“We No Longer Blindly Trust Yelp”

The internet darlings of Wall Street have been put on notice as tech-savvy consumers are beginning their shift towards a more transparent customer review experience for everything from home services to restaurants to personal services.

Last month Yelp, Inc. and Angie’s List Inc. both forecast weaker-than-expected revenue growth due to slowing growth among their paying members (businesses). These companies have built large sales organizations and continue to spend millions each month on advertising so the lackluster revenue growth will impact the bottom line.

All indications are that social media is to credit for these review sites losing their shiny appeal to businesses. Consumers are increasingly opting for online reviews and word-of-mouth recommendations from their trusted friends on social networks, as opposed to the anonymous reviews written on sites such as Yelp and Angie’s List.

“The simultaneous growth of social media and online review sites has caused a shift among consumers — we’re no longer apt to believe everything at first glance and [instead] demand validation,” said Valerie Davis, vice president of search media at PM Digital. “We no longer blindly trust Yelp reviews.”

A recent study from Lithium Technologies found that more than two-thirds of consumers in Western markets were more receptive to recommendations about what to buy from family and friends online over digital ads.

This is turning into a particularly strong case study for Facebook as the company continues to evolve its Social Graph platform, a search engine-style tool already embedded into the Facebook user experience. As more businesses receive Facebook reviews from customers, the search experience will be personalized for the consumer.

Imagine searching for “Indian restaurant” and a list of nearby Indian food restaurants is displayed in the order of how well the restaurants have been reviewed by your friends. One more click and you can read what your friends had to say about their dining experience. This is a truly transparent word-of-mouth recommendation from a trusting source.

The shifting marketplace is taking its toll on the likes of Angie’s List whose stock price is down 56% this year. Will Yelp and Angie’s List be the next Groupon . . . a great idea at first, but ultimately a losing proposition for small businesses struggling to justify the economics for their business?

As both small business owners and consumers, we can only hope.