The Power of Yelp: Small Businesses Feel Joys, Pains of Yelp Reviews

— -- It was the Yelp review that led to Yelp revenge.

After wedding guest Rabih Zahnan stayed the Union Street Guest House in Hudson, N.Y., for a friend’s wedding, he turned to the business-review website Yelp to write about what he thought was an abysmal stay.

“There was a musty order, it smelled bad, we kept the windows open for the entire time we were there,” Zahnan told “Nightline.”

But the Guest House fought back. Zahnan said he received an email from the inn saying there would be a $500 fine to the bride and groom for each negative review posted online by them or their guests.

Yelp Reviews Have Become Make-or-Break For Businesses

NY Inn Claims on Its Website to Fine Brides $500 for Negative Online Reviews

The bride and groom apparently overlooked the fine print in their wedding contract put forth by the guest house, which said, “a $500 fine will be deducted from your deposit for every negative review of USGH placed on any internet site by anyone in your party.”

As this story went viral this week, a collective consumer fury ensued, and the inn’s star rating on Yelp plummeted to a dismal 1.5 out of 5 stars as a barrage of users posted angry, and clearly facetious, reviews about the business. One person even called it “the worst hotel in history.”

Over the last few years, the Yelp review has taken on a life on its own, and has truly become make-or-break for businesses nationwide.

“Sometimes, one bad review can really destroy your business,” said Barry Butterfield, who owns a bed and breakfast around the corner from the Guest House. “You can lose thousands of dollars.”

In fact, over 50 million businesses worldwide occupy a presence on Yelp. A Harvard business school study found that even a one-star rating increase on Yelp translates to a sales increase of 5 to 9 percent.

But bad reviews can actually come back to bite the consumer. Some businesses threaten fines and even lawsuits over bad reviews.

“These lawsuits are a form of bullying,” said Evan Mascagni, the policy director for the Public Participation Project, an organization that raises awareness about strategic lawsuits against public participation. “It’s a tactic to silence your critics.”

James Demetriades 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 the one comment he said went too far.

“In one case we had an individual who made extremely derogatory remarks about the manager, about the restaurant, about the food, about myself individually,” Demetriades said. “We decided to file suit against this person for defamation.”

Court records reveal the case was settled out of court with no money exchanged.

Business owners say that it’s the consumers writing the reviews who have all the power. But Demetriades says it’s Yelp who has the real power. He said he started to notice something strange about the way he said reviews were filtered on Yelp pages for his businesses.

“I began to notice at one of our restaurants a series of reviews, and those reviews were suddenly disappearing,” he said.

Demetriades said Yelp was filtering out legitimate reviews and also prioritizing reviews from Yelp’s elite users.

“Every service business that I know of will have bad reviews. That’s just part of being a business, it’s okay,” he said. “I’m not asking to remove any reviews. All I’m asking for, and I demand, is that people get to see all reviews that are real and legitimate.”

He is 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,” said Vince Sollitto, the vice president of corporate communications for Yelp. “The reason they trust the content is because we take steps to protect them from being misled from reviews that are either been purchased by business or might be bias because they were solicited from a business owner’s friends or families.”

And Yelp regulators say fake online reviews are a real problem. Yelp recently helped New York’s Attorney General with a year-long undercover investigation dubbed “operation clean turf.” The authorities busted 19 companies who were writing phony reviews or commissioning people to write them. The companies were ordered to pay more than $350,000 in penalties.

Some business owners also claim that purchasing ads on Yelp will improve their business’ ranking or circulate more positive reviews. Just this week, a class action lawsuit was filed on behalf of some Yelp shareholders alleging that Yelp was doing just that.

Yelp says they have not been served with that suit but said the allegations were “without merit” and will be vigorous contested.

Sollitto also said that claims that Yelp is skewing results in favor of business owners who purchase ads on their site are “absolutely not” true.

“Businesses purchase advertising on Yelp, but nothing more,” he said. “Our recommendation software is designed to protect consumers and we treat advertisers and non-advertisers equally.”

In the wake of the bad review backlash at the Union Street Guest House, Barry Butterfield said “a firestorm” has erupted and that businesses are more aware than ever that “all the money and power is on the side of Yelp.”

The Union Street Guest House declined to comment to “Nightline,” but earlier this week, the owner posted a statement on the inn’s Facebook page saying, "The policy regarding wedding fines was put on our site as a tongue-in-cheek response to a wedding many years ago. It was meant to be taken down long ago and certainly was never enforced."

But contrary to what some business owners might think, Yelp says negative reviews are the exception, not the rule.

“I think that the biggest misconception about Yelp is that it’s a site where people go to complain or whine, in fact, 80 percent of all the reviews on Yelp or so, are three stars or more,” Sollitto said. “And that’s because most people’s experiences with small businesses are positive. And that’s really what comes through on Yelp.”