Local reviews site Yelp is facing some unflattering reviews of its own service.
In a class action lawsuit filed in Los Angeles federal court, the red-hot startup is accused of unfair competition and what amounts to extorting small businesses.
The plaintiff in the suit, an animal hospital in Los Angeles, alleges that after negative reviews about its business appeared on Yelp, sales representatives from the company called and said that for $300 per month, they could make the ads disappear.
Don’t be surprised if this sounds familiar. In a lengthy article last year, the East Bay Express leveled similar charges against the company. But in an interview with the FT, Yelp chief executive Jeremy Stoppelman flatly denied the claims.
It was only last month that Yelp was almost Googled. The local reviews site came a breath away from inking a $500m deal to sell itself to Google, but for reasons still unknown, the deal ultimately fell apart.
The company, it seems, is not looking back. Today Yelp announced an investment of up to $100m from Elevation Partners, the private equity firm that counts U2 frontman Bono among its directors.
It seems that a half billion dollars was not enough. That’s the price Yelp, the local reviews site, was set to fetch on Friday as it entered into late stage negotiations with Google. But last night TechCrunch reported that the deal had fallen apart.
Perhaps news of the imminent deal attracted new bidders to the table, but it’s not yet clear what caused the last minute scuttling.
MySpace is moving to the neighbourhood.
The social networking giant today announced a deal to emphasise searches of local restaurants and the like, with reviews of those businesses by a user’s friends getting prominent billing.
The success of Yelp (which is very popular, if not profitable), has drawn attention to the local user-generated review site as a potentially viable business model. Indeed, with millions of small businesses looking for new customers (and presumably willing to advertise), accurate, comprehensive and trustworthy local directories are invaluable services for companies and customers alike.
So when Yelp introduced its London site in January, it signalled its intention to attract advertising from a chunk of the city’s 300,000 local businesses. Other similar sites were already active in London, and now one local competitor, TrustedPlaces, is trying to outflank Yelp before it gains traction.
Yelp has won fans around the globe by providing a neutral platform where users can share reviews of local businesses. If a Vietnamese sandwich shop makes the best banh mi around, reviewers will rave and send more customers that way. If a kosher deli’s pickles are stale, reviewers will say as much, and other readers will steer clear.
But what if it wasn’t users, but Yelp’s own advertising team that determined the balance of — and in some cases wrote — the reviews that make up the meat of the site? Worse, what if Yelp’s advertising reps punished businesses that refused to advertise by the deleting positive reviews and promoting negative ones?
These are the claims being leveled against Yelp in a raft of recent articles.