February 17, 2012 at 14:10 PM EST
What Yelp’s IPO means about the future of crowdsourced media
Yelp announced pricing of its planned IPO, with plans to sell 7.15 million shares at $12 to $14 a share. But the important thing is that Yelp has shown there is a real business to be made out of building and growing a community of users.
Yelp announced pricing of its planned initial public offering Thursday, reporting in an amended S-1 filing with the Securities and Exchange Commission that it will sell 7.15 million shares at $12 to $14 a share. At the high end of that range, Yelp would be raising up to $100 million, at a valuation of more than $800 million.
But the important thing here is that the filing means Yelp could become the first almost entirely crowdsourced media entity to go public. Yelp’s entire business is built on the more than 25 million reviews that it has accrued over the years from its users. That user-submitted content is the reason that Yelp attracts more than 66 million unique visitors a month.
What’s interesting is how Yelp’s valuation compares it to other Internet companies and what it means for the future of media and publishing. Yelp lists Google and Yahoo as competitors, and as Bloomberg points out, the mid-range of Yalp’s pricing means it is valued at 9.3 times last year’s sales. Google today is valued at 5.2 times last year’s sales, and Yahoo is valued at 3.8 times sales.
Yelp doesn’t compete directly against either of those companies. While Google also provides a way for users to find information about restaurants, bars, music venues and the like, it sources that data from all over the web. And Yahoo, as a more traditional media company, pays writers and editors to act as tastemakers for its audience.
This, admittedly, is a fairly simplified way of comparing those businesses — and at the end of the day, it’ll be up to investors to decide just how much the company is worth. But I think what the implicit pricing and valuation tells us is that crowdsourced information, from real people, could be more valuable than that which is served up by an algorithm or paid for by a media provider.
Yelp isn’t the first or only public company to depend on user-submitted info for its content. LinkedIn is also built on the back of content that its users freely share. The key distinction here is that Yelp is a media company, depending mostly on advertising for its business, while LinkedIn has a range of new subscription and professional services that it’s rolling out.
The key is that Yelp has shown there is money to be made out of building and growing a community of users who wish to share information with likeminded others. Who could be the next Yelp? Maybe a Pinterest, or a Foodspotting or even Instagram? With Yelp going public, there’s clearly the possibility of some of these consumer-facing brands creating real businesses out of user-submitted content.
Related research and analysis from GigaOM Pro:
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