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Lawrence Coburn

Lawrence Coburn

Posted February 26, 2009 | 11:39 AM (EST)

Is The Yelp Controversy Overblown?


The last few days, we have seen a flurry of controversy around the local business rating community Yelp.com, a popular and influential online community where visitors can rate local merchants such as restaurants and bars. The allegations? That Yelp will remove or hide negative reviews for companies that advertise.

This story touches a lot of small businesses. In addition to reaching about 19.5 million consumers per month, Yelp tends to dominate Google search rankings for names of local businesses in cities that they cover, often making a Yelp reputation the first impression a consumer has of a business. If a favorable Yelp reputation is in fact for sale, it puts tremendous pressure on all local merchants to pay up so as not to fall behind their competitors. And if the allegations are true, it raises ethical concerns about the company.

The Background

On February 18, the obscure East Bay Express published a 4,500 word article called "Yelp and the Business of Extortion 2.0," outlining allegations from anonymous and named local business owners who reported that Yelp salespeople offered to move or remove negative reviews if their company would pay $350 per month in advertising.

The article struck a chord. By February 20, the story had been picked up by major publications such as The Wall Street Journal, CNET News , The Register, Financial Times, and many more. There has also been a blizzard of activity in the blogosphere, and on Twitter.

Yelp's CEO, Jeremy Stoppelman, has also been active in disputing the story. He posted a terse denial of the East Bay Express allegations on the Yelp blog on February 20th, followed up with another post called "9 Myths about Yelp" clarifying some issues related to the controversy and used his personal Twitter stream extensively to interact with those posting about the controversy.

In Defense of Yelp

First, let me put a couple of things out in the open. I am far from unbiased here. I have a clear conflict of interest in that my own company RateItAll, also offers a local business rating service. On the other side of the coin, I have spent a good bit of my career championing the consumer review space and am personally familiar with the conflicts that can arise when trying to balance advertisers' best interests with those of your user base. As both a quasi competitor to Yelp, and as a believer that they are providing an immensely valuable service, I will do my best to present both sides of the story.

First and foremost, I suspect that the recent attacks on Yelp have not been entirely fair.

Local businesses often -- and understandably -- take negative feedback extremely personally. This is their livelihood that is at stake, and it's hard for many businesses to understand how a negative review from an anonymous person might suddenly start showing up as the first result in Google for a search for their business name. For these folks, the stakes are very high, and owners can get personal in a hurry.

My company is contacted frequently by irate merchants regarding negative reviews. We've had local business owners threaten us bodily harm, offer to bribe us to remove negative reviews, cheat shamelessly to boost their rating, call my personal cell phone hundreds of time per day, and quite often, threaten lawsuits. The more extreme merchants seem to think that sites like RateItAll and Yelp were created for the sole purpose of destroying their livelihood. They often don't understand the read/write aspect of the Internet. They don't understand that a negative review can actually serve to build credibility. They don't see their exposure on our sites as a marketing opportunity. And they certainly don't want to hear any nonsense about consumers being entitled to share negative opinions.

All they see is a search on Google pointing at unfair allegations from an anonymous person that is hurting their livelihood.

Given Yelp's traffic, traction, reach, and influence, I can only imagine the volume of enraged merchants they must deal with. When I read much of the coverage of this current controversy, I sense some of this same emotional outrage that I've seen personally from merchants upset about a negative review. That Yelp is a grand conspiracy to extort businesses into paying up, and if they don't pay up, Yelp will put them out of business.

I find this hard to believe.

Yelp is a blue chip company, backed by blue chip investors, run by smart people. They have global, long term ambitions. It's simply not in their best interests to run an extortion racket. While allowing businesses to pay to remove negative reviews might improve short term revenue, it wouldn't be long before Yelp's credibility with consumers was shot. Yelp surely understands this.

The Pressure of High Expectations

Like every other start-up that is living off of investors' cash, Yelp is under tremendous pressure to get to profitability. Unlike many other start-ups however, Yelp has raised so much venture capital ($31M total), that it's not enough for the company just to become profitable -- it needs to get profitable with revenues that justify its valuation. With valuation estimates of $200 million on Yelp's most recent financing, Yelp likely needs to achieve annual sales in the mid to upper hundreds of millions of dollars to give its investors a shot at a decent return.

There are not many online advertising supported businesses driving that kind of revenue.

With this sort of backdrop, it's not hard to imagine Yelp executives setting aggressive sales targets. And in my experience, aggressive sales targets beget aggressive sales tactics. If this is the case, I expect that this controversy will encourage Yelp management to tighten control of its salespeople, and that we will see more measured and transparent sales tactics in the future.

I believe that in the long run, Yelp will emerge a stronger company due to this controversy.

In my next article, I'll discuss why this controversy should serve as a wake up call for small business owners, and provide specific pointers for how they can maximize the positive impact of online reviews.