Have you ever written a fake review on Yelp, Amazon or the App store to help promote a friend’s restaurant, new product or app? Did you think that it was’nt a big deal and that your comment wouldn’t hurt anybody? If so, now is the time to reflect and change your habits.

What is at stake:

There are two reasons explaining why fake reviews are dangerous for online businesses, whose models rely on trustworthy assessments of products and/or services:

1. Fake reviews kill transparency: by providing fake comments, one essentially removes any element of honesty and trust, which is at the cornerstone of ecommerce businesses. Take Amazon for instance. A fake product review creates friction in the supposedly seamless transaction process by providing false pieces of information. Amazon ends up with unaware customers, who might just end up purchasing subpar products.

 2. Fake reviews limit network effects: Amazon’s value proposition is offering an independent and neutral third party platform to sellers and buyers willing to do business with one another. If that platform becomes crooked and biased, and if sellers can effectively push their products with paid reviews, one can easily imagine online shoppers leaving the platform for better sources of information. Fewer shoppers, fewer sellers, fewer transactions, and in the end, a weakened market place platform with no network effects.

The Amazon police:

In an effort to cut down the risks associated with such threats, major online businesses that rely on ratings and reviews to operate have pulled out the big guns. Amazon is the best example:

Since April 2015, Amazon has launched a very aggressive campaign against fake review providers. It started by filing suit against the operators of buyazonreviews.com, buyamazonreviews.com, bayreviews.net and buyreviewsnow.com. Before these sites were taken down, they allowed any interested Amazon seller to buy fake 4-5 star customer reviews in order to boost sales. As for the sellers who commissioned fake reviews, Amazon banned them as well.

Yesterday marked the second step in Amazon’s crackdown of fake reviews and in its fight against those who create a poor ecosystem. This time, Amazon went directly at those using Fiverr.com to buy and sell Amazon reviews. In a nutshell, Fiverr is an online marketplace that allows users to offer small tasks and services for USD 5. Services include writing, editing, or programming, among others. With the help of Fiverr, Amazon spotted over 1,100 fraudulent individuals and sued them all with the hope that this will send a strong signal to those who try to play around its terms of service.

What more can be done:

With that said, small businesses do not have Amazon’s strike force and it is often too expensive and inconvenient for them to file suits. How can these smaller players combat fake reviews? I see a few ways smaller players can fight fraud from flourishing:

  • Make the review writing process more demanding by asking a series of personal questions that can help identify writers. This can help remove robots from writing the reviews.
  • On one hand, manually filter reviews and remove fake looking ones. This is time consuming and not perfect though. On the other hand, create algorithms that detect fake reviews.
  • Identify dishonest sellers, writers and tag them publicly as such on their profile. Run a zero tolerance policy for everyone to see. Yelp, through its consumer alerts program, along with TripAdvisor among others, are using this technique for instance.

Sources:

http://techcrunch.com/2015/10/16/amazon-files-suit-against-individuals-offering-fake-product-reviews-on-fiverr-com/

http://www.reuters.com/article/2015/04/10/us-amazon-com-lawsuit-fake-reviews-idUSKBN0N02LP20150410

http://www.geekwire.com/2015/operator-of-buyamazonreviews-com-responds-to-amazon-suit-insists-hes-doing-nothing-wrong/

http://www.businessinsider.com/yelp-fake-reviews-2012-11

By: Edouard Delvaux


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Online reviews are a great tool to facilitate our decision making and have massively gained in popularity over the last years. Getting feedback about the cleanness of a hotel room, the quality of service in a restaurant or user experiences with a new laptop has never been so easy. Reviews reduce our search cost, convey information that we would otherwise not get or highlight issues, we did not think about reading the glorified manufacturer’s product description. I recently bought a mixer online and based my decision on product reviews on Amazon, videos on youtube and online comparison sites. In class we discussed, how reviews are the most powerful way to create trust and reduce risk for SaferTaxi and airbnb. Many positive comments on a taxi driver or potential tenant indicate that this person might be trustworthy. Yelp and other review sites have built massive businesses around providing these services.

However, businesses have also understood how valuable or damaging reviews can be to their success and started to actively game the system. Here are three reasons why you should be extremely careful using online reviews.

Up to 30% of all online reviews are fake! (Weise, 2011) Research has shown that for a broad variety of products, a large share of reviews are not posted by genuine users, who have actually used the product or service and want to share their honest feedback. For example some company employees and paid “freelancers” write about amazing experiences with the intent of misleading potential customers. Because of the scale of this issue, the US Federal Trade Commission has passed a guideline that requires online reviewers to disclose any affiliation with the respective manufacturer or service provider. Along these lines the UK government has ruled that TripAdvisor is no longer allowed to advertise “honest, real or trusted” reviews from “real travelers”, because the company cannot guarantee that the posts are not fraudulent (Mayzlin, Dover, & Chevalier, 2012). However, these guidelines are hard to enforce. Companies like Microsoft, Google, Yelp and TripAdvisor are very concerned about deceptive reviews and have sponsored research on computer algorithms to detect and remove such posts.

Reviews are systematically skewed! Why does Yelp actively discourage businesses from asking for reviews? They do it because there is a strong selection bias (Yelp, 2010). Companies have an incentive to only ask satisfied customers for feedback and sometimes even give away merchandise for 5-star ratings. This generally inflates reviews and skews the picture (Streitfeld, 2012). Small hotels are particularly active in review fraud. Research shows that they are 10% more likely to have top ratings on TripAdvisor –open to every user- than on Expedia, where the reviewer had to actually book and pay for a stay before writing a review. It also points out that large hotels are systematically more likely to receive some very bad feedback if they are located near a small independent hotel. The authors attribute this to active discretization and show that the effect is stronger on more liberal review sites like Tripadvisor (Mayzlin, Dover, & Chevalier, 2012).

We are bad at detecting fraudulent reviews! Although we think we can spot the deceptive reviews, the chances of getting it right and not being fooled are very low. Even if we know that one of two postings is fake, on average we only get it right 60% of the time, which is hardly much better than flipping a coin (Ott, Choi, Cardie, & Hancock, 2012). Automated algorithms perform with up to 90% accuracy. For your next hotel stay, try out www.reviewskeptic.com. This tool helps you identify fraudulent reviews based on research at Cornell University.

Reviews are still a great way of making better purchase decisions with limited time and exposure to the actual product or service. However, we should not blindly trust them and know about the pitfalls. As a general rule of thumb,

(1) reviews from sites that require proof of past usage,

(2) posts from users, who have written about multiple brands over a longer time and

(3) testimonials without extreme notions (e.g. excessive use of superlatives or opinions diverging vastly from others) without certain keywords (e.g. husband)

are more likely to be legitimate ones. For more detailed tips I recommend the Cornell research.

Bibliography

Mayzlin, D., Dover, Y., & Chevalier, J. (13. August 2012). Promotional Reviews: An Empirical Investigation of Online Review Manipulation. Retreived from: Social Science Research Network: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2128860

Ott, M., Choi, Y., Cardie, C., & Hancock, J. (2012). Finding Deceptive Opinion Spamby Any Stretch of the Imagination. Ithaca, NY: Cornell University.

Streitfeld, D. (26. January 2012). For $2 a Star, an Online Retailer Gets 5-Star Product Reviews. Retrieved from: The New York Times: http://www.nytimes.com/2012/01/27/technology/for-2-a-star-a-retailer-gets-5-star-reviews.html?_r=2&hp&

Weise, K. (29. September 2011). A Lie Detector Test for Online Reviewers. Retrieved from: BloombergBusinessweek: http://www.businessweek.com/magazine/a-lie-detector-test-for-online-reviewers-09292011.html

Yelp. (13. August 2010). Yelp WEB LOG. Retreived from: Don’t ask for reviews:

http://officialblog.yelp.com/2010/08/dont-ask-for-reviews.html

 


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The crowdfunding platform, Kickstarter, has come under fire recently for not adequately guarding financial backers against fraud.

According to Polygon, “In late April, Kickstarter’s most public video game scam, Mythic: The Story of Gods and Men, was cancelled by its developer after Internet vigilantes pointed out it seemed to be mostly smoke and mirrors.”[1]

Joe Brown, a Gizmodo writer ranted last March, “It’s a sea of bad videos, bad renderings, and poorly made prototypes. Some might be good. Many are poorly made. And some are downright fraudulent, taking peoples’ money without delivering the promised rewards.”[2]

As a two-time project backer myself, I have not received my promised rewards 50% of the time. This raises two questions for me: should Kickstarter be held accountable and what can they do to curb this potentially increasing issue?

On the first, it is useful to look at the Kickstarter model of crowdfunding and the legal implications that it carries. Kickstarter’s financial backers pledge an average donation size of $71 to creative projects in exchange for rewards, or in some cases, pre-purchased items that the organization/individual is making. [3] Only if the project’s funding goals are met within a limited time frame, are backers charged and projects funded.

Steve Bradford, a professor at University of Nebraska-Lincoln College of Law, who specializes in crowdfunding and securities law, says the Kickstarter crowdfunding model is just one of many. In an article in the Columbia Business Law Review, he identifies five different types:

  1. The pure donation model: donors get nothing in return for their contribution.
  2. The pre-purchase model: people receive the product the company is making in return for their contribution.
  3. The rewards model: people who contribute receive non-financial rewards. 
  4. The lending model: people are promised their money back with interest.
  5. The equity model: people are promised a share of the profits or returns of the business.” [4]

Kickstarter employs both the pre-purchase and rewards models, which depend upon the project creator and the way in which s/he structures the rewards offered. For example, a backer may pledge $20 in exchange for a postcard in the mail, whereas another backer may pledge $20 to another project in exchange for a copy of the CD that the money is going to support. The former scenario is a reward and the latter is a pre-purchase.

According to Bradford, the Kickstarter model means that pledging users “are not legally owed a final product in return… Backers have not entered into an investment contract by donating toward a project, and because contributors are offered no financial return of any kind the legal implications of an investment contract are non-existent.” This is in contrast to the lending and equity models, which involve the sale of securities, triggering the registration requirements of the Securities Act of 1933. [5] However, the SEC is supposed to establish final rules, including any special exemptions for crowdfunding, in Title III of the JOBS Act by the end of this year.

So, if Kickstarter’s model means project creators cannot be held responsible for fraud, what about Kickstarter? According to the company, it is just a platform for transactions, and thus, not liable for the fraudulent behavior of project creators. The Terms of Use state that the company isn’t liable for damage or loss relating to “rewards or any other use of the Service.” [6] However, Bradford says the platform itself could potentially be liable if Kickstarter was aware of fraud taking place on the site. [7] Despite this, the company’s rules clearly state, “Kickstarter is under no obligation to become involved in disputes between any users, or between users and any third party.”

Instead, Kickstarter encourages backers to follow up with project creators themselves. In addition, the company believes its community development team, which makes up roughly half of the company’s total employees, is a strong filter for unqualified or fraudulent projects. It also employs some basic disciplinary measures, such as, removing a project from the platform if it appears to be unsound and suspending a creator from Kickstarter if they fail to fulfill their promises. To carry out these measures, Kickstarter relies heavily upon the online community to flag errant behavior.

As for project creators, they are not obligated to issue refunds based upon backer request once a project has been funded.

According to Polygon, “Kickstarter advisor and board member Sunny Bates doesn’t deny the risks of pledging but argues the price of individual Kickstarter pledges is so low that even if fraud did rear its head it wouldn’t be worth the legal action from a backer.” [8]

However, since the potential aggregated pledges are much larger than each individual pledge, the project creator clearly has a much greater incentive to try and defraud the system than the backer has to perpetrate the fraudster. This imbalance means that we may be seeing just the beginning of crowdfunding fraud, which implies dismissal of the issue is irresponsible.

Instead, it would be reasonable to consider how precautions and/or incentives may be added, increased, or adjusted to combat the rise of fraud. The reputational risk to Kickstarter from disillusioned project backers could be significant, and warrants a best effort on Kickstarter’s part to curb fraudulent behavior on their platform, even if they are not legally accountable for it.

It seems to me there are two primary risks: incomplete projects and unfulfilled rewards. I have provided a non-exhaustive list of examples below of some ideas on how to help combat these issues.

  • Curated pages: Kickstarter has already launched curated pages on its site in collaboration with many well-known arts/creative organizations. Organizations connected to artists/projects can link them to their curated page, thus providing reassurance to backers through affiliation with an established brand. This initiative could be expanded through a push by Kickstarter to enlist more organizations, and may even be extended to include vetting of artists by the organizations, or underwriting of their campaigns.
  • Repeat uses: Kickstarter already leverages project creators’ interests in repeat use of the platform to curb fraud by threatening suspension. However, it would be quite simple for creators to just set up a new account. Another option might be to have staged financing options, so that new users would have a cap on the potential capital raised in their first campaign, with the cap increasing for each new campaign that they conducted. However, this would likely be unpopular with project creators and less profitable for Kickstarter.
  • Partially Retained Donations: Alternative to the suggestion above, Kickstarter could retain a percentage of pledges until rewards have been sent. However, this may require a great deal of verification costs that would render it unreasonable to implement.
  • Legal recourse belief: Even if legal recourse is unlikely due to the relatively small amounts of money pledged by each backer, it may be a deterrent to potential fraudsters and irresponsible project creators to add a clause to the Terms of Use that holds them legally accountable to Kickstarter and/or project backers for not fulfilling the promised rewards in exchange for pledges.
  • Build backer cohesion: One backer who pledges $30 is not much, but if all 500 backers who pledged a collective $15,000 unite, there is likely to be much greater pressure on the project creator to fulfill his/her promises. Thus, giving backers of a particular project the ability to communicate with one another on the platform and communicate as a group to the project creator could be very powerful.
  • Social collateral through an online community: Kickstarter could create social features, e.g. user profiles, ratings, reviews, new member endorsements/recommendations by existing community members, etc., in order to provide more useful information to potential project backers that will help them select project creators more effectively, as well as to further incentivize project creators to do their best to carry out their project and provide the rewards that they promise.
  • Curb project creator misrepresentation: To the extent that people are creating fake projects and identities on Kickstarter, e.g. Mythic: The Story of Gods and Men, Kickstarter could require a link to people’s Facebook and/or LinkedIn accounts to provide potential backers with more information prior to supporting project creators.

What do you think? I’m curious to hear your own thoughts on the above and your additional suggestions.

 

Notes

[1] “Backers Rights: What Kickstarter Funders Can Expect When They Pledge,” Emily Gera, June 27,2012, http://www.theverge.com/gaming/2012/6/27/3099051/backers-rights-what-kickstarter-funders-can-expect-when-they-pledge

[2] “We’re Done With Kickstarter,” Joe Brown, March 29, 2012, http://gizmodo.com/5897449/were-done-with-kickstarter

[3] “Backers Rights: What Kickstarter Funders Can Expect When They Pledge,” Emily Gera, June 27,2012, http://www.theverge.com/gaming/2012/6/27/3099051/backers-rights-what-kickstarter-funders-can-expect-when-they-pledge

[4] “Crowdfunding and the Federal Securities Laws,” C. Steven Bradford, Crowdfunding and the Federal Securities Laws, 2012 Colum. Bus. L. Rev. 1., http://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=1118&context=lawfacpub&sei-redir=1&referer=http%3A%2F%2Fwww.google.com%2Fwebhp%3Fsourceid%3Dtoolbar-instant%26hl%3Den%26ion%3D1%26qscrl%3D1%26rlz%3D1T4ADRA_enUS446US446%23hl%3Den%26sugexp%3Dles%253B%26gs_nf%3D1%26cp%3D12%26gs_id%3Dd%26xhr%3Dt%26q%3Dpre-purchase%2Bguild%2Bwars%2B2%26pf%3Dp%26qscrl%3D1%26rlz%3D1T4ADRA_enUS446US446%26output%3Dsearch%26sclient%3Dpsy-ab%26oq%3Dpre-purchase%26gs_l%3D%26pbx%3D1%26bav%3Don.2%2Cor.r_gc.r_pw.r_qf.%26fp%3D4bf76621ca799f85%26bpcl%3D35243188%26biw%3D938%26bih%3D553%26ion%3D1#search=%22pre-purchase%20guild%20wars%202%22

[5] “Backers Rights: What Kickstarter Funders Can Expect When They Pledge,” Emily Gera, June 27,2012, http://www.theverge.com/gaming/2012/6/27/3099051/backers-rights-what-kickstarter-funders-can-expect-when-they-pledge

[6] Kickstarter Terms of Use, http://www.kickstarter.com/terms-of-use

[7] “Backers Rights: What Kickstarter Funders Can Expect When They Pledge,” Emily Gera, June 27,2012, http://www.theverge.com/gaming/2012/6/27/3099051/backers-rights-what-kickstarter-funders-can-expect-when-they-pledge

[8]Ibid


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Over the past few years, we have seen an emergence of peer to peer “rental” sites that allow people to rent out their belongings to others looking for short term use of that asset.  Users can log on to relayrides.com to share their car, airbnb.com to share their house, or zilok.com to rent just about anything else.  Additionally, we have seen an exponential increase in the success of multi-sided e-commerce websites that connect sellers and buyers from around the world to facilitate global commerce.  Alibaba.com, Tradekey.com, and globalsources.com are a few of the sites that are attracting hundreds of thousands of users and million dollar valuations.

The single biggest threat to these business models, as I see it, is a loss of trust between the two parties.  The fundamental issue here is the balance of power – the perception that one side has a lot to lose while the other side has little risk in the transaction.  To explain:  In the peer to peer sharing sites, the lender risks renting to an irresponsible renter who trashes his or her valuable property; for the e-commerce site, the buyer risks paying for an item only to be delivered an inferior product, or, even worse, delivered nothing at all.

To further illustrate this point, two examples have appeared in the media recently.  Their potential to undermine the business models serves as a warning to this fledging industry.

Airbnb came under attack this summer when a renter nicknamed EJ lent her apartment to a vacationer, and returned to find it vandalized and ransacked.  EJ described the experience in a blog post that went viral, garnering the attention of Techcrunch, USAToday, and CNN.  She writes, “[the renter] and friends had more than enough time to search through literally everything inside, to rifle through every document, every photo, every drawer, every storage container and every piece of clothing I own, essentially turning my world inside out, and leaving a disgusting mess behind.”

Airbnb isn’t the only site where a breach of trust occurred between its two parties:  in February of this year, Chinese police arrested 36 people accused of fraudulent practices on Alibaba.com.  These “business people” are accused of scamming buyers out of an estimated $6 million by taking payments for items that they never actually delivered.  The event was made even more scandalous by the fact that these sellers were granted “Gold” supplier status by Alibaba employees who were allegedly aware of the scam.

Despite the verification systems that were in place in each of these cases, people still got burned.  Such examples bring the reputation of the world-wide, multi-sided platform business model into question.

So, what needs to be done to ingrain the integrity of the business model?  Below, I offer some advice on how to build trust between the parties:

1.    Take responsibility:  It’s not enough anymore to simply build a site that facilitates transaction.  Users expect more.  Perhaps expectations have been set by industry trailblazers like eBay, which acts in a no nonsense manner when dealing with questionable or suspect transactions.  Both buyers and sellers risk removal from the site if practices are called into question.  Multi-sided platforms need to protect both sides from the risks inherent in the transaction, through tools like insurance policies, escrow accounts, and post-transactional feedback tools.

2.    Find out what’s broke and fix it, immediately:When Alibaba discovered that its own sales staff had been involved with some or all of the 2,300 cases of fraud over the last two years, leaders were held accountable.  The company’s CEO and COO removed themselves from the organization after the fraud was uncovered to take responsibility for the “systemic breakdown.”  This, combined with their public admission of guilt, has gone a long way in keeping down bad press and building user confidence.

3.    Be proactive:  Rather than waiting for an unfortunate event to occur before acting, anticipate the risks and protect your users.  Relayrides, for example, holds a $1 million supplemental insurance policy for its car renters and installs an immobilizer on the vehicle to prevent cars from being started without a reservation.  It is necessary to implement stringent requirements for both sides of the platform – be it mandatory compliance to a legally binding Code of Conduct/Ethics or compulsory screening of rental properties and manufacturing sites.

In summary, there is value created for both sides using these platforms.  If a platform wants to remain a viable business, however, they must invest in security measures to protect their customers and be prepared to take responsibility when something does occur.  Building trust, taking responsibility and underwriting a product or service are just good and basic business practices.


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Community and the Online Economy

Are these two worlds more closely linked than we think? Can we really move on and build a viable online economy, leaving behind an economy founded on a community as we have known for the longest time? How strong is an online economy or online community when they are more independent than meaningfully reflecting the physical community and economies that the world has been existing with for the longest time?

Before the age of internet, the only community we knew were the people we met in our lives. And meet we did, in every sense of that word. Literally. Those were the days when it meant something to be someone’s neighbour and friend. It also meant something when we did not get along with someone else. Relationships were out in the open. Or at least people made it seem so. I’m referring to those good old 80s and a part of the 90s. We wrote letters, carried paper and pens and books, enjoyed the company of friends only when we truly made time and space for each other to call, to meet.

Somehow the age of internet has heralded a dilution of these relationships. For a large part, if not all, emails have replaced letter-writing. The fonts we know belong to Microsoft and are part of a fancy long list of font names. We read e-books. The company of friends have become a virtual reality, often a connection through some smartphone device and a social network. We even share recipes online now – blogging, of course. We learn about each other’s lives by digging (superficially) on social networks. Where’s the real stuff of everyday lives? That’s hard to tell when one controls to let on only the pretty part of our lives into cyberspace.

If we think of the online economy leveling up on such building blocks of community, its no wonder that we are constantly asking the question of integrity. When a website starts charging for services like renting out holiday accommodations and house swaps, we wonder how trustworthy are the renters – we don’t know them! And what about those reviews – are they reliable? Who are these people really? Why is XX service great? Why should I pay for it?

Perhaps the online economy is only capable of reflecting how much a community has truly progressed – it cannot transplant or replace real community. The online economy is a place where people search for what they want and share what they can offer. Perhaps much of the online economy for the common man is a representation or extension of reality and not a replacement. It doesn’t matter how much people talk about a place or service in a forum or how much advertisement for it goes online if people didn’t first believe the source of all that.


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