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Who are you gonna believe?: Yelp founders Russel Simmons, left, and Jeremy Stoppelman, with Darwin | photograph by Dan Escobar

The Perils and Promise of the Reputation Economy

It's not easy doing business in the reputation economy.

Beware of dogs. That's the threat (to business owners) and the promise (to consumers) as reviews and ratings proliferate online, spreading from sites like Amazon and eBay to Target and Office Depot. There's even a generation of opinion-based startups, such as Yelp for local businesses, TripAdvisor for travel, and Urbanspoon for restaurants.

As the volume of online commentary grows, so do the challenges for sites that provide the soapboxes. In September, bloggers cried foul when more than 1,000 one-star reviews of the new video game Spore vanished from Amazon. (It blamed a site glitch.) And last spring, eBay took away sellers' ability to give negative feedback on buyers, finding that some were vengefully ruining critical buyers' ratings.

For sites that traffic solely in opinion, the onus to cut down on carping and chicanery is especially strong. Many online communities act like real-life small towns, rife with gossip, cliquishness, and even the occasional lawsuit. The ways the site owners try to play referee could be instructive for everyone else as reviews become ubiquitous. The big question is, whom do you trust?

Yelp is a perfect example of the stakes in the reputation trade. Founded in 2004 with coverage of San Francisco, the site is now active nationwide, with 4 million reviews of everything from corner cafés to dog groomers. While it's not yet profitable, Yelp's pledge — "Real People. Real Reviews" — makes for an attractive business model. The company has raised $31 million and was recently ranked by TechCrunch as one of the VC-fueled startups most likely to weather an economic downturn.

Yet Yelp has also become a target of criticism. This past summer, a clutch of members of a Silicon Valley women's networking group were banned from the site. Yelp CEO Jeremy Stoppelman says the networkers had a "you review me, I review you" arrangement, which violates Yelp's terms. Adryenn Ashley, one of the deleted, denies it. She promptly registered the site Yelp-sucks.com and recruited some 200 business owners for a potential class-action lawsuit, alleging their incomes were hurt and freedom of speech infringed. "It's personal," she says of Yelp's actions. "I have heard this from a mutual friend: Jeremy got a bee up his butt, and he is going to take on people who he thinks are gaming the system." (Stoppelman's response: "The reaction was, This is so unfair, yada yada yada.")

Georgetown law professor Rebecca Tushnet says a lawsuit like Ashley's would be "an extremely hard case to win," in part because the landmark Communications Decency Act of 1996 grants immunity to site operators whether or not they police content. (The only exception generally is for intellectual-property violations.) And in fact, this dispute seems personal on both sides. Online buzz happens to be Ashley's bread and butter: She's a self-styled publicity and marketing expert who publishes an online mag titled Shameless (as in, self-promotion). There's a hint of wounded pride in her voice as she asks, "I'm a media expert! Didn't they Google me before they deleted me?"

Ashley's response goes to the heart of why people do useful stuff online for free. The term "reputation economy" arose to explain that when you edit a Wikipedia entry or upload a clip to YouTube, you boost your personal reputation. But the phrase evolves in meaning when opinions themselves are the contributions. Businesses spend millions to cultivate their reputations; now consumer evaluations can make or break them instantly. "The conventional wisdom is that a satisfied customer will tell one person and an unhappy person will tell 10," says Clay Shirky, author of Here Comes Everybody and an expert on the reputation economy. "That's now been upped by orders of magnitude."

Sites vary in how they cajole people to visit, stay, and post reliable reviews. The travel site TripAdvisor, one of the largest opinion communities, doesn't police much. "Hoteliers don't like it when the one oddball writes a scathing review," says founder Steve Kaufer. "I tell them it's mathematically impossible for any one review to affect the rating when there are 350 reviews on that property." On the other side of the bell desk, less than 1,000 of TripAdvisor's 250,000 listings carry a red badge that says they're suspected of gaming the system. Kaufer calls it a "pretty good deterrent" — more effective, because it's more public, than delisting a property.

But Ethan Lowry, cofounder of restaurant-ratings startup Urbanspoon, says in his experience "haters" and "shills" write most user reviews. So Urbanspoon bundles consumer votes with content indexed from professional critics and food bloggers. The latter are clearly Lowry's favorites: "They've given up their anonymity and opened themselves up on some level to criticism that keeps them honest."

While Urbanspoon draws on an existing blog community, Yelp exploits the "power law distribution" of the Web 2.0 world: 10% of the users on a site typically create 90% of the content. Yelp rewards active Yelpers; they can use the site as a more local, targeted Facebook, creating profiles and getting online kudos for writing a "useful," "funny," or "cool" takedown of, say, their dentist. Some get asked to join the Yelp Elite Squad, earning them a mark of status on their posts and invites to company-sponsored outings.

To outsiders, Yelp's gatekeeping can seem a little, well, elitist. For example, Stoppelman won't disclose who gets asked to join the Yelp Elite or why. "Top secret," he says. The site's bots are also rigged to demote reviews by those who write only one or two; the theory is that they're more likely to be fakers. "From a reader perspective, the less you contribute, the less valuable you frankly are to the community," Stoppelman says. "The more we know about you, the more we can trust you."

Well, what if the more I know about Yelp, the less I like it? In the end, a site that's trying to profit from the reputation economy needs to find a way to welcome all comers, repel the weirdos, and cultivate potential regulars — just as in any offline business. Y'all come back now, ya hear?

Who are you gonna believe?: Yelp founders Russel Simmons, left, and Jeremy Stoppelman, with Darwin | photograph by Dan Escobar

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11 Comments

  • chris clark

    Great article- This illustrates some fundamental issues for peer-to-peer sites which are here to stay. I co-founded The Senior List (www.theseniorlist.com) a consumer driven site focused on matching consumers and senior services. Our site also has a "review & rate" function.

    If we see a particularly bad review we do a couple of things; 1. verify the person is for real, 2. Verify that their complaint wasn't written in the heat of the moment, and 3. Will try to moderate where we can. We are in the process of adding a "business owner response" mechanism that I think will be very helpful as well.

    Just my 2 cents... Chris

  • chris clark

    Great article- This illustrates some fundamental issues for peer-to-peer sites which are here to stay. I co-founded The Senior List (www.theseniorlist.com) a consumer driven site focused on matching consumers and senior services. Our site also has a "review & rate" function.

    If we see a particularly bad review we do a couple of things; 1. verify the person is for real, 2. Verify that their complaint wasn't written in the heat of the moment, and 3. Will try to moderate where we can. We are in the process of adding a "business owner response" mechanism that I think will be very helpful as well.

    Just my 2 cents... Chris

  • chris clark

    Great article- This illustrates some fundamental issues for peer-to-peer sites which are here to stay. I co-founded The Senior List (www.theseniorlist.com) a consumer driven site focused on matching consumers and senior services. Our site also has a "review & rate" function.

    If we see a particularly bad review we do a couple of things; 1. verify the person is for real, 2. Verify that their complaint wasn't written in the heat of the moment, and 3. Will try to moderate where we can. We are in the process of adding a "business owner response" mechanism that I think will be very helpful as well.

    Just my 2 cents... Chris

  • Alessandro Magnino

    I've really liked this article.
    "Reputation economy" is supposed to grow very fast: take a look at the impressive results of this recent survey by Universal McCann: http://www.universalmccann.com...
    I'm personally involved in an Italian project based on the "reputation economy" called http://www.gliaffidabili.it (meaning in English "The Reliables") and we're facing similar challenges as the ones highlighted in the article.

  • Mat Kennedy

    Ratings and reviews will continue to grow in importance. I reference your story in a recent post on my blog:

    http://www.pay4rides.com/2008/...

    Our business and personal reputations will greatly influence the trust of any new business partners.

  • Anya Kamenetz

    Professor Tushnet did understand the details of the potential suit. As I wrote, "the landmark Communications Decency Act of 1996 grants immunity to site operators whether or not they police content." That means Yelp would likely be immune to charges that they damaged anyone's business by taking down reviews.

  • bsharwood

    Our stats show that on a 0-10 score for the home builders and contractors on our site, 20% are below 5, and the remainder above, with most of that being 10s. Quite likely because the companies themselves are sending their clients to the HomeStars site and asking for the reviews. We think 20% is a good number, but its a good internal debate.

  • Bhupesh Shah

    Part of the risk of being "out there" is a greater number of people can evaluate what you bring to the table. I have found that over time, the ones that are habitually negative and offer little value get filtered out of the soc nets. If the sites build customer relationships, they will have the support to counter those that are full of "hatorade".

  • bsharwood

    This is a great article about the power and perils of review sites. Our company faces similar challenges as many of the companies listed above being the largest free home reno review site out there. Home improvement specialists, not being the most online savvy group, have a hard time understanding the power of the social network, yet take great pride in their work. A single bad review not only hurts their reputation, but is often a personal affront to their skills and talent individually. A challenging place for a review directory.

  • Adryenn Ashley

    Georgetown law professor Rebecca Tushnet did not read the lawsuit and assumed that the suit would be for user generated content. Oops! A little research would have shown that the suit has merit and is specific to the actions of Yelp.

  • Adryenn Ashley

    I had a few 5 star reviews, all stating verifiable results of what I had done for their business. I earned the reviews. Yelp's reason for deleting those who weren't review trading...? Conflict of interest! That we might not be able to downgrade a good review because we are in a networking group together. I see the reasoning and after much discussion with Jeremy agree with the logic. But to delete us without warning, call us spammers, claim we were review trading when clearly I