TechCrunch has a much-commented post today about business owners railing against Yelp for negative reviews, and the notion that this is proof of Yelp’s success.

Maybe so, but it remains a problem if the negative reviews are written by spiteful competitors, or conversely if positive reviews are written by shills.

Loladex ensures review reliability, because the audience for any review consists primarily of the reviewer’s social network friends. Why would I bother to write a disingenuous review on Loladex, knowing that my friends would read it? I’d lose credibility.

Yelp and other review sites give the reviewer the option to remain relatively anonymous, or at least pseudonymous. On Loladex, the whole point is to see your friends’ reviews. And friends don’t let friends write fake reviews.

(Alas, I had skipped over an earlier post on this topic from Peter Krasilovsky, so this was mostly news to me.)

The short version: Geosign operated a bunch of domains that existed solely to serve ads.  Some of these sites included ’real’ content as a cynical fig leaf.

Googlers know how it goes: You search for ‘XYZ’ and click on an ad (or a result) that looks promising, only to land on a site full of more XYZ-related ads — some of which lead to yet more ad sites, the AdSense version of an infinite loop. 

Since advertisers pay by the click, this provides easy money for companies that are willing to waste your time.  ‘Arbitrage’ is the common — rather charitable — name for the method.

Google ultimately cut off Geosign, presumably because it was hurting the value of Google’s ads, and the company fell apart.

As a strategy, arbitrage isn’t so dissimilar from search-engine marketing (SEM), or even from search-engine optimization (SEO); it’s all a matter of degree.  And when your content is advertising, as it is for Yellow Pages sites, the line gets even blurrier.

So what separates Geosign from the rest of the local universe, which also depends heavily on search-engine traffic?  Witness this chart from Hitwise, recently highlighted by Mike Boland at Kelsey:

It’s arguable that Geosign is just the chart’s reductio ad absurdum.  Obviously we can make distinctions, but I’d be worried if I were above, say, 35% on this chart and I weren’t Google or Yahoo.

OK, it’s definitely impressive that Local.com gets more of its traffic from search engines than does either Yahoo Local or Google Maps.  Probably the same is true of Marchex, which operates domains like 20176.com.

But if Google and Yahoo want to move their own bars to the right, they can easily do so.  It’ll come from the hide of Local.com, Marchex and similar companies.

And one big lesson of Geosign, scary and refreshing both, is that Google is willing to nuke a 9-digit business overnight.