With the new tech craze that is gripping the market, two soon to be publicly traded websites are being tapped by investors, Angie’s List Inc. and Yelp Inc.
On Wednesday, Angie’s List priced its stock at $13.00 per share, giving it an intial valuation of $723 million for the its first day of trading (Today). Yelp is planning to file for an IPO in the next few weeks and is going to be valued between $100 to $200 million.
Although both websites are successful in their own right, they have grown using different methods. The two diffferent methods are the core of debate for internet websites to determine how to get revenue. As a website, there are several ways to make money; Charging users for content, have a free service for users and use advertising, and/or refer users to other businesses and collect referral fees. Angie’s List Inc. took the direction of charging users for content, while Yelp used the free approach.
The big difference? Because Angie’s List charges its users, the company has to ensure quality reviews for businesses it lists. This give the website a better reputation as a reliable source of information, but it places a lot of pressure on the company’s quality control and can be expensive. Yelp, on the other hand, relies on free reviews from its users. The challenge faced by this company is to prevent malicious users from writing false reviews. False reviews on yelp.com have also led to lawsuits filed by local businesses. In order to prevent these malicious users, Yelp developed an algorithm to weed out reviews that it felt were unreliable, but there is always still the chance it may miss something.
Angie’s List is currently operating at net loss of $17.4 million for the September quarter, which is risky for investors seeking ownership later today at its IPO; however Angie’s List has penetrated the global market on many different scales so it is poised to make money.
Yelp’s finances are not currently clear because the company has not filed the IPO paperwork yet, but it is also operating at a net loss.
What does this mean for users? From what I have experienced with websites that have gone public, they tend to slowly change but within a year are very different. This is because for company management, it is easy to answer to a handful of owners…but when there are thousands if not millions of shareholders, there is massive pressure to state profits. Get ready to see some interesting new features to both of these websites.
This bit of news reminds me of an article I wrote about Zynga last week. Zynga also is gearing to go public, and is one of MANY internet companies doing so. At the end of the post I said to be weary of another Dot Com bubble…well it has only been a week so I am still not going to be kicking and screaming that something is wrong, but I do believe this reinforces my previous statement and investors should be weary of the internet market.