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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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One thing is certain: In both cases, Yelp benefits. was founded in July 2004 by two young entrepreneurs: Jeremy Stoppelman, 31, and Russel Simmons, 30, who had worked together at PayPal. They conceived the idea during an "incubator" held by PayPal cofounder Max Levchin. The concept was an online city guide with a Web 2.0 mentality, allowing "real people" to write "real reviews" about nearly any type of business — from restaurants to dentists, bars to clothing stores.

Yelp creates a page for individual businesses, including address and phone number, like a directory. Then, any person who signs up for a free Yelp account can write a review of the business and rate it on a five-star system.

The site's social-networking capabilities and clever marketing quickly made it popular with young, web-savvy users accustomed to using the Internet to find their goods and services. Launched in the Bay Area, the site has since spread to many major metropolitan areas — including Los Angeles, Chicago, New York, Boston, Las Vegas, and Seattle — as well as England and Canada.

Today, Yelp draws more than 16 million unique visitors to the site each month, according to Yelp spokeswoman Stephanie Ichinose. More than 4.5 million reviews have been written so far, and the company has raised $31 million in funding to date.

Translating that traffic into a viable business model hasn't been easy. According to the Financial Times, the company still isn't making a profit. Yelp relies solely on advertising for revenue: banner ads from national businesses like and Toyota, and fees from local businesses, which pay between $300 and $1,000 per month to highlight themselves in search results and enhance their page with photo slideshows and other information.

But while the basic premise of Yelp hasn't changed since its inception, its spirit has changed for the worse, according to "Mark," the former contract employee. "I started with them at the beginning, helping them market and put the word out for the company, and I loved the concept of this," he said, sitting in a Berkeley cafe in December. "I thought the whole thing would be positive and will increase business to a lot of the small businesses, the mom-and-pops."

But Mark complained that in the past two years there has been an increase in negative, trash-talking reviews. "If you don't like somebody for no reason, you can go on there and talk horrible about their place for whatever reason and also encourage close friends to go on there and trash those places." Mark cited a recent case with his own cafe in which a customer who was angry that the business was closed for a private event went on Yelp and accused employees of being unsanitary.

Other business owners describe similar experiences — receiving negative reviews from competitors or customers who are unreasonably angry. John said one of his employees told him that her former employer — a rival restaurateur — had gone on Yelp and written a negative review of his business. "How many other people have done that?" he wondered in an interview. "It's hard to know what's real."

Yelp's web site states that slamming a competitor is grounds for removing a review. But business owners say the company's response to such complaints is woefully inadequate. "We don't get anywhere," Mark said. "We're just one little restaurant in the middle of 500,000 restaurants that they review, or more than that. They don't have time to respond."

Last April, in response to a litany of complaints, Yelp began allowing business owners to sign up for a free "business owner account." It enables them to track how many people view their page, update their business' information, and send messages directly to a reviewer (although reviewers can choose to disable this feature).

Still, it's up to business owners and not Yelp to resolve disputed reviews. In a November e-mail from a Yelp employee in response to a local business owner's inquiry about why a positive review was removed, the staffer wrote, "While we can't evaluate individual cases or re-instate specific reviews, we certainly appreciate your feedback and are continually striving to improve the user experience."

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