Sunday, March 4, 2012

Rogers Diffusion of Innovation and YELP

Rogers Diffusion of Innovation and YELP!

YELP! has a simple mission statement "Our purpose: To connect people with great local businesses". The business model works because YELP! users value the opinions of strangers. 


Rogers describes five phases in the Innovation-Decision process: knowledge, persuasion, decision, implementation, confirmation, (Rogers, Everett M. Diffusion of Innovations. 5th ed. New York: Simon and Schuster, 2003, pages 169-216). 

Rogers establishes several disclaimers: some people may describe more than the five phases that he uses, that the phases may have overlap, and the the time within any phase might stretch to years. He is clear that they are sequential.

For a business, the number of phases and overlap may not be as crucial as the conversion from decision to implementation (essentially the steps to secure a new customer). And, of course, for a business that relies on repeat customers, the critical confirmation phase cannot be ignored. 

Rogers' Diffusion of Innovation Curve
Click for larger view.


I have previously written about YELP in my Macrotots blog "Why YELP? Three Austin Restaurants Close, More on the Way?". My relocation to Seattle, WA., Woodinville to be more precise, has led me to a new appreciation of YELP! and especially their "monocle" tool. I changed my physical location, leaving my physical network, and needed to connect to local resources. I had to leverage the early adopters in order to get established in my new environment.

Rogers argues that information can be communicated via mass-media and via interpersonal communication. While the phases may start (knowledge) with mass-media exposure most will not move to subsequent phases without some interpersonal input. (See page 199, Table 5-1 is a fantastic resource). 

The early adopter, the person that runs to every new venue, restaurant and has all the latest gizmos, does not depend as heavily on this input. In fact, they exist one small step behind the inventor and often fit Rogers' definition of an innovator. As opinion leaders and trendsetters, they pave the road for early majority (fast-followers). Their feedback, both to the business, for re-invention, and to the public, drive the diffusion curve (from innovators to early majority then to late majority) 

Responsive businesses should incorporate suggestions from the early adopters in order to improve (reinvent) their offerings for the mainstream. 


Why YELP?

YELP! has a business model that supports the feedback loop as it consolidates the interpersonal data that can help a business improve their adoption rate -- accelerating the awareness, decision and implementation steps. 

Where Rogers studied communities of similar adopters (generally, farmers that knew each other) the internet has changed the dynamics. Reviews on YELP! and Amazon and other sites act as an opinion catalyst. Reviewers can provide unusual perspective ranging from the general (I love all "widget co" products) to the specific (the on/off button on the "widget co 3000" is too small). This provides a treasure trove of data points for the company, and the potential consumer.


Opinions are like.... 

I am not an innovator, and usually not an early adopter. The opinions of strangers count to me - much more than the mass media or company sponsored media. Rogers provide detailed step by step discussion of the movement through the Innovation-Decision process. It is clear that YELP! provides a platform that moves the consumer from mass media input to interpersonal input. 

Geoffrey Moore's Technology Adoption Lifecycle



In my Stanford SAPM class we are studying an example of a modified Rogers' Curve. While the phases are the same, and adoption flows from left to right, then new curve introduces new terminology and suggests strategies to accelerate adoption. Geoffrey Moore (Twitter: @geoffreyamoore)  introduces the idea of a "chasm" or gap in the adoption cycle between the early market and rapid adoption. 

Moore argues that a company can extend the product or service time in "Main Street" by continuous differentiation of a product. Rogers clearly states that cycle time is indefinite.

So, what type of data would lead a company to simple product changes to improve satisfaction? How about a feedback channel directly from the customer?


New Questions

Do free products (or those funded by annoying advertisements) follow the same adoption rules? If the consumer experience no friction to adopt (or abandon) a product, does the Rogers curve apply?


In May of 2015 Yelp! announced that it is looking for a potential buyer. Chris O'Brien (Twitter: @obrien) writes a VentureBeat.com article that provides an overview of the transaction and provides key commentary about the failings of the Social Web. The model of "scale then monetize" or the "attract eyeballs and dollars will follow" does not seem to hold true. 

"But despite having a billion viewers, almost 10 years after its launch, YouTube still isn't profitable."
Yelp... "Founded in 2004 to allow users to comment and rate local businesses, the company went public in 2012 on the backs of the millions of reviewers it had attracted. Before that, Yelp raised $56 million in venture capital. At the IPO, it raised another $107 million. And then, with losses still mounting, the company raised another $250 million in a 2013 secondary stock offering.

That’s about $400 million raised from investors, for a company that today has a market value of $3.51 billion. Yelp did manage to make an annual profit for the first time in 2014, but it has also still reported total losses of $34 million over its history, according to its securities filings."
  
The ability to change from a "free" service offering to one that generates revenue appears to be a high hurdle. I'm leaving my "Bottom Line" in place from the original 2012 post - as Groupon does seem to have hit the wall.  Reviews on Amazon and Yelp! are still valuable, but monetizing the experience still seems elusive.

Bottom Line

Is it possible that Groupon (as a example of an knowledge stage mass-media play) may fizzle out as the interpersonal reviews on Amazon and YELP! flourish? Will Groupon struggle because most of us, by definition, are not innovators, or even early adopters? 



~Xolo
[Original Post: 3/4/2012, Updated 5/8/2015] 

Amazon Links: 
Diffusion of Innovation - E. M . Rogers
Dealing with Darwin - G. A. Moore