What We Learned About Feedback From Online Marketplaces

Not everyone loves feedback, especially the negative kind. Online marketplaces love it all. Feedback, both good and bad supports reputation, and without a good rep, there is little trust from the buyer and seller base – which is a marketplace’s bread and butter.

Since eBay began in the mid-nineties, they were arguably the pioneers of the online review system. Now, “61% of customers read online reviews before making a purchase decision,” claims Econsultancy. eBay Founder Pierre Omidyar introduced the process within six months of launching the website where he explained the benefits of open communication in a letter to customers.

“Now, we have an open forum. Use it,” Omidyar wrote in February 1996. “Make your complaints in the open. Better yet, give your praise in the open. Let everyone know what a joy it was to deal with someone.”

eBay soon achieved a reputation for candid feedback. However, the introduction of these feedback systems in online marketplaces like Amazon and eBay also highlighted the flexibility of our trust as buyers. It seemed that once we were able to connect and contribute our pleasure or distaste somehow, it was safe to exchange funds with another anonymously.

“How is it that strangers who have never transacted with one another, and who may be thousands of miles apart, are willing to trust each other? Any transaction requires some level of trust between the buyer and seller, usually in the shadow of some institutional support like the law or other enforcement mechanisms,” writes Steven Tadelis in a paper titled “Reputation and Feedback Systems in Online Platform Markets” from UC Berkeley Haas School of Business.

Pierre Omidyar and eBay’s reputation mechanism arguably caused a shift in how buyers interacted online then and today. The company did it by cleverly utilising an online buyer’s newfound willingness to trust, by creating an environment of transparency using age-old commerce methods like the two-sided market; which is the core business model of most online marketplaces today.

These days feedback goes beyond the online marketplace and is prevalent in most consumer-based businesses. It has evolved from a single channel to multiple forms, including SMS which has become a leading source of survey, making it even easier to gather relevant data for customer management.

We can learn a lot about feedback from eCommerce and its ability to automate a kind of moderation within the heavy customer traffic produced in online marketplaces. Here are few facts that taught us a thing or two.

There are two types of feedback

One-sided and two-sided. One sided is mostly derived from one party, such as the buyer reviews on Amazon, while Air BnB uses two-sided where both tenant and owner can leave reviews on their experience.  In the early days of this process, eBay introduced this idea of both buyers and sellers leaving commentary freely, but after 2008 their direction changed. Now, two-sided feedback is relegated to service-based forums like Airbnb and Uber, where both parties rely on each other. One-sided procedures put the onus the marketplace to oversee operations, viewing the product as the buyer and the seller as the client. eBay even initiated a protective scheme for their sellers/clients by introducing PowerSellers, “Buyers must wait at least seven days before leaving a negative or neutral Feedback for a PowerSeller who has been registered on eBay for at least 12 months,” states their website. One isn’t necessarily better than the other, at the end of the day, it’s about what’s healthiest for that particular forum.

It doesn’t affect the bottom line but something more important.

Surprisingly, feedback in online marketplaces does not affect revenue directly, “a one-point increase in reputation corresponds to a 4 cents increase in final price,” writes Tadelis. The one metric that is in fact undermined by a weak feedback system is buyer and seller trust. Trust is the backbone of any B2C e-commerce platform, and it can be difficult to attain, “Since there is no physical interaction with our customers, we rarely get to share traditional dialogue, build a personal rapport or shake their hand. Therefore, in case of marketplaces and e-commerce, on the whole, trust must be perceived and interpreted by the customer,” says WC Marketplace.

So does trust really increase revenue? Yes, it’s the motivation to turn a user into a customer and influence KPIs like growth rate which controls transactions between buyers and sellers. With growth comes higher liquidity, and that is the ultimate goal of all online marketplaces. Most of the time it starts with giving customers the opportunity to participate in the social environment created by e-commerce, feedback may be the most important tool they have in their belt.

There is an entire economic principle behind it.

The economics of reputation is legitimate and was touched on by “Luis M B Cabral, Professor of Economics at New York University, in his study, “The Economics of Trust and Reputation.” Cabral’s theory explores the benefits of investing in reputation, claiming that the better a brand’s reputation, the less they have to invest in building it. “According to Cabral, therefore, high trust and reputation can together help companies earn higher profits. Not only can a company increase the price of its products and services, but it can also decrease its expenses (the amount of money invested in reputation management),” writes Clear Logic.

The future of feedback

Feedback’s future looks more SMS based, a response to the growing impatience of tech-dexterous customers. Following up service with an SMS feedback survey is more rapid and proven to increase customer click-through rate, “The average open rate of a text message sits at about 99%, while email ranges from 28-33%. Next, to this, the click-through rates are vastly different. Include a link in your text message, and you will observe a CTR of about 36%. For email marketing, the CTR usually sits between 6-7%,” according to Business 2 Community.

Feedback aggregation is also on the table for upcoming developments, such as meta-platforms, which establish a culminative reputation score for a customer based on their interactions across e-commerce. There are companies out there currently attempting this idea by creating platforms to moderate reviews, so the marketplace doesn’t have to.

The art of reviewing has been around a long time; now the digital space has made it even easier to interact with each other, communication is only going to get more comfortable. As Tadelis notes, “It is apparent that the design of feedback and reputation systems will continue to play an important role in the broader area of market design as it applies to online marketplaces.”
Via: Econsultancy, Steven Tadelis, Business 2 Community, Clear Logic, WC Marketplace. 

A Brief Look At Blockchain Tech And The Online Marketplace

blockchain and marketplaces

Oxford University, the esteemed British institution which has been in existence for over nine hundred years – now has a blockchain course. You know you’ve made it when Oxford takes notice. Bitcoin’s distributed ledger system has arguably become a standout result of the cryptocurrency craze (fans include notorious Bitcoin hater and J.P. Morgan CEO James Dimon) and is beginning to branch out, taking its talent for distributing data and funds, elsewhere.

Online marketplaces could be a good place to start, even with their reliable business models. Hubs like Amazon and eBay are full of data and online interactions that would work well with a blockchain system. Though both companies show a general distaste for the idea. Despite seeming impenetrability regarding efficiency – one pain point sticks out in even the largest of enterprises and that’s security concerns. 

Securing the market

Facebook faced pushback when its marketplace came under scrutiny in 2016 for lax security within seller and buyer relations. Mostly due to a lack of a built-in payment system and no record of interactions between parties, allowing those with unsavoury intentions to slip through the cracks. However, supporters of blockchain tech think the set-up could alleviate these woes in P2P networks like Facebook or Etsy.

With a blockchain powered marketplace, personal information isn’t required, claims Ruby Garage.

“Since a blockchain-based marketplace removes intermediaries, all transactions are traceable on a public ledger, demonstrating a high level of security and transparency.”

Banking with blockchain

Outside of the marketplace model, banks are also jumping aboard the blockchain train, seeing its potential for eliminating fraud issues. In 2015 Santander announced the launch of an app for transferring funds internationally, initially using staff as guinea pigs in the hope of releasing it into the world one day.

“This transition, if it finally happens, is going to take a long time, and the chief reason is simple: legacy bank infrastructure and the tens of billions of dollars that have already been spent on building that infrastructure,” wrote John Whelan, blockchain lab director at Banco Santander.

A decentralised marketplace presents the appearance of a good idea in theory but blockchain technology is still in the early stages of development, and like we mentioned, many significant influencers aren’t quite on board, despite enthusiasm from crypto-boosters like Ethereum cofounder Joseph Lubin.  “Apple seems to be largely uncaring and unaware. Google is making investments, but it’s not clear that they have a lot of activity going on. Amazon, we’ve not seen that much, so we’ll see.” Lubin told Fortune at an event in New York last year.

The Soma model

Still, smaller blockchain marketplaces are emerging. Soma, a Finnish-based digital platform using blockchain tech aims to create an online marketplace where users can buy and sell safely within a P2P network. Goods and services are represented by “cards” which allows for a totally transparent system.

“Users are encouraged to engage in actions that will benefit other members and the community as a whole by rewarding such actions with Soma Community (SCT), a cryptocurrency designed to incentivise the members of the decentralised community to perform value-adding services and act as a fast, secure and cost-effective way of compensation,” writes Soma on their website.

It seems that a move towards implementing blockchain into digital marketplaces is a definite possibility, regardless of big enterprises’ disinterest. Only time will tell how it grows but if the end goal is a safer and happier online community, then who can resist that?

Via: Fortune, Think Money, Coinbase, Ruby Garage, Forbes.