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Market Reputation Systems



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Published: 2003-05-13T18:45:24-05:00

 



Market Reputation Systems

2003-05-13T18:45:24-05:00

While blog reputation systems can help us navigate/evaluate/understand/filter the blogosphere, when it comes to business transactions, reputation becomes even more important. Would a high Cosmos Score be enough to give you comfort in transacting with some one for good or services? It certainly doesn't hurt, but I don't think it is enough. Just because someone has attracted a lot of links to his or her blog, doesn't necessary mean that the person has a good reputation when it comes to business transactions. Again - it doesn't hurt - I would rather do business with someone with many links than I would with a complete stranger. (Aside: isn't it great how having a public voice can make you a non-stranger, even to people you have never met?) When doing business, I care more about the other person's history of business transactions and relationships. I care about their market reputation. There are a number of new and upcoming approaches to communicating reputation in the social marketplace, and I discuss those in future posts. Today, I want to consider (what I think is) the mostly widely successful market reputation system on the web today. That system, of course, is eBay's feedback system. It is not uncommon for people to make payment in the $000s for eBay auctions - before receiving the merchandise, without meeting the seller, and often without require escrow arrangements. This is because people generally trust eBay's reputation system. When I buy something from someone with 1000 eBay points, including only 2 negative comments, I feel pretty sure that I am not going to get stiffed. So how -- and why -- does the system work. First of all, it is very simple to use: after an auction is won, both the buyer (winner of the auction) and seller can leave feedback for the other. "Feedback" consists of just 2 parts: 1) a rating of "postive", "neutral", or "negative", and 2) a short text comment about the transaction. Ratings translate to points: positive = 1 point, neutral = 0 points, and negative = -1 point. Last, but certainly not least, point totals, ratings and comments are publically available. While there have been some high-profile exceptions, the system is not easily gamed -- why? The answer is because feedback can only be left when eBay gets paid. While there is no guarantee the the buyer will pay the seller in an auction transaction, eBay makes money from every auction that is won. So, while it is possible to develop a false reputation, it costs money to do so. This financial barrier makes the reputation system more reliable, and buyers trust it more as a result. In summary, there are three main lessons to be learned from the success of the eBay feedback system: 1) make it easy, 2) make it public, 3) make it diffcult to cheat. In developing reputations systems for the new peer-2-peer social marketplace, number 3 will be the real challenge. If there is no central company (or server) to control feedback permissions and impose financial barriers, how can we ensure that integrity of the system, such that we can trust it like we do the eBay system today? I have no doubt that we will find a way to achieve this, but I do feel that this is a very important challenge to be met.