Yelp Goes Groupon: Who Will Be the Top Dog in Local Deals?

It had to happen. Local reviews site Yelp has begun rolling out weekly deals in a number of cities, according to the company blog. A deal for a yoga studio in San Diego was highlighted in the post.

In some sense, Yelp is the ultimate Groupon competitor. It has massive traffic and has become by far the biggest online user-generated review site for restaurants, shops, gyms, service providers and everything else.

Yelp also has a localized sales force already pitching to small shops to entice them to advertise on Yelp. In other words, Yelp has a full-blown sales team that already has all the technology tools to go hard after the local deal markets.

San Francisco-based Yelp has also been steadily pushing its e-mail newsletters, another way to get daily or weekly deals out for maximum impact. While Groupon and other big group-buying sites like LivingSocial have a huge lead on Yelp, the latter could make up ground quite quickly.

Merchant Web Listings Biz Model: DOA?

Yelp jumping into the pool may also indicate that plays to more directly translate the yellow pages advertising model onto the Web, with directory-type ad listings connected to specific Web pages, may be effectively DOA. This is somewhat ironic, as Aol's hyper-local Patch is attempting to put together exactly this sort of directory-based business, although Patch also plans to offer plenty of discount offerings for highly local audiences. (Aol owns DailyFinance.)

The Grouponomy is rapidly developing into a full-fledged market, with white-label service providers like Tippr (which also has its own branded business), aggregators like Yipit, and trading platforms like Lifesta. At the same time, merchants are becoming more cagey with deals, adding more restrictions and selling discounts in smaller denominations (for many verticals) or with offerings structured specifically for try-and-buy so as not to jack costs through the roof.

Lastly, from the merchants I have spoken to, redemption rates of coupons range from 60% to 70%. Translation? Group-buying deals are actually far less costly to the local merchants than may be apparent because the merchants get cash upfront and don't have to deliver the full value since not all the buyers show up. That said, with Yelp jumping in, it's even more likely that consumers are being trained to expect deals and never to pay full price. That could be painful for merchants.