A cry for Yelp or crocodile tears

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Online review platform Yelp filed a private antitrust suit against Google last month, accusing the tech company of monopolizing the "local search services market" in violation of Section 2 of the Sherman Act. This petition follows Judge Mehta's ruling in the Department of Justice (DOJ) antitrust case against Google's search business. Yelp's general counsel told CNBC that the company sees the recent search decision "as a great foundation for [its] own claims against Google."

The petition is essentially about self-preferencing, which is very different from the default contracts at issue in the DOJ's search case. The DOJ is also litigating a separate antitrust case against Google for its advertising technology.

Yelp claims that Google engages in anticompetitive conduct by using "its dominant position in the market for general search services to give itself an advantage in various adjacent markets, including the markets for local search services and for local search advertising." In turn, Google is able to steer its customers to its own local search. Yelp asserts that its local search is superior to Google's. In fact, the petition calls Google's product "inferior" 21 times.

While Yelp's stock price is less than half of what it was ten years ago, its annual revenue has more than tripled over the same period. Still, some ponder whether the review platform remains relevant. In terms of unique monthly visitors, Yelp has failed to restore usership to pre-pandemic levels. Even before the pandemic, many speculated on the cause of Yelp's decline, with some pointing to a stagnant business model and increased competition from Google and Facebook. One likely explanation is that Yelp struggled to diversify their offerings beyond business reviews.

Yelp's petition points to a 2019 consumer survey finding that 77 percent of consumers use Google Maps to search for local businesses. Thirty-five percent of consumers used Yelp. While the study is dated and means very little in showing that Google has monopoly power, it says a lot more about the success of Google Maps. And Yelp's petition gives little credit to Google Maps's success as a navigational tool.

In many ways, Google Maps is a pertinent counterexample to the purported anticompetitive nature of self-preferencing. Although Apple's iPhone continues to be Americans' preferred smartphone, which comes preloaded with Apple Maps, users still prefer Google Maps. It has more than three times the monthly average users as Apple Maps and continues to be one of the most downloaded applications on iOS. In March 2024, four of the top ten most downloaded apps on iOS were Google products: Google Maps (9 million downloads); YouTube (8 million downloads); Google (8 million downloads); and Gmail (7 million downloads).

The 2019 survey also asked consumers what they were most likely to do after looking up a business near them. Most respondents (56 percent) said they visit the business in person, so it makes sense that consumers use Google Maps to both search for local businesses and navigate how to get there. Erik Hovenkamp, economist and professor at Cornell Law School, points to convenience as the reason that Google integrates reviews into its search products. "Lots of innovation involves combining complementary technologies. This will always make life harder for businesses who sell only one of them," Hovenkamp said.

Despite having an early lead on local reviews, Yelp missed out on opportunities to scale and innovate, according to Mike Blumenthal, consultant and researcher on reputation, reviews, and local search. Blumenthal wrote back in 2021,

Early on, Yelp missed the opportunity to scale their users. This lack of scale has held back their advertising system. Their ad business has rarely provided solid ROI for the businesses that used it. With their visitor traffic now dropping, huge success in their ad business is unlikely. It would appear that ship has sailed.

They have also missed numerous opportunities in the local transactional space. It was clear as early as 2010 that transactions were a huge opportunity and still will be. Yelp could have leveraged their traffic and moved into reservations, appointments, communications or even (God forbid) CX and reputation management. They did try their hand at food delivery but were unsuccessful. The lost opportunities have been many.

In 2015, Yelp acquired the online food ordering service company, Eat24, for $134 million. After all, the most reviewed category of businesses on Yelp is restaurants, accounting for 49 percent of all reviews on the site. But it ultimately sold the company to GrubHub two years later for $287 million and formed a partnership with the food delivery platform. However, GrubHub has struggled in recent years, falling behind competitors like Uber Eats and DoorDash.

Private antitrust suits have long been viewed with a certain level of skepticism. Dr. William F. Shughart II, professor at Utah State University's school of business, wrote back in 1990 that "There is reason to suspect that most private antitrust litigation is driven by extortion motives." Private antitrust plaintiffs can sue competitors to either create more favorable contract terms or extort monetary settlements from defendants. Yelp's antitrust suit against Google is seeking both injunctive relief and treble damages.

As Dr. Shughart explains, "The decision to 'invest' in antitrust as a method of competition is no different from any other capital-budgeting problem the firm confronts." Companies can choose to innovate or litigate, but it seems as though several are opting for the latter. Video game developer Epic Games has taken a similar approach, having litigated private antitrust suits against both Apple and Google for how they operate their respective app stores. Epic is valued at over $30 billion, more than three times the value of gaming company Valve. In addition to owning an assortment of gaming IPs, Valve operates a gaming platform (Steam) and sells its own mobile hardware. Epic could partner or invest to create its own open ecosystem for gaming, but it would rather litigate than innovate.

Private antitrust suits have the potential to subvert competition rather than promote it, and consumers are most at risk when companies use competition law as a form of rent-seeking. Yelp's suit alleges that its own product is superior to Google's local search. But this is a question for the market, not the court room. Fortunately, Yelp is unlikely to prevail. However, this isn't the first nearsighted private antitrust suit, and it won't be the last.