Yelp, Yahoo, and the importance of Paranoia

I love Yelp. So do a lot of people. It’s the quickest way I know of to find a good local business.

But I also find it kind of amazing that Yelp exists in the first place. After all, Yahoo Local has been around forever. They had a huge lead in this local directories business. They have hundreds of millions of users to write reviews. They should own the local search category just like Google owns web search.

Put it this way, if you were a VC in the early part of this decade, would you have funded Yelp? I wouldn’t have — which goes to show why I stick to enterprise markets that I can grasp.

So, what happened? How did Yelp thrive in the shadow of a web powerhouse?

I don’t work at either Yelp or Yahoo, nor do I follow the local search market, so I can’t know for sure.

What I do know, is that as a user of the two services, Yelp’s functionality just works better. It’s the combination of many little things. Number and quality of ratings is one key factor, but there are many others. Enumerating those is beyond the scope of this post.

That said, I think a key "root cause" of Yahoo’s slip-up is that they weren’t paranoid about losing the lead in local search. They updated their service, but not quickly enough to keep pace with Yelp. In my mind, this is a classic case of losing the "paranoia" that Andy Grove wrote about years ago. A great quote from "Only the Paranoid Survive" describes this dynamic:

"Success breeds complacency. Complacency breeds failure. Only the paranoid survive."

What other successful giants are there that have grown complacent and are vulnerable to younger, hungrier competitors?