1. NBA 600: Session 10 Online Communities 20 February 2003 Daniel Huttenlocher

2. 2 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

3. 3 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

4. 4 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

5. 5 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

6. 6 Maintaining Trust  Ebay says fraud less than 1/100 th 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

7. 7 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

8. 8 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

9. 9 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

10. 10 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

11. 11 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

12. 12 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

13. 13 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

14. 14 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

15. 15 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

16. 16 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

17. 17 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

18. 18 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

19. 19 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

20. 20 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)