Yelp’s practices sound to some like extortion

Yelp just can’t stop living the thug life.

Five years ago, I asked whether the popular review site was a shakedown racket for merchants. I quoted a number of small-business owners who said Yelp had threatened to run negative reviews more prominently if they didn’t pay for advertising.

Jeremy Stoppelman, Yelp’s chief executive, told me at the time that the San Francisco company doesn’t strong-arm merchants. He blamed talk of shakedowns on disgruntled business owners spreading “false rumors.�

I guess this is another one of those.

Rick Fonger, 62, decided a few years ago to end a career in journalism and move from Canada to Alhambra, where he opened a jewelry store.

“I’ve always been interested in gemstones and gemology,� he said. “It was just something I wanted to do.�

To give his shop, called 58 Facets Jewelry, a little social-media boost, Fonger spent about $300 a month advertising on Yelp. “It worked OK, not great,� he said.

After six months, he decided to shift his limited marketing budget to direct mail. He canceled his Yelp ad in February.

The very next day, Fonger said, a Yelp employee called to say she wanted to help. She pointed out that competitors’ ads were now appearing above the reviews for his store.

“She said that for $75 a month, she could make those ads go away,� Fonger recalled.

He responded that this sounded a lot like extortion.

“She said she could understand why I’d think that,� Fonger said. “But she said they do it to everyone.�

As if that makes it OK.

“It certainly sounds like extortion,� said Kevin Dean, president of WSI Net Advantage, a Fremont, Calif., Internet marketing firm.

“If Yelp just sold the ad space to someone else, fine,� he said. “But to then call up and offer to make the ad go away for a price, that seems like an unscrupulous business practice.�

I’ll pause here to say that I think Yelp is a flawed but valuable consumer tool. I take the reviews on the site with a grain of salt, but it’s a great place to get a quick pulse reading of people’s opinions about restaurants, stores or other businesses.

That said, Yelp is a for-profit business itself, and it makes the bulk of its money from neighborhood merchants. About 83% of the company’s nearly $71 million in revenue in the most recent quarter came from local ads.

This gives Yelp a powerful incentive to turn the screws on small businesses as much as it can.

Vince Sollitto, a Yelp spokesman, said that when the company’s rep told Fonger that she could make competitors’ ads go away for $75 a month, what she meant was that “you could buy out the ad space on your own page.�

He said Yelp is doing the same thing that phone books do: selling ads that accompany related business listings.

The difference, of course, is that the Yellow Pages never told businesses they could pay extra to get rid of someone else’s ad.

By offering this service, Yelp has introduced a more cutthroat approach to marketing, with itself as the broker for whose pitch is seen first by users of the site.

When I checked out the Yelp listing for Fonger’s shop, an ad for a rival jewelry store appeared near the top of the page, undermining the influence of the nine five-star reviews that had been posted by customers.

Sollitto said he was surprised that Fonger likened the company’s practices to extortion. He said Yelp is “all about connecting local businesses and consumers.�

I asked how offering businesses a chance to pay a monthly fee for erasing a rival’s ad was different from websites that post people’s mug shots from arrests and then charge a fee to take them down.

Sollitto seemed offended that I’d even make such a comparison.

“Yelp has created a platform for sharing information,� he said. “It’s a discovery engine for small businesses.�

And maybe he believes that. The reality, however, is that Yelp has created an online venue at which a merchant’s competitors can post negative reviews and run their own ads.

Yelp then makes money by charging to downplay others’ negative reviews and to keep rivals’ ads away.

You know the old chestnut about succeeding in business by finding a need and filling it? Yelp succeeds by making a problem and then taking people’s money to solve it.

This strikes me as an unfair business practice. But, so far, Yelp has weathered various lawsuits challenging its policies. “Their claims keep getting dismissed for lack of any fact-based evidence,� Sollitto wrote last year on Yelp’s blog.

I’m no lawyer, but I know a racket when I see one. Anybody who calls to say that you now have a problem but that they can make that problem go away for $75 a month isn’t your friend.

Dean, the marketing consultant, said that Yelp is a fact of life for small businesses and that challenging the company’s policies is going to be “a fight you’re not going to win.�

Instead, he advised companies to focus on Google and other online resources, and not lose sleep over any shenanigans Yelp might pull.

That’s probably wise. But it doesn’t excuse bad business behavior.

I asked Fonger how Yelp’s tactics differed from, say, Tony Soprano’s or Michael Corleone’s.

“Well,� he answered, “no one’s come by to break my legs.�

Then he thought about it a moment. “At least not yet.�

David Lazarus’ column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your tips or feedback to [email protected].