The office of New York’s Attorney General announced Monday that it fined businesses over $350,000 for generating phony reviews online, and a new report suggests that up to 20 percent of Yelp Inc (NYSE:YELP) reviews are fake.
Many states do nothing to curtail fraudulent reviews
The news shouldn’t take many by surprise, as most states have done little to curtail the practice of allowing businesses to post fraudulent reviews. On a personal note, I’ve written no less than 100 positive reviews of companies I’ve never visited, often from the privacy of my office in Guatemala under a false name. I’m sure I’m not alone in taking money from businesses to wax positive on Yelp Inc (NYSE:YELP).
19 companies agreed to stop writing fake online reviews
On Monday, Attorney General Eric T. Schneiderman announced that 19 companies agreed to halt their practice of writing fake online reviews and pay sizable penalties for false advertising and deceptive business practices as part of an operation entitled “Operation Clean Turf.”
The 19 companies in question paid freelance writers in Bangladesh, the Philippines, and Eastern Europe to write positive reviews of their businesses.
A one-star rating hike on Yelp can mean up to 9 percent rise in revenue
Schneiderman’s office cited a 2011 study by Michael Luca, assistant professor at Harvard Business School, which said a one-star rating hike on Yelp Inc (NYSE:YELP) can mean a 5 percent to 9 percent rise in restaurant revenue. That is a staggering amount of traffic in cities with highly competitive restaurant scenes like San Francisco and New York.
The number of fraudulent reviews on Yelp Inc (NYSE:YELP) rose from 5 percent in 2006 to 20 percent in 2013, according to a paper written by Luca and Georgios Zervas, an assistant professor of marketing at Boston University. “The problem is definitely more widespread than the Attorney General’s investigation,” Luca says. “That’s just one small piece of the puzzle.”
That statement was made after the two studied 316,415 Yelp Inc (NYSE:YELP) reviews of Boston restaurants, where 16 percent were filtered and identified as fake.
Amazon’s reviews should also be viewed with a grain of salt
This is by no means a problem that is limited to Yelp. Amazon.com, Inc. (NASDAQ:AMZN) reviewers often write glowing product reviews in exchange for products and services. As someone who has 19 Amazon.com, Inc. (NASDAQ:AMZN) accounts and has made numerous $0.01 purchases using a prepaid credit card, please make sure you also take these reviews with a grain of salt, and make sure to take off your rose-tinted glasses.
Somehow, over 78 percent of American consumers polled last year believe online reviews to be accurate—P.T Barnum would certainly get a chuckle from that.