2005, Stoppelman and Simmons raised $5 million from Bessemer Ventures, the VC firm behind Verisign and Skype, among others, and then last November another $10 million from Benchmark Capital, whose hits include eBay and Red Hat (Charts). The company’s strategy is to build a rabid following in any given market. Once an establishment has a good number of reviews, a Yelp salesperson calls to make sure the establishment’s owner is aware of all the chatter going on, offers a Yelp window sticker, and, of course, tries to sell an ad. Ads and sponsorship packages range from $200 to $2,000 a month.
For restaurateurs and bar owners, hosting an elite event with free food and an open bar can easily pay for itself. Neej Gore, the 29-year-old owner of Etiquette, a San Francisco nightclub, hosted such an event in late June, complete with break dancers. Two days later Etiquette had an additional three dozen reviews averaging four stars. Before Yelp, Gore would print fliers to attract people to his club. Now, he says, “we’ve almost eliminated our print budget. We don’t do many fliers anymore.”
Yelp can be even more dangerous to a mom-and-pop coffee shop or fledgling restaurant. While professional reviewers typically grant a new restaurant a grace period to work out the kinks, Yelpers flock to new places to earn a coveted “first to review” notation and often expect the place to be operating as though it were mature. Then there are some people who are just plain ornery – and there’s always the possibility of one restaurant owner sabotaging another.
Craig Stoll is the owner of one of San Francisco’s most reputable restaurants, Delfina. The eight-year-old trattoria has collected 333 reviews and a four-star rating. But Stoll is miffed at Yelp. “We recently had a post where someone fabricated an incident,” he says. One Yelper, John S., a new member with zero Yelp friends, no photo, and only nine reviews, claims he captured a cockroach on his table at Delfina and showed it to his server, who laughed. Stoll says the event never happened, but John S.’s telling of the incident lives on. (John S. never returned two Yelp messages from Fortune.)
Stoll says he contacted Yelp and unsuccessfully requested that the review be taken down. “They said, ‘This doesn’t violate any of our rules. It stays.’ But it didn’t happen. A lot of people pay attention to Yelp. But there are no checks and balances. As a business owner, you have no recourse.”
Stoppelman and Simmons empathize. Even Yelp has been Yelped. But they stand behind Yelpers’ right to say what they want, as long as it’s true. (Authors are solely responsible for their reviews. That should help the company avoid run-ins with angry restaurateurs, but one messy lawsuit would surely curb Yelpers’ enthusiasm.) Most reviews are positive – 85% are three stars or more. Stoppelman thinks that’s because people would rather write about great experiences. As for the harsh critiques, Stoppelman considers them an opportunity for a business owner to start a conversation. “Your customers are out there saying things about you, whether it’s on Yelp or on some blog,” he says. “The faster you can fix problems, the better you’re going to do. Customer service is the new marketing.”
