Yelp ratings tied directly to revenue impact in Harvard report

Depending on the neighborhood, the fire-engine red “People Love Us on Yelp” sticker outnumbers sedate-looking “Zagat Rated” emblems or fading newspaper reviews on restaurant doors. There’s no mistaking the power–and, let’s face it, the sheer entertainment value–of candid reviews written by regular diners rather than food-industry elite.

And recently, a report written by Harvard Business School assistantprofessor Michael Luca showed just how powerful a Yelprating can be: Luca found that a one-star increase in the rating of anindependent restaurant leads to a 5 to 9 percent increase in revenue.

But with livelihoods hanging in the balance, the symbiotic relationshipamong the Yelp technology platform, reviewers, and local businesses isunder stress, showing flaws in a system that must accommodate a highvolume of user-generated content.

Yelp Can Help
In his report titled Reviews,Reputation, and Revenue: The Case of, Harvard’s Lucaanalyzed data from the Washington State Department of Revenue, as wellas from Yelp, to show a cause-and-effect relationship between Yelpratings and restaurant revenue.

Luca discovered that this rating-revenue relationship applies toindependent restaurants, not chain restaurants. He says that hisfindings are also relevant to other industries (such as the hotelbusiness) where reviewers are credible and willing to leave reviews.

Yelp Can Hurt
Luca’s findings are good news for businesses whose ratings are on theway up–but what happens when what goes up comes down? If a one-starrating increase on yields a 5 to 9 percent increase inrevenue, does a decrease in a star rating cause a decrease in businessrevenue?

“Yes,” says Harvard’s Luca, “[but] I don’t know if it would be theexact same magnitude.”

Heather (last name withheld for privacy), owner of a house-cleaning business in the SanFrancisco Bay Area, would argue that the magnitude is greater. Earlierthis year, two 1-star reviews blended with four perfect 5-star ratingsto bring her business’s average rating down to 3.5 stars.

Luca’s study found that people who read Yelp reviews don’t formopinions based on all the available information but are particularlyinfluenced by the restaurant’s overall rating, particularly when thatscore is derived from a high number of reviews. However, Heatherdiscovered that her business’s overall rating was very powerful–evenfatal–when applied to her small set of reviews.

“My business just died. Once they locked me into the 3.5 stars, Iwasn’t getting any calls,” says Heather. “It’s so awful. It makes youfeel like you’ve done something wrong.”

Heather has been in the house-cleaning business for eight years, andshe has a clientele of about 60. She did not put her business on Yelpby choice. In March 2011, her business was reviewed for the first time,and the person awarded her business the dreaded 1 star, citing anunderwhelming move-out cleaning. A little over a month later, anotherYelp reviewer hit the business again, posting a scathing 1-star reviewthat accused Heather of offering “a discount in exchange for a Yelpreview,” a big no-no in Yelp land.

Heather says that both reviews are fabricated and personal, as she isgoing through a divorce in which “things got really nasty.” Shesuspects that at least one of the reviewers may know her ex-husband.

Subsequent comments on both reviews deny personal conflict or outsiderelationships as reasons for their reviews, and neither reviewerresponded to requests for an interview.

According to Michael Fertik, founder and chief executive officer, personal relationships are one main source of bogusreviews; the other is competitors. offers services forindividuals and businesses wishing to manage the information thatappears about them online. Reputation.comfor Business launched in September to help businesses manage,monitor, and improve reviews.

Yelp Is Powerful — and Imperfect
Fertik says businesses understand that public criticism is part of theworld of online reviews. “What they don’t understand is why a reviewthat makes no sense has as much juice on these review sites as a reviewthat is truthful.”

In Heather’s case, bogus reviews were getting more juice than thelegitimate ones, owing to Yelp’s reviews filtering, a softwarealgorithm that attempts to flag untrustworthy reviews. It moves thosereviews to a filtered-reviews section, which doesn’t factor into theoverall rating.

While Heather had 6 reviews that factored into her star rating, she had33 more that did not. These largely 5-star reviews sat at the bottom ofher page, accessible only when a viewer clicked the subtle gray ’33filtered’ link offered there.

Yelp acknowledges that filtering removes legitimate reviews, butaccording to Yelp public relations manager Kristen Whisenand, “It isthis high cost that we’ve chosen to accept because we know theinfinitely higher cost would be to not have an algorithm in place atall.”

However, when Heather directed people to read her filtered reviews byposting multiple comments on her own page, Yelp notified her that thisaction was an abuse of its policy, and removed one of the comments.

“Spamming users via public comments is an abuse of our system,” says Whisenand. “If I was a current or potential consumer coming to this business page, I know I personally would view that behavior as questionable.”

With business “dropping off,” no way to point people to her filteredreviews, and no way to affect the lowered overall rating on her page,Heather asked Yelp to remove her business’s Yelp page. Yelp said no. SoHeather took a drastic measure: She closed her business.

Heather disconnected her business phone number, and removed thebusiness listing from Google Places for Business (whichwill eventually remove the listing from Yelp).

Having marked her business as closed on Yelp, she is looking to start anew business to make a fresh start.

Businesses Can Be Their Own WorstEnemy
As of September 30, 2011, Yelp had more than 22 million reviews. Manyof these reviews were written by people who have posted lots and lotsof reviews–the YelpElite Squad. For their profiles to be badged Elite, theseusers must apply for acceptance based on the quality of their reviews.

Harvard’s Luca says that, overall, Elite reviews differ from non-Elitereviews in that they are more moderate and tend to be closer to arestaurant’s overall rating.

“They don’t only review when they have a really good or really badexperience,” Luca says of these veteran reviewers.

But plenty of Yelpers aren’t veterans. These occasional users arepropelled to review by a particularly good or bad experience. And armedwith Yelp’s real-time publishing platform and lack of contentmoderation, their talent for words (or lack thereof) can get them intohot water, as one new Yelp reviewer found out the hard way.

Claudia (last name withheld for privacy), a stand-up comedian andcoauthor of a humor blog, bought a coupon through Lifebookerfor a hair salon in Hollywood, California. She walked in for ahaircut–but walked out so upset that she decided to write her veryfirst Yelp review about it.

Writing under a pseudonym (as many Yelpers do), Claudia awarded thesalon 1 star. She said that she liked the haircut, but not her”completely uncomfortable experience” in the home salon of a malestylist whose oversharing of personal information was off-putting for”a first-time customer who’s not interested in his love life” and whosedecor looked like a “wild kingdom sanctuary.”

Perhaps most offensive to Claudia was “the most aggressive, violenthair-washing I’ve ever experienced.”

She wrote, “I feel like I got head raped.”

Those two words, head raped, flashed like a neon going-out-of-businesssign for a male stylist with a female clientele that comes to his homefor a somewhat intimate personal service.

“I’m hurting enough as it is with the economy,” says Paul (last nameand business name withheld for privacy), the salon owner and a stylistfor 25 years. “You don’t have to torture me with your review.”

Despite an admirable 4.5-star overall rating, composed of 20 mostly5-star reviews (32 other 5-star reviews are sitting in thefiltered-reviews section), Paul felt tortured because he thought thatClaudia’s review was connected to someone he had previously dated,someone who he says had written the other personality-attacking 1-starreview on his page and someone who he claims wrote another review thatYelp deleted for violation of content guidelines.

He was, understandably, upset.

But in the section of its site for business owners, Yelp urges cautionagainst respondingto negative reviews. “If your reviewer perceives that you arebeing rude, condescending or disingenuous in any way, there’s a chancehe or she could get angry and make the situation even worse,” writesYelp.

And that’s exactly what happened. Paul lashed out at Claudia, andClaudia lashed back.

In a private message, Paul accused Claudia of trying to destroy hisbusiness. He said that he had her number, and that his attorney wouldbe in touch. He demanded that she remove the review immediately. Paulsays that Claudia private-messaged back that her use of the term headraped was “a joke.” He didn’t find it funny.

Claudia recognizes that her use of the word raped went too far. “I’mthe type of person who’s a little outspoken and opinionated,” saysClaudia. “I’ll own that.”

Claudia considered taking down the review, but Paul’s demands changedher mind. Not only did she refuse to remove the review, but she alsoposted a subsequent comment to her original review with portions ofPaul’s private message for all to see.

“Don’t threaten people. Back off. That’s what Yelp is for,” saysClaudia about the freedom she has to write a review that she believesreflects her experience.

Yelp: The Silent Enabler Yelp agrees with Claudia.

Both businesses in this article reached out to Yelp for help. Heathersent email messages to the site about what she considers to be bogusreviews. Paul wrote the company asking it to either remove or filterreviews he considered to have “over the top” language. In both cases,Yelp declined to mediate.

Yelp doesn’t have to. It’s protected from being liable for content onits site by section 230 of the Communication Decency Act (CDA 230),part of the 1996 Telecommunications Act. That law states that “noprovider or user of an interactive computer service shall be treated asthe publisher or speaker of any information provided by anotherinformation content provider.”

In other words, don’t shoot the messenger.

Many observers argue that this is as it should be. CDA 230 permittedwebsites and ISPs to create platforms for people to speak freely,allowing for the boom in user-generated content. Websites don’t have tomonitor content or decide which content should be allowed–two costlyresponsibilities that would have prevented companies from takingfree-speech risks.

“This is a success story of CDA 230,” says Electronic FrontierFoundation senior staff attorney Matt Zimmerman. “You wouldn’t have aFacebook if they were responsible for defamatory content.”

But if you don’t have much sympathy for multibillion-dollar companieslike Facebook or Yelp (which recentlywon a request to dismiss class action lawsuits claiming that thecompany extorted advertising for mitigating negative reviews), thenconsider that CDA 230 gives the same shelters to citizen journalistsand small-scale advocacy groups.

“If you’re running a website talking about police brutality, people aregoing to come in and post controversial and angry statements. If it wasthe case that it would have to monitor [user content], the second theyget leaned on, it’s going to shut down,” says Zimmerman. “That’s a lossto everyone.”

Zimmerman says that the responsibility for fair, accurate content restswith the content creator, meaning the Yelp reviewer and not Yelp itself.

“It may not be a satisfactory answer to some,” says Zimmerman. “Thealternative is rather dramatic, and maybe an even more clumsy solutionto the perceived problem.”

Other experts believe that CDA 230 needs a refresh. “It was passed in1996, the Jurassic era of the Web,” says’s Fertik aboutthe days when ISPs such as AOL and Prodigy were king. “There arenumerous possible small changes that would go a long way to rebalancingin favor of privacy and fairness, and still encourage free speech onthe Web.”

Businesses Have Little Defense
According to Fertik, CDA 230 could follow the model of copyright law, which provides asimple process for requiring the removal of offending content. The keyis that the person claiming defamation, under penalty of perjury, wouldbear the burden of truth under the law.

This faster, more effective process would be much better than what wehave currently.

“Right now, the entire process of seeking redress through law takesyears–and even if you win a lawsuit, the offending content stays up onthe Web, possibly forever,” says Fertik.

But while the law catches up, what might drive Yelp to evolve morequickly is competition.

Yelp has self-recognized limitations in how it automaticallysynthesizes huge volumes of user content for the reader. In the case ofHeather’s house-cleaning business, Yelp’s automated filtering systemquite plausibly painted an inaccurate picture of a legitimate localbusiness. Plus, Yelp lacks additional content, such as hygiene ratingsor calorie counts, which can affect consumer decisions. It also doesn’tpersonalize recommendations to tastes, à la the algorithms that Netflixand Pandora use.

Yelp’s mission is to provide the real deal about local businesses sothat people can enjoy the satisfaction of picking the best option forthem. But if Yelp’s system fails to surface the best or most accurateinformation, bad choices will be the result, and both consumers andbusinesses will suffer.

“Another consumer-review site could come along and create a morecomprehensive picture of a [business],” says Harvard’s Luca.

For now, however, Yelp is the main game in town.

“I wish I could get on another site, but people go to Yelp. That’s whatpeople do,” says Heather. “They are really powerful. They hold all thecards right now.”

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