Gauri Subramani on How Online Listings Impact Business Performance

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In this episode of Lehigh University’s College of Business ilLUminate podcast, host Stephanie Veto talks with Gauri Subramani about her research on how Yelp listings impact the restaurant business. Subramani is an assistant professor in the department of management, and she studies the implications of representation on entrepreneurship and innovation.

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Below is an edited excerpt from the conversation. Read the complete podcast transcript [PDF]. 

Veto: You recently co-authored a paper called Getting on the Map: The Impact of Online Listings on Business Performance. Can you give us an overview of the study? 

Subramani: This is a paper my co-authors and I have been working on for a really long time. I actually think that the effects that we found are only more important today than they were in 2017 when we started the study. So we were interested in understanding what the effect is of having a listing online. There is a lot of work that shows that, for example, your star rating online matters and how much information on an online profile for a business matters. That all evaluates the effect of adding more to an already existing profile. 

We don't have a good sense of what having a profile does at all. And it's a little bit more complicated than you might expect. You can imagine that there are some businesses that may be bad or restaurants that are not very good that don't want to reveal that online. You can imagine that it could be a strategic decision to stay offline. 

But we used a natural experiment on Yelp. And what we found is that having a listing on Yelp increases revenues for bars and restaurants in Texas by about 5% to 10%. It’s a really meaningful increase in revenues. 

Veto: Why focus on restaurants? 

Subramani: We were thinking of contexts in which we could evaluate this question of what is the effect of having an online presence. We also needed data on revenues to look at. One of my collaborators had a relationship with Yelp, and we found this data set. In Texas, there are pretty good open data laws. So we looked at alcohol revenues. 

Not all restaurant revenues have to be publicly reported and are available publicly. But, we could get the data on monthly alcohol revenues throughout the state of Texas. So we could combine that data with Yelp's listing information to see what the outcomes were like. 

I think it was two things. One, it was the data that we were able to get. And the other thing is those are really the businesses for which you'd think that having a presence online is really important. What do we do when we want to find somewhere to eat and you're not in your neighborhood? You search Italian on Google Maps or on Yelp. So, we also thought it was kind of the category that was the most salient for thinking about this question. 

Veto: Is a five to 10 percent revenue increase significant when it comes to these restaurants? 

Subramani: It's really significant because the restaurant industry and general food service has low margins. The latest that I saw from Toast, which has this point-of-sale system, is that five to 15 percent is the average margin that restaurants have.These aren't businesses that have a really big cushion. There's even research that shows that rainy days, for example, can really affect revenues. So doing anything, especially a free intervention that can increase revenues by five perecent, can be really meaningful because they're not in a situation where they're swimming in cash. 

Veto: Do you find that there are some restaurants that still want to remain offline intentionally? 

Subramani: So, a couple things just about the platform and I think this is true of almost all of the review platforms. Businesses can add themselves. You can identify as a business owner and claim the listing or create your own listing. But, you can also be added by a third party. I can add a coffee shop in Bethlehem if I go there. So it's not totally up to a business owner whether they have a presence online or not. It's also free to have the listing. It's not free to advertise, but to just have the listing and to be able to claim it is free.You can't do anything about it if someone creates a profile. 

But just anecdotally, from conversations that we had with business owners through the course of this, the thing that was driving this desire was generally fear of getting bad reviews and then feeling like, "Oh, what if I only get two reviews and one of them is bad, and then no one wants to come to visit my establishment?" That doesn't really happen. There's also a general misperception that some business owners have that they have to pay for it. So A, it's not totally within your control. And B, I think what we find is that it's actually a suboptimal business decision to stay off. 

Veto: You said you started this in 2017. That has got to be awesome to look at a decade's worth of data. 

Subramani: We actually looked from 2007 to 2018. That was an especially interesting time because that was when these online platforms really launched and everyone started searching using their phones. It's a really nice time period to have this data. If you look in 2008, there are basically only 20% of establishments listed on Yelp. And then by the time you get to 2018, 72% of places are on Yelp. It's really interesting to see how that gap closes. We were also able to look at searches and see people searching for these restaurants and see how often they show up on people's search results pages. It was a really cool way to see how these online tools have empowered both consumers and businesses.