Gauging the Value of an Online Restaurant Listing
Some businesses maintain an online presence, and some do not. In Getting on the Map: The Impact of Online Listings on Business Performance (NBER Working Paper 30810), Michael Luca, Abhishek Nagaraj, and Gauri Subramani study a sample of restaurants in Texas to examine the revenue effects of establishing an online listing. They estimate that revenues increased by approximately 5 percent after a restaurant was listed on Yelp. Yet over 30 percent of the businesses in their sample were never listed, even though listings are free to create. Their results suggest that firms might at times be missing out on low-cost digital strategies.
A study of Texas restaurants finds that revenues rose roughly 5 percent after a free listing on Yelp, but many restaurants don’t take advantage of the opportunity to list their businesses.
The researchers created their sample of bars and restaurants using data on 34,270 name and address combinations from the Texas Comptroller of Public Accounts. The comptroller’s records contain monthly tax receipts for every Texas business that had a liquor license and paid taxes on the sale of distilled spirits, beer, ale, and wine. The researchers used the recorded tax payments from 2007 to 2017 to estimate monthly revenues in dollars, using alcohol revenue as a proxy for total restaurant and bar revenue.
After cleaning the data to adjust for gaps in payment records and eliminate liquor license holders that might be stadiums, catering services, event management companies, and other entities that are not restaurants or bars, there were 14,381 unique tax location establishments. Using an algorithm that matches location information to listings in Yelp’s internal database, they find that 9,571 of those establishments had a Yelp listing at some point in their lifetime.
Founded in 2004 in San Francisco, Yelp began expanding in Texas in April 2007. Although creating and managing listings is free, many existing Texas establishments created new Yelp listings between 2007 and 2010. The researchers believe that cost was unlikely to be the reason for not listing.
Once a business was listed, Yelp users could add reviews. Users could also add businesses that were not already listed to the platform. Of users actively adding sample businesses to Yelp, the 1 percent most active users — 56 “super-adders” — listed 747 of the businesses in the sample. On average, the businesses they listed were younger and more likely to be urban than were other sample listings.
In July 2010, Yelp boosted its Texas listings by buying data from a third party business data aggregator and doing a “bulk add,” which resulted in 1,295 new Texas restaurant and bars from the researchers’ sample to be listed. As a result, the proportion of sample establishments not on Yelp fell by half to slightly less than a third. Relative to the businesses from the data acquisition, the businesses listed on Yelp were more urban, had been in business longer, and had higher revenues than businesses never listed on Yelp. Average monthly revenues for businesses listed and never listed were $30,911 and $20,853 respectively.
The estimated revenue increase for the sample businesses listed on Yelp was about 5 percent. Sample businesses added to Yelp by the super-adders enjoyed revenue increases of about 8.9 percent. The businesses from the bulk add had a 10 percent revenue increase even though their user rankings were slightly lower than the sample average. The researchers conclude that “adding a new listing unlocks a new source of customers and revenue to the restaurant that stays persistent over time.”