Blog Post

Is Yelp Too Powerful?


As you know, we frequently talk about Google and if it’s approaching monopolistic behavior; however, in today’s Daily Brown Bag, Adam and Chad are switching gears to concentrate on Yelp. We wanted to take some time to cover recent news about a court decision, which involved a group of small businesses filing a class action against Yelp for manipulating their business rankings and ratings in any way that they wanted. In this Daily Brow Bag you’ll learn more about this Yelp court ruling, examples of how Yelp’s ratings impact small businesses, and fascinating findings and statistics about Yelp.

Also available on YouTube.

TRANSCRIPTION:

Hello and welcome to the Daily Brown Bag. Today we're going to be taking on the question of whether Yelp is too powerful or not. I'm Chad Hill, and I'm joined by Adam Stetzer.

Hey, good afternoon, Chad. Welcome to the Brown Bag. We're talking about Yelp and how much reach it has and how much power it has. Chad, we're often talking about Google and is it approaching monopolistic behavior? Today the topic is Yelp. And there really was some news earlier this month when people were talking about a court decision in San Francisco, a lot of buzz about this. This case directly relevant to Yelp actually goes back to 2010 when a group of small businesses filed a class action against Yelp. It takes several years for these cases to work through the system.

And we finally got some news out of San Francisco. Specifically, the Ninth Circuit Court of Appeals in San Francisco ruled that Yelp was allowed to manipulate their business rankings and ratings in any way they wanted. In fact, they found there was no wrongdoing on the part of Yelp. Yelp has always maintained that it does not trade advertising dollars for good revenues. They say that their software does not distinguish between companies who advertise and those who don't. But there were some who had a theory - It sounds more like a conspiracy theory at this point - that that's not what was happening and they were manipulating to favor those who advertise with them.

And so because they're so powerful, this got a lot of attention. It's at the heart of our discussion, are they too powerful on the Internet? There's no denying, Chad, that Yelp has significant reach and a lot of power. There are estimated 138 million unique Yelp visitors to the site which is just huge. Eighty percent of those people are ready to spend money now, according to recent data. And even more staggering, Chad, is 90% of them make a purchase decision within a week of being to the Yelp page. So this obviously must have some far reaching implications for small business.

Yeah, absolutely. And I just want to go back to one of the points you made. I've worked with many businesses on reviews and dealt with some of their frustration because Yelp has a pretty aggressive filter on. People who come in and just write one good review and then leave. A lot of times those positive reviews do end up kind of sliding off of the reviews you typically see on a business page. So for a lot of businesses this is confusing and, of course, just like Google, Yelp doesn't want to really divulge its exact process because then it's just going to open itself up for people who are trying to get in the system.

But back to the point of really what does this ruling on Yelp mean for business? Well, Boston Consulting Group did a study. It's some very interesting facts here. Business owners that have a free Yelp account typically attribute about $8,000 in revenue to the fact to having that account. But when people are advertising in Yelp, then it actually goes up to almost $23,000 in revenue coming in off of the account. Of course, you want to know, "Well, that sounds great, but what does it cost?"

Surprisingly, the typical local advertiser is spending about $350 or $4200 annually. So based on that, it seems like anyone in Yelp probably should be considering advertising because it seems like it's going to more than make up for the investment there. But even then, I think that it's really, like I said, many businesses are disheartened by this Yelp ruling because of all the stats you said. There's yet another place where it's almost becoming a ubiquitous utility. You know, someone who looks at Yelp would say, "This is a common public resource a lot of people are using now, and back to the earlier part of the ruling it's really a private enterprise and they can do and they may not do it, but according to this ruling, Yelp can do whatever they want within reason, of course. Clearly it's something that's frustrating. And so frustrating we actually have one interesting fact here.

There was a place in San Francisco, the Botto Bistro, that decided they wanted to be the worst ranked in Yelp. So they actually offer a 25% coupon to customers who give them a one star rating so they can maintain their lowest rating possible in Yelp. So very interesting stuff, and you can kind of see, again, that it's a small business against this entrepreneurial venture, in this case with Yelp. I mean, Yelp is, again, an upstart that has really been able to grow and turn into a huge success. But now they have a lot of power, and small businesses get frustrated.

That's fascinating, Chad, that discount for bad reviews on Yelp. It reminds me of the retailer outside of New York City who is actually cursing at customers on the phone and swearing at them intentionally to get written up negatively and did so for the Backlink Power because it propelled its rankings straight up to the top, at least, for awhile until it was covered by the New York Times. But, yeah, this is an interesting conversation. We think of the Internet as this great equalizer and the great democracy for the little guy to have a shot. But, yet, we see these cases where Yelp and Google, and we're talking about net neutrality where big companies are emerging as fairly powerful on places like Yelp.

So it's fascinating to watch. I'm sure we'll continue to cover news on Yelp. That is our coverage for the Brown Bag today about Yelp. We hope you'll leave a comment. We'd like to hear your thoughts on Yelp. Do you use it? What do you recommend to customers? As always, we ask that you will subscribe and share our Brown Bags.