Yelp’s CPM model, restaurateurs – it’s like Gandalf and Frodo in Las Vegas

This was originally intended as a comment on Rocky Agrawal‘s (@rakeshlobster) piece on VentureBeat titled “Yelp advertising is a rip-off for small advertisers“. Then Disqus hickupped again (still asking me why I am not using third party commenting?) so I am posting it here.

CPM of $20 or $200 doesn’t matter. Restaurants operate on sub-10% margins, “stabbed ten times” is about as painful as “stabbed 30 times” in this case.

The Yelp business model is simple: to most restaurateurs and – I can only presume – other non-tech businesses anything with that level of technology is indistinguishable from magic. And, the 2010s being what they are, a magical miracle is what many small business owners are waiting/hoping for.

For the promise of actual visits, the hope for great reviews and the subsequent influx of paying customers, restaurants are willing to dig deep into their ever-diminishing pockets. We’re gamblers in the great casino of hospitality, hooked on the three lemon streak we had in 2008, willing to double down with our last shirt to see that rain of money once more.

Remember 2001? When Exodus Communications (soon to be CW, later to be Savvis) lost Google and Yahoo and Sun Microsystems and everyone in-between as customers? Those tech smart people paid millions in useless advertising and marketing stunts just for a hope to see their cabinets hum with the monotonous sound of tens of thousands of servers once more. If tech-smart people like Exodus were willing to raise the ante and bet (and, in this case as in many Yelp stories) lose the farm, how can we fault John Q. Restaurateur for doing the same?

The issue here is triple: the aforementioned magical mystery promise, the disconnect between non-tech users and tech creators (quick, what do Venturebeat’s stats say about small business owner readership?), and the makeup of Yelp’s sales pitch which, as you know, doesn’t talk about “CPM” or “Impressions” but focuses on customers and reputation management.

Yelp is settled enough in the criticism and reputation space that it believes it can compare itself to Zagat or Michelin. In fact I wouldn’t be surprised if your source quoted the line “we’re somewhat like Michelin or Zagat for the 21st century” as one of the pitches. Another thing often mentioned is Google (“when someone pulls up the place page, our reviews are linked from there”). And everyone knows Google. Everyone fears and worships Google. To the restaurateur this is like a nest of bees to the starving honeybadger – don’t care about the sting of the outlay, don’t care about the technical picture, there’s food on the table to be had, let’s risk it.