I like having a blog. It lets me rant about things. Here’s my latest on Yelp.com’s oddball ad model and pricing.
The last article I wrote on Yelp centered around their controversial review-filtering algorithm. Today’s rant, however, will focus on their core advertising and revenue model, how it differs from the popular ad models of Google and Facebook, and why it may not be the *best* fit for a business like mine.
Warning: Lengthy Technical Online Advertising Explanation
Major companies that make money primarily by selling ads online, like Facebook and Google, serve up ads to their users using a competition-based bidding model. When you see an ad on these sites, it is targeted specifically at you using the droves of personal data you’ve provided Facebook and Google over the years. Advertisers then use this data to compete with one another for the privilege of showcasing their products & services to you, with highly-competitive niches commanding large CPM (cost per 1000 impressions) prices.
For example, users who “Like” the iPad Fan Page, or people with browser histories full of iPad-related searches, will likely be shown iPad-related ads on Facebook and Google, respectively. If Facebook/Google sees that a lot of people are clicking these ads, the ads will be shown more often, and their CPM price will increase. Over time, the highest-performing ads for a given niche will nudge out lowest-performing ads, because Facebook/Google makes more money from the ads people are actually clicking on.
When you buy an ad on Facebook/Google, you design the ad, set a budget, and you’re up and running: your targeted ad is displayed, and depending on your niche, you’ll pay anywhere from $.01 to $5.00 per 1000 impressions. Things are a bit different for Yelp advertisers, however.
The Yelp Advertising Model: A Total Rip-Off
Strangely, Yelp’s online advertising model is based around selling subscription-based ad packages in 6-12 month contracts. Their intro ad package (at the time of this writing) requires that a business sign up for a $300/month, 6 month minimum package (with a $600 early termination fee). They guarantee 600 “targeted impressions” each month, i.e., they would show my ad 600 times to users searching for “computer repair” in my area.
This represents a whopping $500 CPM, or $500 per 1000 impressions. This is over 100x what national online advertisers typically pay for huge ad campaigns.
Compared to standard and widely-accepted online advertising models, Yelp’s model looks like blatant exploitation and robbery!
Exploitation of Technical Ignorance
Of course, Yelp Ad sales reps will never, EVER mention terms like CPM or CPC. They don’t want potential advertisers to know just how ludicrously overpriced and low-tech their ads actually are. (Yelp offers advertisers nowhere near the tracking and targeting data that Facebook and Google do)
It seems to me that the Yelp revenue model relies on three factors:
- Building a business owner’s perceived value of reviews,
- Using that perceived value to justify the sale of expensive ads, and
- Exploiting the fact that *most* business owners have absolutely no knowledge of standard online advertising practices.
I cannot support a program that, in my estimation, overcharges people by exploiting their ignorance. Too many unscrupulous computer consultants and other tech-savvy businesses are guilty of similar unethical practices and behavior.
It’s a shame that their ad program is the way it is, because I use and recommend Yelp, and everyone I’ve talked to that works there is extremely friendly and courteous.
But if you’re a business owner and looking for affordable advertising, look elsewhere.