Yelp snagged $10 million in a second round of funding Thursday from Benchmark Capital to help the local review site expand its presence across more cities in the United States.
As part of the funding, Peter Fenton, a general partner at Benchmark, will join the Yelp board. The San Francisco-based company received its first round of funding last November from Bessemer Venture Partners in the $3-million to $8-million range (see Yelp Gets $3M-Plus in VC Cash).
Yelp Gets $3M-Plus in VC CashThe company has also received angel funding from PayPal co-founder Max Levchin. Yelp was co-founded by CEO Jeremy Stoppelman, a former vice president of engineering at PayPal, which is now owned by eBay, and CTO Russel Simmons, a former lead architect at PayPal.
eBaySo far, the site includes reviews of local businesses and attractions in Boston, Chicago, Los Angeles, New York, San Francisco, San Jose, and Seattle.
The site is able to detect visitors’ IP addresses and try to surmise their geography so it can bring users to reviews of attractions in the nearest city.
“We have a very vibrant community of reviewers where anyone can sign up and become a critic,” said Mr. Stoppelman. “They review doctors, dentists, hair salons. People review landmarks and what we call local flavor so if you look up Central Park, you can find some write-ups.”
Yelp is also keeping an eye on developing internationally, but first Mr. Stoppelman would like to bring Yelp to more of the top metropolitan areas in the U.S.
Getting More Expertise on Board
He welcomes Benchmark’s funding as well as the Menlo Park, California-based firm’s industry expertise.
“They have very deep experience in consumer Internet,” said Mr. Stoppelman. “They have been very active in looking at this space and at what’s going on. They were the best partner we could find.”
He met Mr. Fenton about a year ago when Mr. Fenton stopped by the Yelp office while he was at a different firm.
“I found he was a really smart guy, and we had a brief discussion about what Yelp was about and he got it,” said Mr. Stoppelman. “We went out six weeks ago to find funding and he was on the top of my list.”
Yelp has some social networking features. Users can post photos of themselves, answer questions to create personal profiles, and connect with friends, but Mr. Stoppelman said that’s not the main purpose of Yelp.
“It’s not about keeping in touch with long-lost school friends,” he said. “It’s really about being passionate about local places.”
He compares the site to Yahoo’s Flickr service, which is aimed at people who are eager to take photos and share them online. However, he believes his site competes more with Yahoo Local, which also features reviews of local businesses, as well as with Citysearch.
Increasing Momentum
“They need the funding to keep their momentum,” said Greg Sterling, an analyst with Sterling Market Intelligence. “They’ve had good success. They don’t have as much traffic as Yahoo Local or Citysearch, but they do have user engagement, a strong community, and user loyalty. That’s partly because of how they set up the site to be a social network more than on other city guides.”
However, he noted that Yahoo Local has also recently added photos and profiles so it too is becoming a kind of social network.
“There are lots of competitors and lots of sites vying for consumer attention and usage, putting aside the question of advertising,” Mr. Sterling noted. “Having some staying power and being able to build a brand is an important thing in the space they are competing in.”
He pointed out that sites like Google and Yahoo also have the advantage of being able to direct some of their search traffic to local portals.
“Yelp doesn’t have the benefit of longevity in the space or a partner that is a search engine, but they are a standout,” said Mr. Sterling. “I would have been skeptical of their prospects when they entered the market given that it was pretty crowded. But they have managed to create a format that has generated high levels of reader and user engagement and they have a lot more depth than you see on some of their competitors’ sites.”
The site basically proved itself in its home town, where it cut its teeth on publishing local reviews.
“Yelp has done an extremely robust service for the San Francisco area,” said Matt Booth, senior vice president and program director of interactive local media at the Kelsey Group. “What they’ve managed for San Francisco is no easy task. But can they take that model and move it across the country to other cities? The indications I’ve seen from Boston and some other cities is that they’ve had success in moving that model.”
San FranciscoBostonHowever, Mr. Booth questioned whether Yelp can build its scale across the country while also increasing the depth of reviews in areas such as home services that have higher advertising spending and user return rates.
“I don’t know if $10 million is enough for them to succeed with their plan and how many cities they want to roll out,” he said. “They’ve been very successful in feeding content to other portals. Yelp and these local review sites sit in an interesting position. The portals rely on many of these small content aggregators to pull together information so they can service their query volume.”
Mr. Booth doesn’t see the competitors for Yelp as being Yahoo and Google so much as other local review sites like Citysearch and InsiderPages. Those sites have been around for longer and have spread to far more cities, but some of their reviews are thus older and not as up to date as those on a newer site like Yelp.
Contact the writer:MCohn@RedHerring.com
del.icio.us
Digg this
Slash it