Yelp grows up

April 9, 2010: 5:25 PM ET

The site is making some changes, not to placate critics, but to prove they've been wrong all along.

By Paul Smalera, senior editor

Yelp co-founders Jeremy Stoppelman (left) and Russel Simmons (right)

"Some businesses are never going to be happy with a paradigm that allows customers to comment, or makes them have to have to earn their content," Vince Sollitto of Yelp tells me

It's hard to argue. As Yelp has grown from fledgling start-up to critical mass website, serving over 30 million visitors a month, it's biggest challenge hasn't been managing its huge and devoted online community, but rather caring for the relationships it has with the hundreds of thousands of businesses across North America whose listings appear on the social review website.

That problem reared its head as three lawsuits against the company have been filed in recent weeks, alleging Yelp engaged in extortion and fraud. The main arguments are that the company games ratings, then pressures businesses into buying advertising to salvage their online reputations. This week, Yelp made some changes to its site that seem to finally fix some of the biggest complaints business owners have about it. But, the company says, don't take that as a sign the company is capitulating to critics, or that they're right.

Businesses listed on Yelp, many of them small restaurants, mom and pop shops, and medical offices, aren't used to having a third party managing their public image. In fact, to some of them, it feels like Yelp is creating that image out of whole cloth. The idea that Yelp is distorting reviews and ratings in order  to open a door for its aggressive sales force has been the biggest knock on the popular website, founded in 2004 by former Paypal engineers Jeremy Stoppelman and Russel Simmons.

Fear of the unknown Yelper

Yelp's setup can feel, to small businesses, less than forthright. The same company that shows a list of user-submitted reviews and a star ranking of your business also calls you up and asks you to spend a couple hundred dollars a month on advertising (see editor's note below). When you dive into the pages Yelp created just to explain its programs to local business, the lines between the two programs are clearly drawn. But harried owners of coffee shops, wine bars and dry cleaners don't always take the time to read through those materials with due care.

After being exposed to Yelp however, either by a sales call or the inevitable harsh review, proprietors might start paying more attention to their Yelp ranking—misreading the constantly shifting reviews as a nefarious plot to extort them.

That's just not true, the company maintains. The reviews—good, bad and other, are earned by the businesses. When Yelp hides a review, it does so only because it suspects it to be a shill.

And some proprietors, says Sollitto, are actively gaming the system themselves. That includes the 11 small business owners who are suing it.

"To be frank, some of the plaintiffs that have the gall to sue us are businesses that we know tried to spam their pages, wrote fake reviews of their own business or for one another. We know that there are folks that are unhappy with us because we prevented them from misleading consumers about their business. I don't know if educating them would've prevented [the lawsuits]," Sollitto told me.

Yelp opens the kimono

For too long, Yelp has hidden the single bullet it had to prove critics and accusers wrong: All it had to do was reveal the reviews that its spam filter blocks, This week, they finally relented. Now the once hidden reviews appearing through a link at the bottom of every business's page. The controversial reviews are tucked behind a "captcha" that insures whoever is reading the flagged items is a human.

If you're wondering why all the security is needed, it's because the flagged reviews are essentially Yelp's Big Mac sauce, its Colonel's 11 herbs and spices, its Nieman Marcus Chocolate Chip cookie.

Allowing spammers to see what Yelp's system bans gives them a recipe to reverse engineer, to create spam that will bust through. Yelp engineers think they've solved that problem well enough to finally let users peek behind the curtain.

And even if Yelp wasn't ready, they may have to let the masses in anyway: Since Yelp trades in trust and integrity, the moment it ceases to be a reliable review source is the moment it goes the way of Citysearch or other ghost-town websites that contain nothing but spam and shilling. With these questions swirling, it seemed the right time to executives to roll out the new openness.

The other change Yelp made was to remove the "favorite review" feature from its advertising package, replacing it with a photo or video gallery uploaded by the business owner. It's "yet another way to further impress upon people that Yelp is a level playing field," Sollitto says.

Chasing virtual ambulances?

In the wake of the bad press around the lawsuits, that's hugely important for the company. And the lawsuits, Sollitto points out, came after Yelp's $500 million dalliance with a Google buyout fell through, leading to a new $100 million investment from Elevation Partners earlier this year. Yelp believes it's dollar signs, not business practices, which brought out the attorneys. "Lawsuits often come to companies around financing rounds, that is a fact of life," says Sollitto.

Analysts often compare Yelp to pre-IPO Google, the period when the search giant had to balance revenue growth against eliminating spam that would have boosted traffic but sank its reputation it in the long term. In a way, Yelp's line-holding is harder than Google's, as there's huge difference in public perception between banning spam websites and banning, in essence, spam human beings.

Yet building a website that reaches into the downtowns of dozens of cities, connecting millions of savvy web users, is a huge value proposition and clearly its own reward. "Yelp is a disruptive technology, Sollitto said. "It shakes up the status quo, changes winners and losers and provides values in efficiency." That's one game the company seems happy to keep playing.

An earlier version of this article incorrectly stated that the average cost of a Yelp advertising package is a couple hundred dollars a year. It is a couple hundred dollars a month.

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About This Author
JP Mangalindan
JP Mangalindan
Writer, Fortune

JP Mangalindan is a San Francisco-based writer at Fortune, covering Silicon Valley. Since joining in 2010, he has written on a wide array of topics, from the turnaround of eBay to the evolution of net neutrality. A graduate of Fordham University, Mangalindan has also written for GQ, Popular Science, and Entertainment Weekly.

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