New York Attorney General Eric Schneiderman today announced that 19 New York companies had agreed to cease their practice of writing fake online reviews for businesses and to pay more than $350,000 in penalties.  As part of an undercover investigation, representatives from the Attorney General’s office pretended to be the owner of a yogurt shop in Brooklyn and solicited several New York SEO companies for help in addressing negative reviews on consumer-review websites like Yelp, Google Places and Citysearch.com, as part of their reputation management services.

The Attorney General’s office noted that several reputation management companies used IP spoofing to post fake online reviews and some sought to buy online reviews from freelancers located outside the U.S. who would write and post positive online reviews in an effort to evade filters and algorithms designed to prevent fake reviews.

Over the past couple of years there has been increasing focus on the importance of online reviews. A Harvard Business School study from 2011 estimated that a one-star rating increase on Yelp translated to an increase of 5% to 9% in revenues for a restaurant. Cornell researchers have found that a one-star swing in a hotel’s online ratings at sites like Travelocity and TripAdvisor is tied to an 11% sway in room rates, on average.  Gartner projects that by 2014, between 10% and 15% of social media reviews will be fake.

Kudos to AG Schneiderman for trying to clean up the mess!

While the Attorney General’s intentions are laudable and fake positive reviews are inherently misleading, the actions announced today fail to address a more serious issue that is affecting small and midsize companies around the country. Consumer review and complaint sites have an outsize influence on American business that is ultimately harmful. The Communications Decency Act (CDA) of 1996 provides broad immunity to websites that host user-generated content and make it extraordinarily difficult and prohibitively expensive for businesses to force the removal of fake reviews or pursue a claim of online defamation.

While free speech advocates celebrate, consumers and companies end up casualties in a world where you can say most anything you want and there are no consequences. I wonder whether AG Schneiderman is aiming his bow at the wrong target?

Consumer review sites like Yelp are not public interest agencies or consumer advocacy organizations, but for profit businesses. They are driven by advertising revenue, not altruism. Paid Yelp advertisers are promoted over others in Yelp’s own search results and local companies with 1* and 2* reviews are prime targets for Yelp’s notoriously aggressive sales tactics. After all, what business needs Yelp advertising if you already have a 5* rating?

Yelp and other business review sites employ a variety of search engine optimization tactics that are specifically intended to “manipulate” Google into giving these sites page one ranking over their competitors. I’m not complaining, SEO is my livelihood, too — I’m just not sure online review sites need the “long arm” of the New York Attorney General’s Office. It is Yelp’s search engine optimized web traffic that supports their current market cap of $4.29 billion. I think they’re going to be just fine.

Over the past three years, I have worked with dozens of clients who have experienced the painful and expensive reality of negative reviews posted by disgruntled former employees, jilted ex-lovers, jealous competitors or certifiable mental patients.  They have lost hundreds and thousands of dollars in business because of negative reviews and they have no way to fight back. Since most online reviews are posted anonymously, it is often difficult for a business to even address the issues the individual is complaining about in the first place! While the individual posting the review is able to hide under a cloak of anonymity, the negative review shines brightly forever — even after a change of management or business practices. Something ain’t right and it’s not just the astroturf.