NBA 600: Session 10
Online Communities
20 February 2003
Daniel Huttenlocher
Today’s Class
 Finish up discussion of online communities
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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 cybertrespass 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)
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