I dropped by a Yelp party last night and gained some insight into how a user-generated content site focused on local markets can succeed; namely, through extortion and bribery:

1) Extortion - Convincing local restaurants, bars and service providers to advertise has been the primary challenge local advice sites such as Sidewalk, CitySearch, Judy's Book, TurnHere and many others have faced. But, Yelp seems to have a plan. It's built up a powerful enough base of users in some markets that when a local establishment is bashed, the owners are compelled to respond. This was the case when Circa, a new restaurant in San Francisco, received a number of poor reviews from Yelp users. Here's an example:

The service SUCKED. It's obvious that the owner/s have gone with eye candy rather than a competent service team. While I do appreciate a nice pair of tatas in my face - when I'm dropping some serious coin on a meal give me a friggin lumberjack who can talk wine, understands how to handle four tables on a slow night, and whom I don't have to help open the bottle of wine.
Five stars for the food - minus two stars for each boob that kept me waiting on the deliciousness from the kitchen.

See below for six of the tatas in question. But, that's not the point. The point is that Circa responded aggressively to the criticism by directly contacting dissatisfied Yelp users and offering them free dinners and then sponsored a Yelp party. If other online local information providers could gain that much clout in the market, ad dollars would follow.

2) Bribery - Yelp has realized that a small proportion of users account for much of the activity. So, it rewards them the best way it can; with free booze. Its most active users can apply to be members of the Yelp Elite. If accepted these active reviewers are invited to special events such as the one that was held last night at Circa. It's not the primary reason people contribute their reviews to the site, but it certainly keeps them coming back and spreading the word about the company to their friends. Other social networks and user-generated content sites should take note.

Taken by Maximum Mitch

Tags: local, yelp, circa, vc, venture+capital.