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.

The phone calls came almost daily. It started to get creepy.

“Hi, this is Mike from Yelp,” the voice would say. “You’ve had three hundred visitors to your site this month. You’ve had a really good response. But you have a few bad ones at the top. I could do something about those.”

This wasn’t your average sales pitch. At least, not the kind that John, an East Bay restaurateur, was used to. He was familiar with Yelp.com, the popular San Francisco-based web site in which any person can write a review about nearly any business. John’s restaurant has more than one hundred reviews, and averages a healthy 3.5-star rating. But when John asked Mike what he could do about his bad reviews, he recalls the sales rep responding: “We can move them. Well, for $299 a month.” John couldn’t believe what the guy was offering. It seemed wrong.

In fact, something seemed shady about the state of his restaurant’s negative reviews. “When you do get a call from Yelp, and you go to the site, it looks like they have been moved,” John said. “You don’t know if they happen to be at the top legitimately or if the rep moved them to the top. You don’t even know if this is someone who legitimately doesn’t like your restaurant. … Almost all the time when they call you, the bad ones will be at the top.”

Usually, John said, he would politely decline to advertise. “Well, thanks,” he’d say. “I’ll talk to my partner about it.” Or, “It’s not really in my budget right now.” But inevitably, in another week or so, he’d get another phone call. Occasionally, the voice on the other end of the phone would change, but the calls continued. These days, John chooses to not answer his phone when it’s from a number with a 415 area code.

John may sound paranoid, but he’s got company. During interviews with dozens of business owners over a span of several months, six people told this newspaper that Yelp sales representatives promised to move or remove negative reviews if their business would advertise. In another six instances, positive reviews disappeared — or negative ones appeared — after owners declined to advertise.

Because they were often asked to advertise soon after receiving negative reviews, many of these business owners believe Yelp employees use such reviews as sales leads. Several, including John, even suspect Yelp employees of writing them. Indeed, Yelp does pay some employees to write reviews of businesses that are solicited for advertising. And in at least one documented instance, a business owner who refused to advertise subsequently received a negative review from a Yelp employee.

Many business owners, like John, feel so threatened by Yelp’s power to harm their business that they declined to be interviewed unless their identities were concealed. (John is not the restaurant owner’s real name.) Several business owners likened Yelp to the Mafia, and one said she feared its retaliation. “Every time I had a sales person call me and I said, ‘Sorry, it doesn’t make sense for me to do this,’ … then all of a sudden reviews start disappearing.” To these mom-and-pop business owners, Yelp’s sales tactics are coercive, unethical, and, possibly, illegal.

“That’s the biggest scam in the Bay Area,” John said. “It totally felt like a blackmail deal. I think they’re doing anything to make a sale.”

Yelp officials deny that they move negative reviews, although such allegations have surfaced many times before. The issue is even addressed on the web site’s Frequently Asked Questions page. Chief Operating Officer Geoff Donaker said advertisers and sales representatives don’t have the ability to move or remove negative reviews. “We wouldn’t be in business very long if we started duping customers,” he said.

But Donaker’s denials are challenged by nine local business owners and also by a former contract employee who worked with Yelp in its early days. That person, who is still close to some Yelp employees and only agreed to be interviewed if granted anonymity, said several sales reps have told him they promised to move reviews to get businesses to advertise. “It’s not illegal or unethical,” he said they told him. “We’re just helping the little guy. It doesn’t hurt them, it benefits them.”

Such tactics may be legal, but they clearly raise ethical concerns. Yelp touts its web site as consisting of “real people” writing “real reviews.” The allegations of business owners who have tangled with the company suggest otherwise.

If Yelp indeed suppresses honest reviews in exchange for its advertisers’ money, it is cheating users who expect genuine consumer feedback. Conversely, if Yelp demands payment to remove even dishonest reviews, then advertisers are being cheated.

One thing is certain: In both cases, Yelp benefits.

Yelp.com 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 Monster.com 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.”

Given the economics of the Web, Mark believes Yelp has no interest in curbing illegitimate reviews. “They needed more people to go on the site; they needed to promote the site; so they can’t stop it,” he said. “They don’t want to stop it and create any problems for themselves. So they just let it open and try to get as many people on as they can.” Mark said he stopped working with the company after several years because he didn’t agree with the direction it was headed in.

Here’s what advertisers receive, according to an e-mailed sales pitch that a local business owner sent to this newspaper. They can highlight a favorite review to appear at the top of the page about their business. They also show up first in search results for similar businesses in their region (for example “coffee” near “Alameda, CA”). Ads for that business appear on the page of local competitors, while competitors’ ads do not appear on their page. Owners can post photo slideshows, add a “personal message” about their business, and have the ability to update info on special offers and events. They also can find out how many users visit their web site, update their page, contact Yelpers who’ve reviewed their business, and have access to an account manager who will help “maximize” their experience with Yelp.

But aside from a single “sponsored review” at the top of the page, the order of all other reviews is based on a secret Yelp algorithm, spokeswoman Ichinose said. The order is mostly due to recency and reader votes for certain reviews as “useful,” “funny,” or “cool.” But Ichinose said there are other factors, including how frequently reviewers contribute to the web site and “what kind” of review writer they are. “It’s a number of different things we don’t disclose,” she said. “To be explicitly clear, the algorithm is an automated system. There’s no human manipulation of that. … If we were to start doing that, that would erode the trust we have with consumers.”

Yelp officials strenuously deny that the company moves negative reviews for advertisers. So how to explain all the stories?

In an interview, Chief Operating Officer Donaker said it is all a big misunderstanding. “Do I think that sales reps call are saying, ‘We’ll move your bad reviews’?” he asked. “No. But I think it could be true — when you get to pick your favorite review and put it to the top, if I said it a little different way, it might sound a little nefarious.” Donaker conceded that Yelp could do a better job of training its sales team to be “crystal clear about what you get and don’t get.”

Donaker also offered a more cynical answer to the question of why so many businesses accuse it of extortion. “Change isn’t good for everybody,” he said. “The vast majority of dentists and salons are getting a lot of benefit out of the New World Order, but there are some who aren’t benefiting from it and like it the way it used to be. Maybe customers weren’t happy but they could market their way out of it.”

However, the advertisers and advertising prospects interviewed for this story weren’t just responding bitterly to harsh reviews on Yelp. That’s because Yelp doesn’t allow just anyone to advertise on its site. In order to advertise, businesses need at least a three-star rating and a “significant number of reviews,” Ichinose said. Consequently, every person interviewed for this story was favorably reviewed by a majority of Yelp reviewers.

Former Yelp advertiser Mary Seaton said she took the company up on its offer to move her negative reviews if she advertised. Seaton, the owner of Sofa Outlet in San Mateo, paid $350 a month for six months about a year ago. During that time, Seaton said, her negative reviews were removed and old positive reviews showed up. “There was one negative review but they pulled it down and then it came off,” she said. After her contract was up, Seaton said a negative review appeared, which contained lies. When she asked her sales rep, Katie, about it, she responded, “We don’t get involved with that. We’re not mediators.” Seaton said at that point she chose not to renew her ad contract.

One San Francisco merchant said a Yelp sales rep rearranged the reviews on his restaurant’s page to entice him into advertising. Greg Quinn, general manager of Anabelle’s Bar and Bistro in San Francisco (168 reviews, 3.5-average star rating), said that around January 2007, a Yelp sales rep was trying to get him to advertise. Quinn said he subsequently noticed that some of his negative reviews had moved further down on the page. “It was clearly … a sales tactic,” said Quinn, who added that the rep called him up and asked, “‘Did you notice what I did? Well, we can keep doing that for you.'” Quinn said he ultimately turned the sales rep down, and told Yelp’s latest sales rep to never call him again due to “the lack of reliability of the reviews and the narrow demographic.”

“She said, ‘I’m very sorry you feel that way.’ And I said, ‘It’s not how I feel; it’s fact.'”

Another East Bay business owner said that in January of 2008 he was approached by Yelp sales reps offering to move one- or two-star reviews of his business if he advertised. The owner, who we’ll call “Joe,” said he initially toyed with the idea. His two businesses have more than two hundred total reviews; one averages a three-star rating, the other averages four stars.

“At one point, I finally said to them, this doesn’t sound too local,” Joe said. “This is the voice of the people and you’re manipulating the voice. She got her manager on the phone to respond to that. ‘No, not at all, we’ve been doing this for years. We’re not eliminating your bad reviews, we’re shifting them around. We do that anyway, we move them around anyway. This is just to your advantage.'” But Joe wasn’t impressed. “I said, ‘This sounds like the Mafia — I’m paying you off to make me look better. I’m not comfortable with this.'”

Business owners are also disturbed that some negative reviews are written by paid Yelp employees. When the company first launched in 2004, its staff wrote many reviews on the site. And to this day, Yelp hires “Scouts” or “Ambassadors” to write reviews — especially when they enter new markets. CEO Stoppelman himself has written nearly eight hundred reviews. It’s not immediately apparent which reviews are written by paid Yelpers until you click on a user’s name to get to their profile page, where they might display a “Scout” or “Ambassador” badge.

In some cases, businesses that received negative reviews from paid Yelpers were also asked to advertise. San Francisco’s Elite Cafe, which advertises with Yelp, received a two-star review by a paid Yelp ambassador, as did Anabelle’s Bar and Bistro. In both instances, the negative reviews appeared after Yelp sales staff asked them to advertise. Both business owners were unaware that a paid Yelper had written a negative review of their business.

Ichinose insisted that Yelp does not use negative reviews as leads for its sales staff. But she affirmed that reps do have access to the complete profiles of sales prospects through the company’s database. “Leads are determined purely by the reputation of that business,” she explained. “Any sort of timing beyond that would be coincidental.”

Negative reviews are not the only bait that Yelp employees apparently use to attract advertisers. Some business owners believe Yelp sales reps remove positive reviews when they refuse to buy an ad.

Robert Gaustad, co-owner of Bobby G’s Pizzeria in Berkeley, said that about a year ago a Yelp sales rep offered to “move good reviews to the top to make us look better.” Since declining to advertise, approximately fifteen to twenty of his restaurant’s reviews — mostly positive — have been removed for reasons he can’t figure out.

Gaustad said his complaints have gone unheard but that a Yelp sales rep told him his complaints would be heard if he advertised. In an e-mail from salesman Ethan Davidoff, which he read to this reporter, Davidoff told Gaustad that if he paid for an ad, “you will have access to an account manager who will help keep your page up-to-date and … you will never have to ever wait again to talk with Yelp about your listing and issue with reviews.”

A San Francisco wedding photographer relayed a similar story. About two years ago, a Yelp sales rep contacted her to advertise. The photographer — we’ll call her “Mary” — declined the offer. But the sales rep was pushy; Mary said she received about three phone calls and as many as ten e-mails per week asking her to advertise. Still, she declined. “All of a sudden my reviews started disappearing,” she said. “I called them up and said, ‘I’m a little curious why my reviews are disappearing.’ They said, ‘Well, people stop reviewing, we take them down.’ … I talked to the clients — they’re still actively reviewing.”

“Ellen,” who only agreed to be interviewed if not identified by name, owns an Oakland business with more than twenty Yelp reviews, and averages a 4.5-star rating. She says she began to receive solicitations to advertise soon after her business began receiving positive customer reviews. But she declined. “The prices were cost-prohibitive,” she recalled telling the sales rep. “I can’t pay $300 a month when I pay $90 for Google AdWords. After that, reviews started to disappear.”

When Ellen questioned her sales rep as to why some reviews had disappeared, the rep told her reviews can be taken down based on the company’s algorithm. Reviewers must follow certain guidelines to post a legitimate review, the rep replied. “They had to have pictures, friends, be part of the community,” Ellen recalled the rep telling her. But Ellen says the reviews that were removed fit the profile of acceptable reviews. Ellen turned down the offer again, and more reviews disappeared. She says she’s now down to 50 percent of her original reviews. “Just today I got three more e-mails from Yelp. They’re aggressive. … But it’s blackmail.”

Of course, none of these business owners could say for sure whether the disappearance of positive reviews was an intentional strategy or mere coincidence. Yet the claims don’t appear to be far-fetched given the experience of other business owners.

Yelp suggests in its Terms of Service that it moves and removes reviews at will, without explanation: “Yelp reserves the right (but has no obligation) to remove or suppress User Content from the Site at its sole discretion for any or no reason and without notice or liability of any kind, including without limitation, the suppression or removal of User Content that Yelp deems untrustworthy or in violation of the Terms of Service or guidelines for reviews, photos, or talk threads.”

COO Donaker said there are three reasons why reviews might disappear. First, they could have been removed by the reviewer who wrote them. Second, the reviews could have violated Yelp’s Terms of Service by containing second-hand experiences or hearsay, personal attacks, lack of relevance, plagiarism, or a conflict of interest such as an owner praising their own business or trashing that of a competitor. Third, reviews could disappear as a result of the company’s “automated review filter.” Donaker says he’s not exactly clear how the filter works, but that the software looks for “suspicious patterns,” such as “rants and raves from friends and competitors.” Yelp reviewers also can flag reviews that seem suspect, and Yelp’s customer service staff then reviews them.

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.

In any case, there is scant evidence that the criticism has actually hurt Yelp. “We have thousands of advertisers in our program that are very happy with what they’re seeing,” Ichinose said. And the number of visitors to the site continues to grow. Pozner says that’s probably because Yelp’s target demographic — young people and college kids — isn’t as sensitive to news of this kind. “I don’t see it as terrifically damaging unless there was some kind of legal action taken,” she said.

When avid reviewer Bill Blackburn of San Francisco was asked whether he would still use Yelp even if he knew the site manipulated its content to sell advertising, the 28-year-old conceded, “Yeah, I think I would.”