Yelp (pg. 2)

By Jeffrey M. O'Brien, Fortune senior editor

If the most interesting Web 2.0 companies have one thing in common, it's their ability to aggregate ordinary self-expression and turn it into an industry-changing wave. Putting reviews by everyday people online - teasing out the wisdom of the crowd - has huge implications for business owners. Yelp doesn't require users to reveal themselves, but it coaxes a lot of them into the open as a way to keep everyone honest and civil. Yelpers who display their real names and photos and remain active can qualify for elite status. Elite Yelpers are the squeaky wheels. They tend to get invited to lots of opening-night parties and sometimes even get free review baskets or calls to do consulting work. (Whether those are perks or bribes is open to interpretation.)

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."

Not all Yelping is good for business. It's plausible, for example, that national chains may find a new set of rules in a Yelped market. Why do you frequent Starbucks when you're traveling? Do you really love the coffee, or do you go because you know what you'll get when you walk through the front door? As Simmons puts it, "A brand is a proxy for knowledge." What if you found out there was a wonderful little café down the street? Would you still go to Starbucks? Maybe, maybe not. But by providing local knowledge, Yelp may diminish the power of a brand - or at least a franchise's ability to coast on that brand.

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."

Where does Yelp go from here? Stoppelman and Simmons plan to reach 25 markets in the next 18 months. Not that Yelpers are waiting for that to happen - they're busily Yelping suburbs and vacation spots all over the country. Clearly there's a desire for this service outside the major cities. And if the enthusiasm over the launch of the iPhone last month can be attributed to anything other than insane product lust, it's that we all really want the web while on the go. Once we have that, the growth potential for a site like Yelp seems unlimited.

Of course, turning long-term potential into short-term dollars remains a challenge. But if Christopher Hall's experience is any indication, that's already happening. Yelp doesn't make Splitends a better business. It provides a better soapbox, and that's something any smart business owner is willing to pay for. "I'm a rad hairdresser," says Hall. "Yelp is just validating my business and letting the public know."

After Yau's review of Splitends, a Yelp salesperson called Hall to see if he'd be willing to spend some money. "She asked if I wanted to sign up for a sponsorship. I told her that if she sent me a Yelp sticker for my window, I'd give her my credit card." He didn't kill his old ad campaign with OC Weekly. But he did change the creative. Now the ad simply reads "Splitends. Read our reviews on Yelp."  Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.