Shares of the consumer review website Yelp (NYSE:YELP) are falling today, after the Federal Trade Commission said it has received more than 2,000 complaints about the company during the past five years. Now, a case involving a local business hurt by an anonymous Yelp review is going to be heard in the Virginia State Supreme Court. Is it time for Yelp to make some serious changes?
In this segment from Thursday's Investor Beat, host Chris Hill and Motley Fool analyst Jason Moser take a look at the "rock and a hard place" situation facing Yelp today. On the one hand, traffic to the site, and the resulting revenue from advertising, depends on the idea that consumers are honestly informed from all angles by the reviews they read on the site. On the other hand, the power of a negative review on Yelp and its ability to crush a business far outweighs the benefits of receiving a positive review. With no system of checks and balances in place to screen for which reviews are undeserved, businesses can be needlessly damaged by Yelp's current system.