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How will they know if these are in fact the business owners writing in with changes?
There needs to be some level of human review before changes are accepted, IMHO.
Money could also be a barrier/defense. People may not think twice about vandalizing a free listing, but if it costs something to change a listing, they won't be so eager to do it. Keeping the cost reasonable to SMEs is important.
Additionally, if you make someone agree to a TOS that says "I'm authorized to act on behalf of this business", then take their credit card number down, if they aren't authorized to act on behalf of that business there's a legal case for fraud.
is there room for cost-effective innovation?
Oh yes, there certainly is. If you think about it, the majors might even be at a disadvantage compared to a new player. They have a negative stigma already attached to them - "it's hard to find local stuff on Google/Yahoo/whatever". The articles coming out about LS are very telling.
Also, the majors have to redesign their systems to accomodate local data, whereas a new player may be able to tailor their systems for the local niche from the ground up.
It's always a bit stunning to realize that more than a few successful business people can't understand how to fill out a form effectively.
That means the info needs to be verified, or reviewed, in some manner before it goes live to assure the maximum accuracy and benefit to all concerned.
(It might be worth noting here that the lowest initial cost isn't always the most effective in the long term.)