Yelp and the Business of Extortion 2.0 

Local business owners say Yelp offers to hide negative customer reviews of their businesses on its web site ... for a price.

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So is it legal for Yelp to do all this? Probably, according to Matt Zimmerman, senior staff attorney at the San Francisco-based Electronic Frontier Foundation. "As a general matter, web sites are allowed to present information however they want, so there's nothing inherently illegal about that," he said. But denying they do this could get them in hot water, he added. "I suppose a disgruntled business could bring an unfair-trade-practices-type lawsuit of their Terms of Service, but it has to hinge on whether they're saying one thing and then are doing something else. That's the only way there could be any legal action." The same would be true if a paid Yelper had written the review, he said.

"Business owners who pay Yelp.com may feel like victims of extortion, but offering to remove derogatory reviews after the fact probably doesn't fit the legal definition of the crime of extortion," wrote Mark Hathaway, a white-collar criminal defense attorney who practices in California, New York, and Washington, DC. But while manipulating how reviews are displayed to make people buy advertising may not be illegal, it doesn't necessarily feel right. "Yelp.com has to be careful that their business model does not look like they are asking business owners for protection money from bad reviews when Yelp.com controls whether the bad reviews are posted in the first place," Hathaway added. "Some business owners may feel that the local neighborhood protection racket has just moved to the Web."

In principle, there's certainly nothing wrong with Yelp soliciting reviews about businesses. Or with Yelp removing certain reviews.

Tens of thousands of newspapers, magazines, and online destinations — including this newspaper and its web site — write reviews of businesses even as their advertising departments are busy soliciting those same businesses for advertising. Ideally there is no causal relationship between the two. Financial considerations shouldn't affect the tone of supposedly independent content.

But if the accusations are true, Yelp is compromising the integrity of its reviews to make a buck, which contradicts its identity as a user-generated, consumer-first web site. Quoted in The New York Times last year, CEO Jeremy Stoppelman said of his company's priorities: "We put the community first, the consumer second, and businesses third." In fact, the evidence suggests that Yelp comes first.

To Jo-Ellen Pozner, an assistant professor in the Organizational Behavior and Industrial Relations Group at UC Berkeley's Haas School of Business, the whole concept is ethically murky. "Yelp appears to be an unbiased, unmotivated web site, and this kind of rating site operates more on the basis of trust than something like a CNET or for-profit Consumer Reports," she said. "To be successful, people have to trust the content that Yelp is showing. By the same token it's the Internet ... deception is easy and it's almost inevitable. It's clearly not ethical. It does seem to be close to extortion if Yelp is actually removing positive reviews if business owners don't pay up. Then again, these kinds of user-generated sites are also subject to manipulation by the businesses that are being reviewed."

So where should Yelp's values lie? Pozner says stricter controls to eliminate manipulation by business owners would make the site more trustworthy, but such controls might be inconsistent with the company's revenue goals. "It's a really tricky spot," she said. "I don't know if I could define that in ethical terms. It doesn't make a lot of sense. It's difficult to keep the integrity of this kind of model."

User Foster Kerrison of Pasadena said Yelp's integrity as a user-generated site was what first attracted him to it. He said he'd trust the site less if he knew that Yelp manipulated its content. "That does bother me, because up till now I feel like it's been completely — just all user content," the 31-year-old said. "You take it with a grain of salt but it's all real, it's not altered."

Is such integrity counterproductive to success on the web? One of Yelp's early competitors, JudysBook.com, which launched about the same time as Yelp, tried to be responsible in the quality of its content and its relationship with businesses. According to Jeff Rodenburg, who helped build the Seattle-based online review site, the company tried to encourage good user behavior and high-quality reviews, and allowed business owners to freely post responses to reviews.

One of the biggest challenges the site faced, Rodenburg said, and one also faced by sites such as Google Local and Yahoo Local, was how to reduce the enormous cost of its sales effort. Getting businesses to advertise required a huge investment in people-power. Rodenburg said many web startups assumed that local advertising dollars would eventually migrate online — "not if, but when." "That never materialized," he said. While Yelp has obtained far more funding than JudysBook ever did, the company still faces the challenge of living within its means. "If you think you can reach profitability through online ad sales, I'm not sure," he said.

In the wake of a recent spate of critical media coverage — stories in the San Francisco Chronicle, Daily Californian, and on CBS5 — there are some signs that perhaps Yelp is changing its practices. Interviews with more than a dozen local business owners suggest that Yelp sales reps may be wording their sales pitches more carefully these days. Owners who were approached by Yelp in recent months said they were told they could choose one positive review that would appear at the top of their page, which would clearly be denoted as a "sponsored review."

And plenty of Yelp advertisers still have negative reviews on their pages. "You pretty much have to fight tooth or nail to get a bad review moved or removed," said one East Bay restaurant advertiser, who wished to remain anonymous. Peter Snyderman, the owner of Elite Cafe, said his sales rep never mentioned moving negative reviews.

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