NBA 600: Session 10Online Communities

20 February 2003

Daniel Huttenlocher

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Today’s Class

Finish up discussion of online communities– Trust– Fraud– Reputation– Protecting material created by community

• Cyber-trespass laws

– “Pure communities” versus complementing other activities

– Dynamics of communities

Mid (1/3) term course evaluation

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Online Community

People spending time adding value because they are having fun doing it– Interacting with others

• Areas where people are “expert” or “obsessive” draw more participants

– Need to attract both experts and non-experts• Providers and users of information, skill or

knowledge

Feedback is critical– Experts want to see they’re reaching audience– Non-experts want way to assess credibility– People want to know how well they are doing

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Types of Communities

Community as supplement– E.g., Amazon uses reviewer community to

enhance site, not as sole value– As opposed to Ebay where community has

been entire value• This is changing with corporate sellers

Community as addiction– E.g., Many eBay users find auctions addictive

• Regular shopping can be addictive as well

– Gaming sites can have this property

If neither, challenge getting off the ground

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Community Trust

Ebay’s initial challenge– Building trust to trade with strangers online

• Focused on sense of community and “inherent goodness of people”

Means of running cheaters out of town – Reputation scores based on completed

transactions (+,0,-)• Number of positives minus negatives• About half of transactions result in ratings

High reputation scores – “best citizens”– Ebay rewards its highest reputation sellers

• 85,000 points

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Maintaining Trust

Ebay says fraud less than 1/100th percent– But still moving beyond “community policing”– Highly visible case involved real world too

• Merchant who fled with over $200K also had shop and employees

Poor experiences more common than outright fraud– Sellers now being verified through credit card or

other information• Contract with Verisign

Works in sense that fraud off eBay higher– E.g., case of fake cashiers check and used Mac’s

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Is Fraud an Increasing Threat?

National consumer’s league reports large increase in 2002 auction fraud– From 70% to 87% of reported cases– About 15,000 cases average of nearly $500

Ebay reports only percentage of transactions that are fraudulent– But does not report numbers of transactions

nor dollar volume of fraud• Most eBay transactions much smaller than $500

Most seller fraud involves stolen ID’s and payment other than credit card

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Reputation

Reputation mechanisms commonly used to build trust online– Need to trust the provider of the reputations

• The site, e.g., eBay, Amazon

Rankings of reviewers, rankings of transaction experience– Only works if people provide rankings

• They do, even though not of immediate value

– Studies show people more likely to provide positive than negative ratings• So either having very good experiences or bias

in reporting

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Value of Reputation to Participants

Resnick (UMich) study shows price effect– Controlled study with “matched pairs” of

vintage postcards• Done in conjunction with established seller who

had high reputation• Sold one of each pair as relatively new seller with

little reputation– High reputation seller received closing bids on

average 7.6% higher than unknown sellers

Perhaps surprisingly, a few negative scores had little effect– Treated similar to unknown with a few positives

and no negatives

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Value of Reputation to Provider

If participants could take reputations elsewhere would threaten provider– Verifiably high eBay score might make people

willing to shop directly at merchant site– Similar for gaming sites

Reputations are “owned” by the providers, as they are conferring their trust on the participants– All restrict the use in their terms of service

• Ebay monitors quite actively

– Not transferred when shut down or merged

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Value of Community Product

An active community produces information that can be of substantial value– Currently open auctions on eBay– Reviews on Amazon

Substantial new legal decisions being made in this arena– New cyber-trespassing rulings

• Based on several hundred year old laws on “trespass to chattels”

– Prohibits unauthorized access to networked computer systems

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Why New Laws Have Been Sought

Community generated value not usually protected by prior laws– Copyright does not apply to “facts” only

creative works• Landmark case – Feist telephone directory

listings• Open auctions are facts

– Reviews are creative works but copyright generally belongs to author• Explicit rights granted to site to display the work,

but author can display elsewhere• Authors would need to protect their rights

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Limited Access to Ebay’s Site

Conventions restricting Web access by automated programs (so called robots or spiders)– Special Web page stating what access allowed

Ebay explicitly prohibits such automated access except as licensed– Grant rights to search engines– Have in past granted rights to auction

aggregators for a fee• Aggregators were formed in late ’90’s to provide

access to best prices across auction sites

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Auction Aggregator Threat

Ebay’s dominant position could have been threatened– Items listed because it has biggest audience,

but aggregators might remove that advantage

Bidders Edge and eBay could not agree on license terms– Bidders Edge “copied” eBay’s site anyway– eBay sued to block access based on cyber-

trespass laws• Was granted preliminary injunction in early ‘00

Effectively shut down aggregator business

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Implications of Cyber-Trespass

Findings based on– Unauthorized access to systems

• Up to provider to state what is authorized

– Resulting damage to systems from this access• Including diminution in value

It is this threat of diminished value of eBay’s site that was used in Bidders Edge decision

Does it threaten open access of Internet?– E.g., some worried price comparison sites

could be limited in ability to search retailers• This hasn’t really happened, in fact retailers

often pay comparison sites

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Epinions and “Pure” Community

Goal to provide unbiased reviews of products and services– Contributed by visitors to site

• Small payments for reviews based on views• Rated for accuracy and value by other visitors

– Intent to be better than sites such as Amazon by having more of a community• Not restricted to items sold on one site

Initial revenue model – advertising Developed active community

– But not clearly larger or more informative than say Amazon reviewers

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Evolution of Epinions

Changed model to being a shopping comparison site– Combining prices and user reviews– Similar to Bizrate which started with more of

focus on price comparison

Revenue model changed to include merchant fees for listings and/or referrals

Privately held – claims to have reached GAAP profitability for 2002– But mainly reports 50M unique visitors and

31M referrals to merchants

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Dynamics of Communities

Need balance of creators and consumers– Can be difficult to get started

• Each requires other

– Can also be difficult to maintain• Imbalances arise, much as in markets

Hard to “bootstrap”– In traditional businesses can choose to lose

money while building up• E.g., content creation not done by employees

Yet online community remains a major potential of Internet over other channels

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Examples of Community Dynamics

Auction sites have tended to exhibit strong all-or-none properties– Seller seeks largest possible audience

Despite eBay’s estimated 85% share in US, Yahoo and uBid both still active

In Japan, Yahoo auctions dominates– Ebay closed their Japanese site due to lack of

volume

In UK, eBay dominates– To extent that Yahoo closed their auction site

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Announcements

Change in syllabus– Next week talk about digital content

• Pricing and versioning of information E.g., hardcover vs. paperback books

– Defer discussion of marketplaces until after digital content• What’s a marketplace? Multiple buyers and/or

sellers of commodity goods or services Note differs from most eBay auctions

Reminders– Appointments to discuss case project

• I’m away next Monday 2/24 and Friday 2/28– Short paper #3 due Tuesday (2/25)