Fake Online Reviews: Big Business and an Even Bigger Problem

Investigations, regulations aren't enough to fix it

   

A key promise of the web was its potential to weed out crappy products and services through online reviews. Want a new car? One Google (GOOG) search and you should have pages of authoritative reviews from professional publications, opinions from owners and access to service bulletins.

Not sure about a new restaurant? Instead of waiting months for a newspaper to review it, just whip out your smartphone and check Yelp (YELP) or any of dozens of services that collect customer reviews.

In reality, online reviews threaten to make choosing a product or service based on what other people think even dicier.  New York regulators are wrapping up a year-long investigation of fake reviews – but this shouldn’t be shocking. Heck, I would guess that only 19 companies have been fined for misleading practices involving online reviews because the rest simply haven’t gotten caught.

This isn’t just the tip of the iceberg — it’s a mere snowflake on that tip.

By way of disclosure, let me point out that I am a paid reviewer. I use specific criteria, along with my own personal opinion. I also give the good as well as the bad — regardless of whether the supplier might be paying for advertising on the website or related publications — and I put my name on any review I publish.

Unfortunately, fake reviews are big business — thanks to the fact that many consumers lack (or don’t employ) research skills when making a purchase.

The companies behind fake review schemes crank out meaningless reviews and ratings designed to make a product or service appear better than it is — at least at a casual glance. As if that isn’t bad enough, some are killing two birds with one stone by employing SEO tactics, filling those fake reviews with frequently searched terms in order to gain visibility on Google.

When it works (and Google is always tweaking its search algorithm to try to weed these out, of course), that fake review is high on the list of information a casual searcher finds. It’s a one-two punch designed to seriously game the system and convince you to buy shoddy or specific products.

Online reviews have a big impact on business. According to a 2011 Harvard Business School Study, a one-star increase in an independent restaurant’s Yelp ranking translated into a 5% to 9% revenue increase. On Amazon (AMZN), five-star books sell better and are positioned more prominently on the site (which then further increases sales volume).

As a result, authors have been caught submitting fake reviews — whether than means firing off fake one-star reviews for competing books to remove their prominent positioning, or posting fake five-star reviews for their own work to boost sales. And it can be lucrative enough that independent authors were willing to pay $6,000 for 300 fake five-star reviews.

On top of that, Yelp recently said it has about 42 million reviews, and has removed about 25% of submissions as suspected fakes. TripAdvisor (TRIP) has 100 million reviews on its website (receiving 4,000 new reviews every hour) and is in a constant battle to stay ahead of scammers.

In fact, fake reviews are reaching levels that are finally beginning to concern the public (research by Gartner predicts that by 2014 between 10% and 15% of all social media reviews will be fakes). That means there’s a real danger to companies that have built a business around online reviews.

Yelp, Foursquare, TripAdvisor and Angie’s List (ANGI) come to mind, while some of the biggest tech companies including Google, Yahoo (YHOO) and Facebook (FB) have ratings features that are being compromised. Amazon, eBay (EBAY) and other online retailers may not care about the fake reviews so much at the moment — they don’t appear to be negatively impacting overall sales — but individual sellers on these sites who rely on positive customer experience ratings certainly do.

How to solve the problem? There doesn’t seem to be an easy answer. The reaction of review sites has been to step up the automation designed to weed out fakes and threatening business that are caught trying to game the system. Government intervention such as the New York case will help … but with the stakes so high, many of the operators offshore and the likelihood of getting caught so low, regulation won’t put a stop the practice, but simply slow it down.

The only way the web might reach its Utopian ideal where reviews can trusted to be real (although they will still be individual opinions) is to only allow reviews to be submitted by someone logging in with an account that’s tied to a real identity — not a pseudonym. This is the approach some websites are now using in an attempt to curb some of the more venomous examples of anonymous comments.

In the meantime, consumers need to be follow the “buyer beware” mantra and, learn to recognize obvious fake reviews. And services like Yelp and TripAdvisor must continue investing in aggressive screening mechanisms.

If they become overrun with fake reviews and people stop trusting them, their business model is toast.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities. He has written reviews for a range of publications and websites including Wired.com, GeekDad.com, About.com and Best Buy (BBY) Canada’s Plug-in blog.


Article printed from InvestorPlace Media, http://investorplace.com/2013/09/fake-online-reviews-angi-yelp-trip/.

©2014 InvestorPlace Media, LLC

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