Yelp’s Biggest Threat

Taylor Hatmaker on Yelp’s Q4 loss of $5.3 million:

Yelp should own local. But it doesn’t. The company, founded in the mobile dark age of 2004, is being assaulted on some major fronts. There’s Foursquare of course, but the biggest threat is Facebook’s renewed interest in local, which the company will be building out in the coming months in the form of a feature called “Nearby.”

While I agree that services like Facebook and Foursquare are threats to Yelp, I wouldn’t classify them as Yelp’s biggest threats.

IMO, the biggest threat to Yelp is the same threat that all players in Local face – huge audience fragmentation coupled with huge advertiser fragmentation. In other words, it’s hard/expensive both to aggregate enough consumer demand for local marketing and to aggregate (and retain) enough local marketers to meet that demand. If Yelp sells a dentist in Fresno a package, they need to have people in Fresno looking for dentists at the time those ads are showing, and they need to do it for every vertical in every geo every day. Every player, big and small, in this space faces this. While Facebook Nearby/Graph Search will surely suck up a lot of advertiser and perhaps consumer attention, it will face the same problems.

Yelp’s biggest threat is that it is playing in Local. And Local is hard.