I don’t want to imply that their personal ties have somehow overridden the lack of viable business model in securing the venture funding – I am sure that the business model was sound enough to convince the investors. However, looking at the allegations thrust upon them, it looks like Yelp’s business model may not be too sound after all.

Given the current state of the economy, venture capitalists are becoming more discriminating with their funding. We’ll see whether Yelp will improve their strategy for generating revenues or falter and see the funding evaporate.

They figured that using a scare tactic like that would force more small businesses to advertise with them and it worked for a bit. Until, the small business owners realized it was not worth it.

To their defense however, we did not know as much about community based business models when they launched as we do now. You should read my previous post about monetizing communities – I’d love to hear your thoughts about that.

I am sure they went to seek funding with a sound business model in place – but they have been around for a while and have obviously been paying attention to where communities, social media and social netowrks are going in general. Changing reviews – was not an efficient strategy. An efficient strategy would have been to figure out how to adapt their business model.

I’m not saying I have the answer but from my perspective, it looks like this turn of events was unnecessary and they could have easily avoided it by changing their strategy.

Yelp had a business model in place well before the site was created. They were able to secure venture funding and angel investors appropriately. Whether they were able to fulfill on their model is questionable.

But the fact that they are allegedly changing reviews is a different story, one that has nothing to do with the profitability of social networks and social media.