Good.is Email Newsletter Today

Yelp Helps

More often than not, if you want to find a good restaurant, you’re going to Yelp it. While the individual reviewers may not be the most charming, in aggregate, they’re changing the restaurant market, creating new business for well-reviewed companies and cutting into the market share of chains.

Researcher Michael Luca at Harvard Business School analyzed data [PDF] from Yelp and the Washington State Department of Revenue to see how the online database affected Seattle restaurants. He found that Yelp had rated 70 percent of all operational restaurants in 2009, while the city’s largest newspaper had only reviewed 5 percent of them.

Luca discovered that Yelp had tangible influence on business in Seattle’s restaurants:

“A one-star increase in Yelp rating leads to a 5-9 percent increase in revenue.“  That’s a big deal right there. When consumers have information that they trust (especially from multiple users or particularly detailed reviews) it influences decisions.

“This effect is driven by independent restaurants; ratings do not affect restaurants with chain affiliation.” This makes sense: All McDonalds have Big Macs, and they’re all pretty much the same. Interestingly, people don’t appear to be paying much attention to variations between chain restaurants.

“Chain restaurants have declined in market share as Yelp penetration has increased.” The internet saving small business? Maybe. It’s certainly equalizing the information advantage enjoyed by famous brands.