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Yelp’s (NYSE:YELP) Reputation Problem Could Ground Highflying Shares

Yelp’s (NYSE:YELP) Reputation Problem Could Ground Highflying Shares


Yelp’s (NYSE:YELP) Reputation Problem Could Ground Highflying Shares

Yelp’s Reputation ProblemNEW YORK – Earlier this week, New York State Attorney General Eric Schneiderman, announced that ‘Operation Clean Turf,’ a twelve-month investigation that snagged 19 companies for dubious business practices had ended.  Many of the companies caught under the operation were search engine optimization firms that were reportedly writing fake reviews for their customers.

In an interview with Fortune, Vince Sollitto, Yelp’s (NYSE:YELP) Vice President of Corporate Communications, to the magazine that the company was aware of the investigation and help authorities to identify which businesses were abusing the system.  According to the company, the operation will help the company to crack down on restaurants that are paying for favorable reviews.  ‘What we believe this particular announcement does, more than anything,’ Sollitto says, ‘is put those businesses on notice that this is not a harmless little exercise designed to boost your ratings.  It’s a deliberate attempt to mislead consumers, it violates our guidelines, but more importantly it violates the law.’

However, it would appear that the writing of fake reviews, called ‘astrosurfing,’ is becoming more prevalent as restaurant owners attempt to circumvent Yelp’s review filter.  While the attorney general’s office said that Yelp has one of ‘the most aggressive’ content filters, a consistent criticism has been the lack of transparency.  According to David Mihm director of local search strategy at software company Moz, ‘Yelp’s literal fortunes are tied to how many business owners will pay them for advertising, but they don’t seem to have much empathy with the set of customers that they need money from.’

This outlines Yelp’s challenge as it needs positive reviews to keep restaurants advertising.  Even Yelp’s CEO Jeremy Stoppelman acknowledges the constant tug of war between restaurant owners and Yelpers.  ‘There is this idea that, ‘we’re the chefs, and they’re the Yelpers.’  An ‘us vs. them’ mentality.  But, he retorts, the power is in the aggregate — a restaurant may get a few unfairly harsh marks, but with enough reviews, the score should be reliable.’

Even with the attorney general’s investigation, it does not appear that the fake review problem will go away any time soon.  While Yelp’s shares have gained more than 260 percent year to date, reputational issues which could affect advertising revenue, which in turn could affect confidence in the company’s outlook.  While the company will probably add addition filters, it also has to make sure that it does not conflict with the often-passionate user community that supports it.

About Eric Kelso

Eric Kelso covers market updates and stock related news.

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