Friday, March 12, 2010

Which comes first? Yelp thought it had a solution to isolating negative reviews from positive advertising.

There's certainly been a lot of buzz about the lawsuit against popular online business review site Yelp. Most of it is a misreading of the situation. What's going on in this lawsuit will not have any impact on those of us with business reviews of any kind, nor is it a "potential death knell" for online reviews as some are breathlessly claiming. What the Yelp lawsuit is about -- pure and simple -- is alleged extortion. The company suing Yelp is claiming it was told that if it advertised, negative online reviews would be hidden or removed, and if the company didn't advertise, the negative reviews would remain.

What this lawsuit does highlight, however, is something I have discussed previously: the inherent friction between user reviews and paid advertising. The case of Yelp points up an important but subtle distinction. Usually the issue is how a publisher can add user reviews to paid listings. In the case of Yelp, the question is how a publisher can add paid listings to user reviews. Same difference? I think not.

For the buying guide publisher, the business model is already established: companies pay for an enhanced presence within the buying guide. To add user reviews is not simple: advertisers want a positive environment in which to advertise. Don't expect a paid listing surrounded by negative user reviews to be renewed. Even the most enlightened advertiser will have trouble finding the value in that equation. There are ways to walk a fine line where reviews and advertisers can peacefully co-exist. Capterra was awarded a 2009 Model of Excellence award for, among other things, devising a successful approach to this. But the reason that a middle ground can be carved out is that user reviews are an additional feature for a buyers' guide. They are not the reason the buyers' guide exists.

Contrast that with Yelp. Yelp's success is entirely due to it achieving a critical mass of reviews. Users respond to it and value it because it lets users have their say - the good, the bad, the ugly. Yelp strikes an unabashedly consumerist stance. Without this positioning, which fostered a critical mass of reviews, Yelp would be just another also-ran in the highly competitive local business directory space.

So how does Yelp sell advertising? It can't be that easy. The business with glowing reviews could quite reasonably see no need to advertise. The business with horrid reviews could quite reasonably have no desire to advertise. Yet the moment Yelp starts fiddling or filtering its reviews to accommodate advertisers, it puts its business at risk. Nothing would kill Yelp faster than a general perception (amplified by social media of course) that it had "sold out" Bottom line: the reviews are not an additional feature; they are the product.

I don't see an easy answer to this one. If Yelp wants to succeed selling local business advertising, it's going to need to make compromises that one or more of its constituencies won't like. The strategy and its execution are both critical. And the object lesson is that it does matter which came first: the directory or the reviews.