The report's authors show that the number of fake reviews -- both positive and negative -- on the site have grown from 5 percent in 2006 to 20 percent in 2013. But while the problem is getting worse, it's something that shareholders may be ignoring. After all, Yelp has been one of the market's hottest stocks in recent months after having more than quadrupled since bottoming out in November.
Will the gains continue if the reviews can't be trusted?
A Cry for Yelp
To its credit, Yelp is doing its best to curb the phonies. It filters reviews that it deems as questionable, and, as you can probably expect, these critiques are usually the only review submitted by a user and typically at the high- or low-end of the five-star rating range.
The most commonly filtered review actually gives the maximum five stars. On the site itself, the most common published rating is four stars. That makes sense. A great experience is extremely rare -- even an outstanding experience at a French bistro or a spa will have some discernible flaws.
%VIRTUAL-article-sponsoredlinks%Yelp has also tried to encourage users to become more active. There is the Yelp Elite distinction that it bestows to its most active and respected contributors. They get invited to venue grand openings and other merchant-hosted gatherings.
By populating its site with legitimate reviews -- and there are now 42.5 million rants and raves on Yelp -- the goal is that sheer volume will help weed out the business owners that try to boost their ratings or diss the competition by creating false reviews.
There's plenty at stake. Michael Luca, one of the two authors of the report, suggests that something as simple as a one-star rating increase in a Yelp profile can contribute a 5 percent to 9 percent increase in business.
Table for Wan
Yelp continues to grow at a healthy clip. There are now 51,400 local business that are considered active -- paying Yelp for enhanced promotional features -- and that's a 62 percent spike over the past year. It clocked in with an average of roughly 108 million monthly unique visitors to its website, 38 percent ahead of last year. And those 42.5 million cumulative reviews are an encouraging 41 percent boost over the past year.
That's great, but Yelp is surprisingly still not profitable.
Analysts see Yelp finally turning a profit next year, but one has to wonder if that will be challenged if the percentage of bogus reviews continues to grow on the site. Credibility's key in this business, and that's why there seems to be more trust on Angie's List (ANGI), where users actually have to pay to be a part of the vetted referrals site.
We also can't dismiss the threat of Facebook (FB). The social networking giant introduced graph search earlier this year, allowing the site's more than 1 billion users to seamlessly search for suggestions from people whom they already know and likely trust.
Google (GOOG) has also been trying to tie its success with Android and Google Maps with its fledgling Google+ social network. If the search giant's products become more social -- and the reviews being collected can be stitched together with Google Places, Google+, and Google Maps -- Big G could prove to be as formidable a potential foe as Facebook.
This brings us back to Yelp's stock trading at unsustainable levels for a company that remains profitless and one whose content credibility is coming under attack.
This isn't the first time that Yelp's model has come under fire. Some merchants argued that they were being shunned for refusing to become paying customers. Yelp rose above the claims, but with Yelp's stock priced for perfection, there is little margin for error here.
Investors giving the stock five-star reviews better be careful before their money gets filtered out.
13 Things That Seem Like Scams But Are Actually Great
The yellow cleaning spray named "Awesome" from the dollar store evidently lives up to its name. The guy who recommended it said that it really should be priced higher and he's never used it without gloves.
The cellphone company is designed to save you a bunch of money on your plan if you switch away from a major carrier.
This guy loves it: I seriously only pay $45 a month for unlimited everything for my Google Nexus 4 and also get great service since I have a AT&T compatible SIM card with them. Basically my service runs off of AT&T towers just without me having to pay $100 a month. It is cheap, and in the long run saves you a lot of money.
These seem like a clever ploy by Big Detergent to force you to spend more on rebranded soap.
Well, as it turns out they actually really work out well. Almost everyone uses a little too much detergent in their wash, but these little pods actually do the trick.
Submitted the request online, guy came out (to him) a day or two later with a truck, looked the car over to make sure everything checked out with the specs he submitted, handed him a check, and left with the car. Check cleared with no issues.
My guess is that they can give such a higher premium because they scrap the car and sell the parts online, so they'll have a much higher turnaround. Either that or it's some really eccentric millionaire finding new ways to pass the time.
I can personally confirm that Linux is awesome.
Here's why: "You mean I can get a fully-functional operating system for free, just download it off the website, and it's faster, more secure and easier than Windows? And it has thousands of free programs with it? And they're offering more and more games that often play better on Linux than Windows? Sure , whatever...." But it's true!
It's a neoprene jacket you put on animals to reduce anxiety. It accomplishes this by gently squeezing them all over.
Got it for my frenchie who was going through anxiety after we moved, and it totally works on the short term and on the long term.
This pet comb really works: Furminator brush, a metal comb with tapered grooves that removes undercoat and reduces shedding. It's not a surprise it works, but how well it works. The ad photo with the husky surrounded by a giant pile of fur is exactly what happens.
Another endorsement: Bought a furminator yesterday and felt like a dumbass for spending $45 on a damn cat brush. Then I had a pile of fur twice the size of my cat.
Several people swear by this blender. The issue is that it's sold through infomercials which instantly sets off everyone's B.S. alarm.
You know those ads on television for sites offering free credit reports? Don't use those websites.
Congress made the credit report companies provide people with one free credit report per year, so they did that with AnnualCreditReport.com, but then made several easily confusable clones that charged money.
Here's the explanation: Annualcreditreport.com is run by the U.S. government and is designed to comply with the law requiring credit bureaus to give you your reports for free every so often.
Freecreditreport.com and sites like it are businesses who charge you money for these same services (or require that you bundle pay services with the free service of getting your report) [...] they're preying on the people who were trying to get their free report and just went to the wrong web address.
People use these on white sneakers to wild success, and one Redditor cleaned a horrifying tub in a new apartment to the point it looked like new. One guy used a similar product, Barkeeper's Friend, to get a sharpie'd genital off of his fridge.
RainX is the stuff you spread apply to your windshield that repels rain, meaning that you don't actually have to use your windshield wipers.
Here's one Redditor's endorsement: First, it will last a lot longer than a few days if you follow the directions to a tee. If it's at all cool air temps when you apply it, turn on your defroster for a while to heat up the window. Helps a lot. When you get up to speeds that make the rain "skitter" off the windshield, stop using the wipers; this speed will vary depending on the angle of your window. [...]
Photo: Kjarrett, Flickr.com Lastly, I've heard Aquapel makes Rain‑X appear as though a drunken monkey had smeared feces over your window in comparison. I can't personally speak to this, as I cannot afford Aquapel. Sounds fun.
Sold by the late but legendary pitchman Billy Mays, the sodium percarbonate cleaning product is actually really, really good at cleaning anything.
Granted, you can get the same chemical off-brand at a pool supply store for a fifth of the price, but the stuff just annihilates stains.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. Try any of our newsletter services free for 30 days.