Why Yelp should pay attention to not shooting itself in the face (and what ripping off Foursquare and taking big money from Elevation mean)

Back in July, I wrote a piece called “Why Yelp (…and every single retail establishment) Should Support Foursquare”.  Whitney McNamara referred to as the “post that launched 1000 VCs”, but it was really meant to open up a dialogue between an innovative little company hyperfocused on an important piece of data—when people show up to venues—and a bigger company dependent on relationships with venues. 

Apparently, Yelp misread the most.

In a direct rip off of Foursquare, they added check-in functionality.

As Wired’s John Abell puts it:

“Yelp isn’t even bothering to hide its direct aping of FourSquare with version 4.0.0 of its iPhone app, which allows you to “‘Check-in’ to businesses when you are out to tell your friends where you are.” That’s the exact same language Foursquare uses to encourage users to report their location.”

What that does is to signal to the market that if you have a good idea in local, Yelp will eat you without even so much as giving you the courtesy of reviewing you after.  The hilarious thing is that Yelp actually thinks it can beat Foursquare at its own game—and it is a game, one that founder Dennis Crowley has been thinking about for at least 8 years.  Gaming dynamics is not the core competency of Yelp, so why bother?  In the long history of bigger companies thinking they can beat out the small guy that only thinks about this one thing, the small guy just about always wins.

If I were using the Yelp API for anything important now, I’d be unplugging faster than that gooey scene in the Matrix where the tubes start popping off of Neo.  Good luck hiring anyone innovative, too.  If Yelp proves this startup unfriendly, how long before they start going after its own engineers who undoubtedly have their own side projects?  If I were thinking about a startup or participating in any kind of startup activity, like classes or an incubator, and I worked at Yelp fulltime, I’d go take a look at the assignment of IP rights in my employment contract.  Yelp just showed its true colors:  It’s not a startup anymore, and it will try to crush anyone that gets in its way—Microsoft 90’s style.  That’s not the kind of place innovators tend to like to work.

Undoubtedly, that kind of strategy will actually work against Yelp in today’s ecology.  As we learned from Fred’s post, an innovation friendly approach to working with other companies around it, like Twitter does, can actually create a reach up to 5x that of it’s core service.  Given that the people that actually pay Yelp, venues, only care about reach—by scaring off innovative partners who might want to work with the company, Yelp is doing a disservice to its long term value creation strategy for itself and its customers. 

On top of that, news broke that the company is taking $50 million from Elevation Partners—which includes a secondary offering for long-time employees as well.  That’s key, because it means that the core DNA of the company—the key folks who have been there for years and built it into what it is today, just took money off the table.  Count on that money going to a lot of mortgage down payments and moves to the suburbs—and count on the startup hunger of the little social reviews company that could to fall off the table.  Yelp missed its chance to exit at a nice valuation after six years of hard work.  With money off the table and big company bad behavior in the innovation community, look for the mass exodus soon—I’m sure the recruiters are already circling.