What Does Yelp's IPO Teach Us About Mobile Apps?

When the YELP IPO was launched this week, I had a flashback of Greenspan’s “irrational exuberance.” I do not want to be an alarmist and say this is a bubble for an anomaly of one, but I do want to point out the issues that anyone building apps should pay attention to.

Here are the key points:

Built an App, So What? First of all, an app by itself is not enough. The market is truly saturated by applications and breaking out of the marketplace is going to take some word of mouth and marketing. You can be the next Angry Birds but it will be the merchandizing that makes it happen after you get their attention.

Monies for Marketing. The scariest part of the IPO is not the development by the feet on the street to sell the concept of using YELP to merchants. This is not a viral market it’s a meet and greet market where sales has to overcome the objectives of merchants that feel the reviews are unfair, etc. 

Innovation vs. Good Will. Confession time: my wife and daughter still use AOL, and they will never leave. However, the rest of the world did, and that is the point of the bullet. The drivers for YELP are all based on the good will of the reviewers. As the company tries to balance revenue with reviewers for free, the developers need to find ways to make the ad with the bad. For example, “The food here sucked, but here is a coupon for more of it,” doesn’t particularly sound appealing.

Overplaying the hand. I read this IPO and I immediately said this needs to be acquired. Companies that have a history of making relationships with the local newspapers for job ads were the first on my list like CareerBuilder and Monster. I could also make a case for directory companies, Gannet and Clear Channel. I cannot make a case for going it alone. But the minor amount of stock out in the market indicates an inner sanctum of owners who may not want to let go of their baby. Sometimes this works out. IDT/Net2Phone still lives beyond the hype, sometimes they fizzle and die. The question is does the management have the sense to make the call?

Meanwhile, if we are looking for other lessons, join me in tracking Ron Johnson as he redesigns JCPenney and Scott Thompson as he restructures Yahoo. IMHO YELP will be one of those types of companies at one point.