across all mobile devices and top 5 browsers; ongoing testing |
Application developer |
1/1/2016 |
5 |
5 |
3 |
75 |
|
0 |
0 |
||||||||||||||
|
0 |
0 |
||||||||||||||
|
0 |
0 |
||||||||||||||
|
Poor customer service |
By delivery personnel |
Customer frustration, driver turnover |
3 |
7 |
Disciplinary process for reported incidents |
3 |
63 |
Employee of the month program, compaint hotline |
HR |
6/1/2016 |
3 |
3 |
1 |
9 |
|
|
By call center personnal |
Customer frustration, call center turnover |
3 |
7 |
Disciplinary process for reported incidents |
3 |
63 |
Employee of the month program, compaint hotline |
HR |
6/1/2016 |
3 |
1 |
0 |
|||
|
0 |
0 |
||||||||||||||
|
0 |
0 |
||||||||||||||
|
Wrong vendor info on app |
Incorrect address/hours/basic info |
Customers going to wrong location, frustration, |
7 |
Vendors move and don't update address |
5 |
Yelpers can update address |
5 |
175 |
Bi-monthly check by reps to make sure basic info is the same |
Marketing reps |
3/1/2016 |
7 |
3 |
1 |
21 |
|
Out of date specials |
Customer frustration, vendors do not see benefits of the app and cancel service |
7 |
Vendors do not actively update their specials and promotions |
10 |
Yelpers can update |
7 |
490 |
Vendor testing of account interface to be intuitive, low-cost add-on service to have a rep call do updates |
Marketing reps |
1/1/2016 |
7 |
5 |
5 |
175 |
|
|
Privacy breech |
Customer data given to vendors - vendors call unwilling customers |
Customers feel tricked, restaurants going after bad leads |
5 |
Call center employees giving customer information to restaurants without permission |
5 |
Privacy policy on Yelp site |
7 |
175 |
Opt-in privacy policy. Staff must ask if they can pass information. Store in file |
Call center manager |
1/1/2016 |
3 |
3 |
1 |
9 |
