Reviewing A Problem With Reviews
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
People lie; it's a sad fact of life. When you create a system that doesn't require anyone to stand behind their words, people lie even more. In fact, people do all sorts of really bad things when there is no accountability. This is a big problem for Amazon (NASDAQ: AMZN) since it has been called out for the truthfulness, or lack thereof, of its reviews by The New York Times. However, it's also a big issue for the World Wide Web as a social system.
We've All Read Reviews
If you've been to Amazon to look at anything; you've probably taken a glance at the product's reviews. You know for a fact that the product description is going to be jaded to the positive, but actual customers often have a different take on a product. Their efforts to share their opinion can help clarify the purchase decision, especially if they speak to concerns lingering in the back of your mind.
Such reviews can be wildly valuable, in fact. There are web sites that are solely about reviews and virtually nothing else. Yelp (NYSE: YELP) is a great example. The company makes money off of advertising, but it gets people to visit its site by hosting reviews of restaurants and other establishments. Who doesn't want to know if a restaurant they've seen but never been to is any good? This is also the logic behind Google's (NASDAQ: GOOG) Zagat business.
People value what others say about a product. The difference between Yelp and Zagat, however, is that Zagat's business was built on people editing the reviews it received to create a composite picture of a restaurant. Was the end result necessarily true? No, but there was a better chance that less reputable reviews would be weeded out. That isn't how most review sites or tools work online. Amazon's site, which is probably the largest review site on the web, is just a list of reviews. No editing, and, for the most part, no screening.
Some have tried to use a pay wall of sorts to weed out untruthful reviews. For example, Angie's List (NASDAQ: ANGI) uses a subscription model. It also tracks the identity of reviewers and claims to monitor the reviews to weed out suspicious ones. Much like Consumers Reports magazine, the idea is that by having customers of Angie's List provide the funding a major incentive to allow erroneous reviews is removed. Moreover, by making people pay to see and write reviews, you get more honest results.
Can't Trust Good Reviews
One abuse of the review system that has been pointed out is people positively reviewing their own products and services. Or, worse, paying others to provide positive reviews. A blurry line is when people just ask for reviews—does soliciting reviews bias the information since no one is going to ask a disgruntled customer for a review?
The problem has become so severe that Amazon, Google, and Yelp have all begun to weed out questionable reviews. However what is and what isn't a questionable review? It gets complicated and the answer can have a material impact on a product's sales or a business' financial results. It's a touchy topic. As a review reader, it isn't clear what the impact of the weeding process will be.
Can't Trust Bad Reviews
An issue that The New York Times brought to light was the use of negative reviews. The paper claims that a book about Michael Jackson was bombarded by negative reviews from angry fans, resulting in the book being temporarily pulled from sale. While that may or may not be true, a lot of negative reviews certainly could persuade customers to pass on a book.
There are also claims that negative reviews are used by small merchants on some sites. Travel has been one area pointed out as problematic, with small hotel operators accused of placing false negative reviews of local rivals with the hope of gaining more customers themselves. It seems even bad reviews are suspect.
Can't Even Trust the Review Sites
There have even been accusations that some sites built around reviews have attempt to get paid for giving good reviews more prominent placement on their sites. Yelp, in fact, has been accused of this. Basically, enterprises that paid to advertise on Yelp were claimed to have come off looking better than those that didn't pay to advertise. At least that's what those that chose note to pay have accused, with some suggesting that the entire business is little more than an extortion scheme. So, you can't even trust the review sites?
An Industry in Need of a Cleanup
The Internet has been a great democratizer because it allows everyone to have a voice. However, it also allows for a great deal of anonymity. Putting those two together hasn't always been a good combination. Companies built around reviews, like Angie's List and Yelp have real issues at hand. Amazon and Google, too, have to figure out what to do or some of their most valuable content, the reviews, could be seen as worthless. Investors in any of these companies need to watch this issue closely. In fact, it might be best to avoid Yelp and Angie's List until there is more clarity.
ReubenGBrewer has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Google. The Motley Fool owns shares of Amazon.com and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!