The Yelp Controversy

Yelp is a social media site that hosts information about local businesses and lets customers post ratings and reviews about their experiences with those businesses. Yelp uses a proprietary algorithm to sort through posted reviews and filter out those that might be fake or inauthentic. Reviews that do not pass muster are relegated to a separate folder and not used to calculate businesses’ average ratings scores, which are prominently displayed to users.

Yelp generates revenues to support its business primarily through sales of ads to local businesses that appear on Yelp’s website.

Business owners have alleged that in an attempt to coerce (extort) businesses into advertising on Yelp’s site, or in retaliation for ceasing to advertise on its site, Yelp manipulates those businesses’ reviews by either

  i.  Filtering out good reviews and relegating them to the “reviews not recommended” folder, thus hiding them and lowering businesses’ average star ratings,

 ii.  Highlighting bad reviews of the businesses, and/or

iii.  Creating fake bad reviews.

Business owners allege that Yelp’s manipulations of the businesses’ reviews have resulted in lost sales for their businesses.

Yelp vehemently denies accusations that it extorts business owners or manipulates the filtering of reviews.

This analysis examines the Yelp Ratings Game. First, I describe the shift in customer relations that the advent of social media has engendered. Next, I describe how the Yelp site works. Then I discuss possible reactions by business owners to having ratings and reviews by users about their businesses posted online and perhaps manipulated to the business owners’ detriment. Finally, I discuss some other interesting issues related to the Game.

Social Media Has Created a Paradigm Shift in Business-Customer Relationships

The advent of social media has led to a paradigm shift in the way businesses interact with and market to customers. Historically, best practices for company communications with customers involved “integrated marketing communications” (IMC), that is, controlled and coordinated communications and promotions with customers. W. Glynn Mangold and David J. Faulds describes IMC in more detail in “Social media: The new hybrid element of the promotion mix”.

Integrated marketing communications (IMC) is the guiding principle organizations follow to communicate with their target markets. Integrated marketing communications attempts to coordinate and control the various elements of the promotional mix–—advertising, personal selling, public relations, publicity, direct marketing, and sales promotion–—to produce a unified customer-focused message and, therefore, achieve various organizational objectives (Boone & Kurtz, 2007, p. 488).

However, social media changed everything. Customers are now able to communicate with one another through social media channels, sharing their experiences with and opinions about businesses, that is, creating “consumer-generated media.” What this means is that businesses no longer have control over the information available to customers about their products and services. Mangold and Faulds describe this transition more explicitly.

However, the tools and strategies for communicating with customers have changed significantly with the emergence of the phenomenon known as social media, also referred to as consumer-generated media. This form of media ‘‘describes a variety of new sources of online information that are created, initiated, circulated and used by consumers intent on educating each other about products, brands, services, personalities, and issues’’ (Blackshaw and Nazzaro. 2004, p.2).

…

Consumers’ ability to communicate with one another limits the amount of control companies have over the content and dissemination of information. Christopher Vollmer and Geoffrey Precourt (2008) underscore this in their book, Always On. As they note, in the era of social media ‘‘consumers are in control; they have greater access to information and greater command over media consumption than ever before’’ (p. 5).

To what extent does information on social media affect consumer behavior? A lot. Michael Luca conducted a study of the impact of Yelp reviews on restaurant demand and published his results in “Reviews, Reputation, and Revenue: The Case of Yelp.com.” He found that while chain restaurants are largely immune from Yelp ratings, for independent restaurants “a one-star increase in Yelp rating leads to a 5-9 percent increase in revenue.” More specifically, Luca presented the following findings from his study:

(1) a one-star increase in Yelp rating leads to a 5-9 percent increase in revenue,

(2) this effect is driven by independent restaurants; ratings do not affect restaurants with chain affiliation, and

(3) chain restaurants have declined in market share as Yelp penetration has increased. This suggests that online consumer reviews substitute for more traditional forms of reputation. I then test whether consumers use these reviews in a way that is consistent with standard learning models…

(4) consumers do not use all available information and are more responsive to quality changes that are more visible and

(5) consumers respond more strongly when a rating contains more information.

A fascinating phenomenon that has emerged from rating systems, such as that on Yelp, is that these “judgment systems” actually change the behavior of business owners: In response to the ratings and reviews they receive from customers, businesses are adapting their behavior to better satisfy the stated needs of their customers. Gabriel Rossman and Oliver Schilke make this striking observation in “How Ratings and Awards Do (and Don’t) Benefit Companies.”

Judgment devices have the obvious function of presenting information in a predictable format and with consistent frequency. But what is often underappreciated is that judgment devices don’t just describe the market, they shape the market. Judgment devices intervene in the industries they depict and ultimately become constitutive of what they measure. Firms can and do benefit by orienting their behavior not only to quality in an objective sense, but just as much to quality as measured by the judgment device.

…More generally, a firm can try to appeal to a judgment device not only through straightforward tactics, such as running specialized promotional campaigns targeted at the device (“get a free dessert if you review us on Yelp!”), but also by changing relevant product characteristics, the timing of new product releases, or even by advocating for changes in how the judgment device is calculated. Every firm needs to understand how their products can be shaped to appeal to judgment devices, or even how judgment devices can be shaped to positively evaluate their products.

 

How Yelp Works

Figure 1

Yelp’s About Us section says

Our purpose: To connect people with great local businesses

I would characterize Yelp as an online platform that provides information on local businesses and enables customers to provide ratings and comments about their particular experiences with businesses. In “Why Business Owners Hate Yelp and Consumers Love It,” Cyneats says

Yelp is all about connecting consumers to awesome local businesses and restaurants. You pretty much get word-of-mouth recommendations through one medium from real people, with real experiences. It’s even more perfect for travelers who need a recommendation on where to go, where to stay, and where to eat.

Out of all the similar such platforms on the Internet, why has Yelp become the most popular? According to Megan Marrs in “The Complete Guide to Yelp Reviews: Power to the People!” Yelp has prevailed because its site is less-cluttered with ads and it provides “long-form reviews.”

Many review sites have come and gone, but Yelp has continued to be the most trusted source for local business reviews and ratings. Why? Yelp noticed that other review sites are far too cluttered with spam and ads, so they’ve kept theirs to a minimum. Yelp also focuses on long-form reviews rather than short one-liners, providing the kind of in-depth, thorough review wary customers crave.

Information about Yelp’s practices that is relevant to this analysis include the following.

1.  Yelp is an ad-supported business. Over 90% of its revenues annually come from sales of ads to businesses. From Yelp’s 2017 10K,

Businesses that want to reach our large audience of purchase intent-driven consumers can also pay for premium services to promote themselves through targeted search advertising, discounted offers and further enhancements to their business listing pages. We generate revenue primarily from the sale of advertising on our website and mobile app to businesses.

2.  Businesses cannot opt out of being listed on Yelp. From Yelp’s Support Center,

Can I remove my business page from Yelp?

Yelp publishes business listing information so that consumers can share their experiences about local businesses, and because the information is typically a matter of public record and public concern. Therefore we don’t remove such information from the site.

While we understand that some business owners might prefer to keep a low profile, it’s important (and a legal right) for consumers to be able to find and share helpful information about great local businesses.

If you need to update or change the information on your business page, please submit any changes by clicking the Edit business info link and submitting a detailed note with any supplementary information.

3.  Yelp uses automated software to filter reviews posted by users. Yelp describes the purpose of its filtering process as filtering out fake or inauthentic reviews.

a.  Reviews classified as “not recommended are not used to calculate a business’s average rating, and they do not appear with the recommended reviews. They can be accessed in a separate folder at the bottom of a business’s page.

b.  According to Yelp, “recommended reviews comprise about three quarters of the reviews we get.”

c.  Yelp will not manually remove a review at the request of a business owner or reclassify a non-recommended review as recommended.

It's also important to note that because our recommendation software is automated, the Yelp Support team cannot manually override the software to recommend or not recommend a review.

d.  Yelp may remove a review that’s determined to be false or defamatory.

4.  When a business’s page is accessed, Yelp displays information in the following order:

a.  The average star rating for a business’s recommended reviews,

b.  A distribution of star ratings for recommended reviews, available by clicking on an icon

c.  Details on restaurant type and location

d.  Review highlights for the business

e.  Ads for competing businesses

f.  Detailed information for recommended reviews

g.  A link to access “other reviews that are not currently recommended”

5.  Factors affecting Yelp’s filtering process.

According to “Secrets of the Yelp Filter”

Negative Factors (Filtered or “Not Recommended” Reviews)

1. New Reviewers – first time Yelpers often have their reviews “not recommended” (i.e. filtered).

2. Reviewers with no friends or followers

3. Reviews that other people ignore (they don’t flag them as interesting, helpful or funny)

4. Reviews for the same business from the same IP address

5. Polarizing Rants or Raves. Here are some examples: “Don’t go here”, “Stay Away”, “Avoid!!!”

6. There are reviews that shout (in all caps) and make highly emotional angry claims. The Yelp filter doesn’t appear to like these kind of reviews. Examples: “I HATE THIS PLACE”

7. Reviews that use absolutes are also often flagged if there aren’t enough friends or other reviews. Examples: “THEY ARE THE BEST”, “I WOULDN’T GO ANY WHERE ELSE”

8. Marketing type reviews: “Give Them a Try”, “Ask for the Special”

Positive Factors (Recommended Reviews)

1, Active Reviewers – reviewers that post many reviews

2. Reviewers with followers and friends

3. Reviews that people like

4. Reviews with different IP addresses

5. Constructive and descriptive reviews

Yelp favors reviewers who are most active, and in that sense it’s no different from Wikipedia or any number of user-generated websites on which frequent contributors can build up a good standing. Beyond that … the software looks for red flags that signal a review might be inauthentic. Multiple reviews from the same IP address, for instance, could suggest that a business owner has solicited reviews from customers on site, a practice discouraged by Yelp… “unhelpful rants or raves” are also more likely to be filtered out.

According to Megan Marrs

Yelp reviews that are usually filtered are:

• From users who have only written one review
• From users who have little to no profile information (profile photo, links to other social media networks, personal description, et.)
• Questionable objectivity – reviews that are strongly slanted positively or negatively
• Short and have very few details
• Written by friends, staff members, or other unreliable sources
• Reviews where it seems that the reviewer has not personally visited the business 

Business Responses to Yelp

Businesses have responded to the presence of Yelp and/or the lack of control of consumer-generated content about businesses using the following means.

1.  File a Lawsuit

While several lawsuits have been filed against Yelp by business owners and Yelp shareholders, Yelp has prevailed on all cases. I discuss one case in particular in this section: Levitt et al v. Yelp Inc, U.S. District Court, Northern District of California, No. 11-17676.

In 2014, a group of small business owners sued Yelp, claiming extortion (Yelp would remove good reviews if the businesses did not advertise on Yelp) and economic harm due to Yelp's removal (filtering out) of good reviews. The Court ruled in favor of Yelp. The Plaintiffs appealed. The Appeals Court upheld the Court's ruling in favor of Yelp. Here's an excerpt from the Judge's Opinion in the Appeal. The bold print is my highlighting.

In sum, to state a claim of economic extortion under both federal and California law, a litigant must demonstrate either that he had a pre-existing right to be free from the threatened harm, or that the defendant had no right to seek payment for the service offered. Any less stringent standard would transform a wide variety of legally acceptable business dealings into extortion.

Given these stringent requirements, the business owners in this case failed sufficiently to allege that Yelp wrongfully threatened economic loss by manipulating user reviews.

To start, we note that there is no allegation that Yelp directly threatened economic harm if the business owners refused to purchase advertising packages from Yelp…

We begin with Chan, who alleges that Yelp extorted her by removing positive reviews from her Yelp page. Chan asserts that she was deprived of the benefit of the positive reviews Yelp users posted to Yelp’s website, and that, had she received the benefits of the positive reviews, they would have counteracted the negative reviews other users posted.

But Chan had no pre-existing right to have positive reviews appear on Yelp’s website. She alleges no contractual right pursuant to which Yelp must publish positive reviews, nor does any law require Yelp to publish them. By withholding the benefit of these positive reviews, Yelp is withholding a benefit that Yelp makes possible and maintains. It has no obligation to do so, however. Chan does not, and could not successfully, maintain that removal of positive user-generated reviews, by itself, violates anything other than Yelp’s own purported practice. “[W]hat [Yelp] may do in a certain event [Yelp] may threaten to do.”

…

Here, too, however, Cats and Dogs and Mercurio have no claim that it is independently wrongful for Yelp to post and arrange actual user reviews on its website as it sees fit. The business owners may deem the posting or order of user reviews as a threat of economic harm, but it is not unlawful for Yelp to post and sequence the reviews. As Yelp has the right to charge for legitimate advertising services, the threat of economic harm that Yelp leveraged is, at most, hard bargaining.

Essentially the Court made the following points.

• Under the Communications Decency Act of 1996, Yelp is not responsible for the veracity or authenticity of content posted onto its site by other parties.

• Business owners listed on Yelp’s site have no contractual agreement that gives them the right to have any particular ratings or reviews displayed or removed from Yelp’s site.

• Yelp has the right to decide which reviews it chooses to display (or not display) and how to display (position) them on Yelp’s site.

• Any communications (threats) Yelp might make to business owners regarding the planned inclusion, exclusion, or placement of reviews on Yelp’s site are legal and may simply be considered bargaining tactics for the negotiation of Yelp’s advertising services.

2.  File a Complaint with the Federal Trade Commission

Thousands of businesses owners have filed complaints with the Federal Trade Commission (FTC) against Yelp. According to Angus Loten (April 2, 2014) in “Yelp Reviews Brew a Fight Over Free Speech vs. Fairness”

The Federal Trade Commission has received more than 2,046 complaints filed about Yelp from 2008 through March 4, according to data reviewed by The Wall Street Journal, following a Freedom of Information Act request. Yelp shares fell 5.7% in Wednesday trading, after the tally was posted on FTC.gov.

Most of the complaints are from small businesses that claim to have received unfair or fraudulent reviews, often after turning down a pitch to advertise on the site…

Yelp denies any connection between reviews and advertising on the site. "Our recommendation software doesn't punish people who don't advertise," Yelp spokeswoman Kristen Whisenand said, adding, "There has never been any amount of money you can pay Yelp to manipulate reviews."

You can download a file containing complaints logged with the FTC between January 2014 and July 2016, released under the FOIA, here.

3.  Describe Negative Experiences on the Internet and in Social Media

Many disgruntled business owners have described their negative experiences with Yelp on the Internet, through news articles, blogs, other social media posts, petitions, documentaries, etc. A sample of these posts include the following.

• Documentation of Personal Experience: Terry Thomas, “Guest: What is Yelp? An impartial review site or an aggressive ad company?”

• Documentation of Personal Experience: “We didn’t pay our Yelp “protection money;” here’s what happened”

• Documentation of Personal Experience: Michael Sage Schindler, “An Open Letter to Yelp: Why We Won’t Be Advertising with You,” which includes the Figure 2.

Figure 2

Source: Michael Sage Schindler, “An Open Letter to Yelp: Why We Won’t Be Advertising with You”

• Documentation of Someone Else’s Personal Experience: NextShark, “Restaurant Owner Just Gave the Most Epic 'F*ck You' to Yelp, Then Shared Some Sage Business Advice”

• Petition against Yelp: Larry Page, “Pay it Forward: Ban Yelp from Search Engines until they stop their harmful practices. Yelp is destroying small businesses. Help small businesses succeed, and you will help all economies prosper.”

• “Yelp Sucks” Website: http://yelp-sucks.com

• Documentary on Yelp’s Business Practices: Kaylie Milliken, “Billion Dollar Bully: An investigative documentary examining the business practices of Yelp.”

4.  Use Reputation Management Companies

Businesses have popped up on the Internet to help business owners manage and improve their relationships with customers.

For example, Go Fish Digital describes itself as

a team of technical marketers and creative thinkers helping companies attract more attention online, build more traffic to websites, improve reputations, and obtain more conversions.

It also provides a calculator on its site that lets businesses type in their current distributions of ratings (numbers of 5-star reviews, 4-star reviews, etc.) and then tells them how many new 4- or 5-star ratings they need to increase their average ratings to some level determined by the businesses.

Woorkup is a reputation management services provider (RMSP) that offers a tool, GetFiveStars, which provides businesses “a better way to increase your online reviews and or reputation.”

However, while RMSPs may be able to help business understand what information is being posted on the web about their businesses, Megan Marrs warns that RMSPs cannot have reviews removed from a business’s Yelp page.

Avoid self-proclaimed “Reputation Management Companies” that claim that (for a fee, naturally) they can remove Yelp reviews from your Yelp page.

This is a scam – Yelp does not take bribes or financial incentives for review removals, it’s simple as that.

5.  Buy/Solicit Ratings

Businesses might try to improve their Yelp ratings by asking people to post favorable reviews about them. However, Yelp warns businesses not to ask people directly to write reviews: “Don't Ask for Reviews”

Yelp's recommendation software is designed to highlight reviews from people inspired to share their experiences with the community. Most businesses only target happy customers when asking for reviews which leads to biased ratings, so the recommendation software actively tries to identify and not recommend reviews prompted or encouraged by the business.

The businesses that do best on Yelp are the ones that provide a great customer experience to everyone who walks in the door without any expectation or encouragement that they write a review.

Here are some tips to avoid hurting your Yelp rating:

• Don’t ask customers, mailing list subscribers, friends, family, or anyone else to review your business.
• Don’t ask your staff to compete to collect reviews.
• Don’t run surveys that ask for reviews from customers reporting positive experiences.

Don’t ever offer freebies, discounts, or payment in exchange for reviews — it will turn off savvy consumers, and may also be illegal. Yelp has a Consumer Alerts program to let people know about businesses that engage in this sort of activity.

Alternatively, service providers have appeared who offer to post positive reviews about a business in exchange for a fee. However, again, Megan Marrs warns businesses against doing this.

Buying Yelp reviews is definitely not worth the risk. Since Yelp’s main selling point is the authenticity and trust of its reviews as compared to lesser review sites, Yelp protects its legitimacy by tooth and claw.

If you’re caught buying Yelp reviews, you could end up with this [Figure 3] on your Yelp page, which would be a PR disaster and a half!

Figure 3

Source: Megan Marrs, “The Complete Guide to Yelp Reviews: Power to the People!”

6.  Embrace Bad Ratings

An alternative response by business owners to bad reviews on Yelp is to “embrac[e] the haters.” As Megab Marrs puts it,

Most businesses try to negate the effects of bad Yelp reviews by diffusing anger and answering concerns, but others choose to take the daredevil approach of embracing the haters.

Those have thrown in the towel simply accept that the majority of patrons despise them. For some, there is an appeal at being the outcast.

The “if you can’t beat them, join them” approach really only works with restaurants and businesses that embrace a counter-culture lifestyle and have patrons who might revel in the disapproval of others.

Examples of businesses that have "embraced the hatred” are displayed in Figures 4 – 8.

Figure 4

Source: Megan Marrs, “The Complete Guide to Yelp Reviews: Power to the People!”

Figure 5

Source: Christopher Zara, “Yelp Filtered Reviews Blues: Businesses Hate The Mysterious Algorithm, But Is There Any Way To Crack It?”

Figure 6

Source: Cyneats, “Why Business Owners Hate Yelp and Consumers Love It”

Figure 7

Source: NextShark, “Restaurant Owner Just Gave the Most Epic 'F*ck You' to Yelp, Then Shared Some Sage Business Advice”

Figure 8

Source: http://i.imgur.com/3nYcplZ.jpg

7.  Be Proactive in Creating a Social Media Presence

A final reaction of business owners to bad reviews on Yelp is to be proactive in creating a presence on social media networks, including Yelp, Facebook, Twitter, and MySpace.  Business can generally reach out to and communicate with customers about how much they value their service, as well as respond to specific customer concerns. Having an positive presence on other sites can help mitigate the impact of negative reviews on Yelp.

 

Other Interesting Issues

How might Yelp’s ratings system be improved?

Some thoughts on the nature of Yelp’s filtering algorithm:

• It would be interesting to compare for each business the distribution of “recommended” ratings with the distribution of “not recommended” ratings to see if there is a bias in the filtering process. More specifically, business owners would have more of a case against Yelp for unfavorably “manipulating” reviews if the “not recommended” reviews tended to be better than the recommended reviews.

• Perhaps a better ratings system would report averages and distributions separately for both recommended and all (“recommended” and “not recommended”) ratings.

• Is it reasonable to filter out reviewers who are new to reviewing? Granted, these reviews may be reclassified as recommended if and when the reviewer accumulates a certain number of reviews posted. But what is that threshold level that converts a new user to one with a presence? Any level chosen would be arbitrary. Perhaps the site could report a separate average rating and distribution of ratings for “new” reviewers.

• An impediment to the usefulness of providing additional information, such as different sets of ratings averages and distributions is the fact, consistent with Luca’s findings, that people tend to prefer an easy overall rating: “Just give me ‘The Number’!” That is, while additional details may very well be available, users tend not to use them.

How can platforms architect their ratings systems to promote specific behavior?

As noted above, Rossman and Schilke indicate that ratings systems have the ability to “shape the market.” So how could a ratings system be designed to encourage specific behavior on the part of businesses? A ratings system could promote certain features by providing separate ratings and comment categories for those features. That is, ratings sites could specifically ask users about, for example,

• Appearance of food or displays

• Cleanliness of restaurant or store

• Customer service

• Degree to which environment is welcoming or customer-friendly

• Noise level

By asking customers to rate, say, the appearance of food, the platform will encourage business providers to focus on making sure the food is presented well, so the businesses will earn high ratings from their customers for doing so. And similarly for other categories.

Will complaints against Yelp lead to its demise?

There’s been a deluge of negative information posted against Yelp, and people who have had bad personal experiences are putting out the word not to advertise on Yelp (see, for example, the comments in “We didn't pay our Yelp "protection money;" here's what happened.”)

Yet, throughout all the bad publicity, Yelp seems to keep chugging along. Yelp’s historical stock price is displayed in Figure 9.

Figure 9

Source: https://finance.yahoo.com/

Regarding specific movements in Yelp’s stock price

• The drop in Yelp’s stock price on April 2, 2014 occurred “after the Federal Trade Commission reported that it received 2,046 complaints about the business review website dating from 2008 to March 2014.” (Amanda Schiavo, “Why Yelp (YELP) Stock Is Falling Today”)

• The low in Yelp’s stock price on February 8, 2016 occurred when Yelp missed an earnings report (see, for example Patrick Gillespie, “Yelp is really struggling”).

• Other dips and jumps generally occurred when Yelp either missed or hit earnings reports.

Could another platform that provided similar services come along with a more favorable ratings system and generate enough momentum to replace Yelp? It’s hard to say. Given the massive presence of Yelp and the associated strong network efforts keeping users tied to the site, it would be tough for a newcomer to come along and replace Yelp. Perhaps Amazon or Facebook could leverage their current presences to do the job?