Yelp is facing one of its biggest challenges yet: The Federal Trade Commission says thousands of business owners have filed complaints against Yelp (PDF) between 2008 and 2014–and the company’s stock dipped 12% a few hours later. In total, consumers made 2,045 complaints against Yelp to the federal government. The disclosure was made in response to an investigation by the Wall Street Journal into whether Yelp gives preferential treatment to companies who advertise on the service. The FCC disclosed that Yelp receives six federal subpoenas monthly, some of which request the names of anonymous users. It’s bad news for the massive review database company–and great news for competitors like Foursquare, Facebook, and even Google’s review efforts.
The WSJ story comes at a bad time for Yelp, which disclosed in its most recent annual report that the company lost more than $10 million in 2013. Late last year, Fast Company spoke with Peter Shankman, a prominent New York-based tech investor and social media consultant who made a cash bet that Yelp would go out of business within two years due to an alleged practice of making positive reviews for companies who don’t pay Yelp harder to see. In a comment thread on the article, multiple Fast Company readers alleged Yelp hid positive reviews for their business after they refused to spend additional advertising money with them.
A steady stream of business owners have gone on record, including in the Los Angeles Times, claiming that Yelp threatened to display negative reviews more prominently if they didn’t pay for advertising. Yelp also deals with constant posting of fake reviews by business owners or companies, a practice called “astroturfing,” that have created additional controversy.NU