For five years, the review site Yelp.com has been operating as a guide to help users find restaurants, bars, stores and services of all types. Users rate each business on a five-star scale, complete with detailed, and sometimes brutally honest, comments. The San Francisco-based start-up boasts more than 30 million visitors a month across 35 major regional markets. I have used Yelp to help in my search for everything from a nearby Thai restaurant to a good dentist to a trusted watch repair store, each time basing my decisions on where to go simply by the slew of reviews written on the immensely popular website. Recently, however, Yelp's business model has gotten the online enterprise into trouble. 

The company turns a profit by selling online advertising to local services and businesses within those markets. However, some businesses that chose not to advertise claim that Yelp retaliated by negatively skewing their ratings and reviews on the site. East Bay Express, a Bay Area, California newspaper, first highlighted the issue last spring when it ran a piece claiming that Yelp offered to hide negative customer reviews for businesses in exchange for their advertising dollars-a practice some are calling extortion. And as you might have guessed, lawsuits seeking class action status have been filed (three of them so far at the time this story went to print).  

The first suit was filed February 23 in a California U.S. District Court by Cats & Dogs Animal Hospital, which alleges Yelp engaged in extortion. In March, that lawsuit was amended to add nine more businesses that claimed Yelp sales representatives told them that, if they bought advertising, Yelp could alter review listings, essentially deleting or moving negative entries. Those nine other businesses include a cruise line, appliance repair company, bakery and furniture store. The lawsuit seeks an order barring Yelp from manipulating reviews and forcing the company to repay money it made from its allegedly unethical practices. 

Yelp chief executive Jeremy Stoppleman claims that since its inception, the website has incorporated a filtering system, designed to prevent the distortion of ratings, which could be caused by business owners, their friends or employees posting biased reviews. He also has stated that these defendants are filing claims only because Yelp recently received $25 million from venture capital firm Elevation Partners, bringing Yelp's total value to $475 million.

Though it remains to be seen if the company is found guilty of claims against it, Yelp has been known to employ sneaky, money-making tactics. For instance, a restaurant owner can pay to have his favorite establishment appear at the top of a list of restaurant search results. The only way that Yelp users can tell that the establishment's listing was placed on top for a price is the presence of very light colored shading and a small "sponsored result" label. 

 In response to the controversy, the web company recently announced that users will now be able to see reviews that, because of the site's filter algorithm, have been removed. Yelp also claims that it has eliminated its "favorite review" feature, though the "sponsored result" label remains on search result listings. On the company's blog, Stoppleman wrote that he is taking action to "make it even clearer that displayed reviews on Yelp are completely independent of advertising--or any sort of manipulation."

The controversy surrounding Yelp could happen elsewhere, as it is not the only user-generated review site on the internet. Other sites such as Citysearch, MenuPages, Metromix and Amazon, have very active reviewer communities. The issue at Yelp calls into question the authenticity and reliability of all of these user-generated review sites.

In the meantime, Yelp's reputation as a trusted online resource has been scarred. As the review site fights its legal battles in an effort to clear its name, some small business owners caught in the middle of this mess may have to work to do the same.

The above article is reprinted from the May 2010 edition of Risk Management Magazine.