Knowing What Business You're In Includes Knowing Who Your Most Important Customers Are

from the three-sided-market dept

Mon, May 19th 2008 11:11pm — Timothy Lee

One of the themes we've emphasized here at Techdirt is that it's essential to know what market you're in. We've mostly talked about that in terms of knowing when to give away infinite resources in order to sell expensive resources. But another key component is recognizing where the value of your business comes from. For example, one of the keys to Google's success has been their recognition that even though their revenue comes from advertisers, their real value is their users, and so they've focused on keeping users happy. Google knows that as long as they have a lot of users, the advertisers will come to them, but if they drive away users they may not come back. The Bits blog has an even more striking example of the same principle: Bits says that Yelp, the restaurant review site, is succeeding because they recognize that the key to success for their market was to cater to a subset of their users -- their volunteer reviewers. If they have good reviews, users will come to them, and if they have users, the advertisers will come. So they've focused on making reviewing an easy and rewarding experience. The site has focused on building community among the reviewers themselves, adding social-networking functionality so reviewers can connect with each other and follow each others reviews, and even hosting social functions where the most prolific reviewers can meet face to face. Yelp is also careful to shield reviewers from irate restaurant owners: a business owner is allowed to send a reviewer one message, but if he doesn't get a response he's not allowed to contact the reviewer again.

One way to look at this is as a multi-sided market. Traditional media outlets, for example, operate in a two-sided market, where they trade content for eyeballs, and then sell the eyeballs to an advertiser. Yelp's business model is similar, except that they exist in a three-sided market. First, they have to make the site appealing enough to reviewers that they'll write a lot of reviews. Then they use the reviews to attract eyeballs, which they finally sell to advertisers. All three of these are "customers" in some sense, but because the reviewers are what ultimately attracts everyone else to the site, they're ultimately the most important to the site's long-term success. Although Yelp certainly has its share of critics, the basic strategy of catering to reviewers seems like the right one for a review-oriented site.

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Filed Under: customers
Companies: yelp

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Stinky McButt, 20 May 2008 @ 7:49am

As Yelp grows, it is experiencing the "nobody goes there anymore because it is too crowded" dynamic. As it has become more popular the quality of the reviews has plummeted and now every business ends up somewhere between 2.5 and 3.5 stars. Making reviews easy to create was fine at the start, but Yelp has really done nothing to keep those early adopters/reviewers on the site. The challenge they face is this: I really don't care what 1,000 random people think of Restaurant X. I just want to know what a trusted handful of people think of Restaurant X. That is where review sites, including Yelp, have completely failed. They are locked in this "more reviews = better site", but once you reach a certain level of traffic that strategy fails and even becomes counter productive.
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- Anonymous Coward, 20 May 2008 @ 8:14am
  
  Re:
  Well, that only works if there's someone you feel you can trust in the area. Take movies for example: one critic is never going to hit the mark for most people most of the time. A handful of critics might get more people more often. The closer the review site gets to taking an honest poll, though, the more representative the results. If I ask one person what he thought of restraunt X, maybe he was just there on an off night. If I ask 1000 people, odds are slimer that the results will be effected by little quirks.
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A Different Anonymous Coward, 20 May 2008 @ 9:53am

The Average of 1000 Half-Assed Guesses is Gospel?
If you take the average of 1000 instants of random process you will reduce the random element element out, but that doesn't mean it will be good. When it comes to something that requires discernment, one knowledgeable review is better than the average of 1000 made in ignorance. The one knowledgeable reviewer might be biased, but there's still more information in the former than the latter.

As to the notion of respecting the volunteer reviewers, I think Yelp has the right idea. I was formerly a volunteer contributor for a certain web-based site. A very good contributor, with some unique skills. I gave it up when it became clear that the organizer's policies preferred to waste the time of the diligent contributor to avoid making make a lazy reader put in a little bit of thought. Now their lazy readers can now just listlessly paw through noting.
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