YelpYelp has been a phenomenal success, but it also has a large number of detractors, in large part the businesses that are the subject of those ratings and reviews.  Infocommerce recently has discussed some of the issues surrounding Yelp’s business model and issues which irk the business community. 

Yelp is a business that, if examined dispassionately, really should never have succeeded. The primary reason was its business model: let anonymous users pick apart businesses in published reviews, then try to sell advertising to those same businesses. Yelp made this challenged business model even tougher by introducing a secretive filtering algorithm that would decide what reviews got published. The objective was to weed out spam, but all it did instead was to spur conspiracy theories among businesses that felt good reviews were being swallowed while bad reviews always seemed to get published.

Tough business, right? Well it gets tougher, particularly because Yelp showed little interest in mediating disputes (for example, there are documented cases of restaurants getting bad reviews on dishes they have never offered), essentially admitting it was too much work. Mix into this the inexperienced sales force Yelp fielded, giving rise to stories of reps offering to make bad reviews disappear  in exchange for advertising, with a raft of lawsuits claiming extortion quickly following.

Things seem to have calmed down for Yelp in the last year or so, but it’s hard to imagine that the rift between the business community and Yelp has fully mended. Yelp is more powerful than ever, and can make or break a business. Yet it maintains as a core principle that it is a consumer empowerment tool, even though Yelp generates no revenue from consumers.

That’s why I find it surprising that Yelp just announced the acquisition of Eat24, a service that lets people order food for home delivery. Yes, the company that controls the reputation and success of restaurants now wants to control their order flow as well. I see nothing to suggest that Yelp has become a friendly, trusted brand to the average local restaurateur. Yelp brings scale, but a lot of baggage as well.

What is the correct business model for a ratings and review business? There is no easy answer, especially as the consumers who typically provide the reviews show little appetite to pay to access them. One exception is Angie’s List, which sells subscriptions, but even Angie’s List now makes more money from advertising than subscriptions. Fortunately, Angie’s List found a middle path that allowed this revenue pivot without compromising its credibility and integrity.

TripAdvisor is another reviews site with many of the same issues as Yelp. But TripAdvisor makes most of its money by selling eyeballs, a traditional media model. This means it doesn’t have to rely on hotels for revenue, though it recently started to push in this direction.

The real estate website Zillow posts its estimate of a home’s value right next to the (almost always higher) asking price. One can presume that’s not helpful to making the sale. Awkward? Well, Zillow now asks consumers to rate and review the real estate agents to whom it sells advertising.

In many respects, the jury is still out on what does and doesn’t work for review sites. What we’ve seen to date is that if you can build a big enough audience, the advertising dollars will follow, no matter how upside-down your business model. But just because they pay you doesn’t mean they have to like you.  And this may come back to haunt these companies, if not in their core business, then by ultimately limiting their growth and expansion potential.