Yelp sued for extortion: should have found a better business model

February 24th, 2010 in Uncategorized Comments

Living in Los Angeles, Yelp has been a great tool for me. I have used it constantly over the past few years to discover new restaurants and find great recommendations. But rumors of Yelp’s somewhat shady business practices have started surfacing over the past year.

These rumors have now turned into a class action lawsuit, filed in Los Angeles federal court, on behalf of a veterinary hospital. The hospital contacted Yelp asking them to remove a negative review, and claims that Yelp representatives demanded a fee of $300 per month to hide or delete the review. Judging by the number of previous reports of this type of behavior, this lawsuit could snowball into a massive problem for Yelp.

When these rumors first surfaced, I have to admit, I was rather surprised. Not at the allegations themselves, but the fact that Yelp selected a business model that put itself in this position in the first place.

Any user generated review site has an inherent credibility problem: any public user can sign up and easily post a fake review. I’ve seen this done repeatedly, and I’ve also been asked to do it occasionally (I didn’t bother). If your site is focused around user generated reviews of businesses, you need to be doing your best to ensure the credibility of those reviews. If users don’t trust your reviews, they aren’t going to bother showing up at your site anymore.

This is why it makes absolutely no sense to me that Yelp selected a business model that inherently compromises the integrity of their site. It seems like they could have found a dozen other ways to make money. Charging business owners $300 per month for featured listings that make the bad reviews go away wink wink nudge nudge seems like the wrong way to go. They are already fighting an uphill battle to gain credibility in the eyes of users, why make it even more difficult?

At this point, it doesn’t matter so much whether the allegations are true or not. This type of negative PR is anathema to a review site, and could easily drive their userbase to other competitors. Especially now that location based services have taken off and there are dozens of other companies doing very similar things.

Maybe they should have taken the $500 million from Google while they still had the chance…

Comments

  • Ed
    If you go to www.yelpscan.con you will also find a copy of the letters sent by the Coalition for Fair Reviews (we put up the yelscam site) to the FTC and the Attorney General's office(Calif) requesting an investigation of Yelp! This along with the class action law suit, that is seeking the return of all advertising dollars that businesses were forced to pay Yelp, plus punitive damages, should put an end to this evil business.
  • lindakiki
    Yelp will not survive this. I heard after this suit was filed, they already have more than 200 business joining in with more daily. And 50% of these are Doctors and Dentists, in other words, people with significant means. Yelp has managed to piss off this kind of people who ar all joining in to expose them. It will not be something they can survive from if they don't make changes. I have also heard Libel charges will also be added in addition to extortion.
  • Ed
    Suggest you go to www.yelpscam.com ...go to page 1 , click on Law suit ..and then join the class action law suit like we all are doing. Yelp will be stopped.
  • jessicasimpkins
    Very well put. I am going through some very shady yelp bombing. Seems a disgruntled ex employee's big sister, has bragged that she is friends with a manager at yelp, and seems to be able to get legitimate reviews by actual customers removed from our business listing, and keep the only reveiw up that actually never received services at our business. You can't even flag it for being bs anymore!! I went on thismorning after going to bed with a healthy four and a half stars, and only had one star left! No way to contact them, all I can do is promote another similar site. Yelp has exactly ZERO credibility, and can not recover from their shady business practices. I'm just waiting for my phone call from yelp for the "protection money".
    Well now that we know that their reviews are for sale, and friendship with their employees can be exploited and used against competitors, the site has exactly zero credibility. Good Job Yelp!!!!!!
  • Ed
    We said it all in www.yelpscam.com . Just think of it for a minute, if a business has good reviews, and even if they paid Yelp $1000. for 2 months of advertising, they would realize it was useless, and they would cancel the contract. Now, on the other hand, if they had bad reviews, and yelp either got rid of them, or burried them, and allowed or assisted good reviews to be posted, then the company would contiue paying for the extortion. Companies with sold 5 star reviews, and if Yelp didn't remove them for some odd reason, would have no reason to spend $6000. on useless ad. The business plan that Yelp adopted, after the first one didn't work, was flawed . Only with manipulation of reviews could they force a business to pay them monthly. If anyone complained, the negative reviews just seemed to get worse..many businesses have gone broke and people have lost jobs. This is wrong..and now we hope the courts and the government will correct this evil.
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