Yelp Reviews Have Become Make-or-Break For Businesses

New York inn and other businesses found out the hard way what can happen when reviewers retaliate.
7:09 | 08/08/14

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Transcript for Yelp Reviews Have Become Make-or-Break For Businesses
If you've ever posted a negative review online, you may think you're safe writing from the comforts of your couch. But now, business owners are going to extraordinary lengths to clear their names. And it could cost you. It was the yelp review. There was a musty odor. It smelled bad. We kept the windows open the entire time we were there. Jimmy: That L That led to yelp revenge. The guests fought back. There will be a $500 fine for each negative review that we post. The bride and groom overlooked this fine print on their contract. A $500 fine will be deducted from your deposit on your review placed on any internet site by anyone. A collective consumer fury ensued. And just like that, the star rating on yelp plummeted to a dismal 1 1/2. As users posted angry and facetious reviews about the business. One person calling it the worst hotel in history. I don't think I'm going to eat there anymore. Reporter: Over the last few years, the yelp review has taken on a life of its own. Immortalized in this actors read yelp video. Such a disappointment, considering I wanted to come here for a long time. Reporter: All jokes aside, your yelp reviews have truly become make-or-break for businesses nationwide. One bad review can really destroy your business. You can lose thousands of dollars. Reporter: In fact, over 50 million businesses around the globe occupy a presence on yelp. A Harvard business school study finding even a one-star rating increase on yelp translates to a sales increase between 5% and 9%. But watch out. That yelp review trashing a business could cost you. Some businesses aren't just threatening fines. Some are even threatening lawsuits. These lawsuits are a form of bullying. It's a tactic to silence your critics. Reporter: James owns the landing resort and spa in lake tahoe. He admits to Reading online reviews of his hotel all the time. But he took issue with one comment he says went too far. In one case, we had an individual who made extremely derogatory Ra derogatory remarks, about the manager, the food, myself individually. And we decided to file suit against this person for defamation. Reporter: Court records revealed the case was settled out of court with no money exchanged. What can you do to protect yourself? Have evidence to support whatever claim you're making. Whatever accusation you're making. And if you're going to say your food had a hair in it, put a picture with the food and the hair in it to support that. Reporter: Business owners say it's the consumers writing the reviews who have all the power. But the hotel owner says it's yelp itself that has the real power. He started to notice something strange about the way he says reviews were filtered on the yelp pages for his businesses. I began to notice one of our restaurants, a series of reviews. Those reviews were suddenly disappearing. Reporter: He says that yelp was filtering out legitimate reviews and prioritizing reviews from yelp elite users. Every service business I know of will have bad reviews. That's part of being in business. It's okay. I'm not asking to remove any reviews. All I'm asking for and I demand, that people get to see all the reviews that are real, that are legitimate. Reporter: He's now suing yelp in a California court for misrepresenting how well the site filters reviews. But yelp stands behind their process. The reason consumers, 138 million of them come to our site each month, is because they trust the content. And the reason they trust the content is because we take steps to protect them from being misled from reviews that are either purchased by businesses or might be biased because they were solicited from a business owner's friends or families. Reporter: And regulators say, fake online reviews are a real problem. I will write a positive review of your product, website, blog or anything you like. Reporter: Kathy, a teenager from Wisconsin, says she's written hundreds of phony online reviews for 4 bucks apiece. Do you have reviews nearby that you could read to us? I made the appointment over the phone. And the next day, they were working on my bathroom. Reporter: Have you ever renovated a bathroom? No. I'm 17. Reporter: Do you feel any sense of guilt or anything? No because I feel like these people are going to pay somebody to write a review anyways. It might as well just be me. Reporter: And what about that other claim? Made by some business owners that purchasing ads on yelp will improve your business ranking or feature more positive reviews? Just yesterday, a class-action lawsuit was filed on behalf of some yelp shareholders, alleging they were doing just that. Yelp says they have not been served with in suit. But say the allegations are without merit and will be vigorously contested. A handful of businesses claim that yelp is skewing the results to reflect advertising money. You're saying that's not true? Absolutely not. Businesses purchase advertising on yelp and nothing more. Our recommendation software is designed to protect consumers. Reporter: Back in the quaint village of Hudson, this story is the talk of the town. The way things are now, there's one piece of pie. And there's only so many slices in that pie. The slices are getting to be slivers. Reporter: Barry owns a b&b around the corner. The firestorm has erupted. Who's going to win? I don't know. Who's going to win. But all the money and power is on the side of yelp. Hello. Reporter: When our cameras approached the front desk at the union street guest house, the attendant wouldn't comment on any specifics. Right now, I'm just filling in for the owner, who is out. Reporter: But earlier this week, the owner expressed embarrassment and regret in a statement. Saying, its response to negative reviews was intended as a joke. Now, realizing it was made in poor taste and not at all funny. But contrary to what some business owners may think turns out negative reviews are the exception, not the rule. I think the biggest misperception about yelp is it's a site where people go to complain or whine. In fact, 80% of all the reviews on yelp are three stars or more. And that's because most people's experiences with small businesses are positive. And that's really what comes through on yelp.

This transcript has been automatically generated and may not be 100% accurate.

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