Local review site Yelp has been accused of playing favorites before, but now the ratings arbiter is going to have to defend itself in court. A class action suit has been filed against Yelp charging that the company engages in unfair business practices.

Regardless of how it turns out, this isn’t good news for the listings site.

Yelp allows businesses that pay for advertising on its site to give positive reviews better placement on their profiles. More than once, the company has been accused of pressuring businesses to pay for memberships and unfavorably weighting the listings of businesses that do not advertize with the site. That is similar to the charges here. 

According to TechCrunch:

“A veterinary hospital in Long Beach, CA, is said to have requested that
Yelp remove a negative review from the website, which was allegedly
refused by the San Francisco startup, after which its sales
representatives repeatedly contacted the hospital demanding payments of
roughly $300 per month in exchange for hiding or deleting the review.”

The Yelp founders are insistent that the suit is spurious, responding:

“The allegations are demonstrably false, since many businesses that
advertise on Yelp have both negative and positive reviews. These
businesses realize that both kinds of feedback provide authenticity and
value. Running a good business is hard; filing a lawsuit is easy. While
we haven’t seen the suit in question, we will dispute it aggressively.”

Even if the case is dismissed, this not particularly good for Yelp. The company has been fighting charges like this online and in the media for some time, and rumors of Yelp interfering with profiles on its site are likely to continue.

That’s for two reasons. First, Yelp leaves the ranking of its reviews to an undisclosed algorithm that no one really understands. Coupled with Yelp’s policy on advertisers modifying their listings, that gives companies plenty of room to proscribe a motive for Yelp to interfere with their listings.

In a sprawling piece called “You’ve Been Yelped” earlier this month, Inc Magazine outlined the various ways that businesses are upset with and about Yelp, including this one:

“Some business owners have reported seeing their Yelp ratings fall after they declined to buy advertising.”

That’s what’s going on here. By accepting money from businesses in return for giving them some
control over their profiles, Yelp has given credence to the suspicion that Yelp reviews aren’t entirely non-partial.

For a startup still searching for a longterm business model, giving companies control over their profiles seems a great way to bring in some revenue. As Inc. notes, advertisers pay Yelp between $300 to $500 a month and a ” typical Yelp salesperson generates at least $8,000 in monthly billings.”

But this income model is causing more than its share of problems for Yelp — including discrediting the value of Yelp’s listings. For a company that is dealing with increased competition — from stalwarts like Google to even younger companies like FourSquare — that could end up being a very big problem.

Image: InternetDefamationBlog