Fake Reviews Are Silicon Valley’s Next Fake News Problem

By now, you’ve probably read about the restaurateur who asked customers to post 1-star reviews. If you haven’t, do yourself a favor—it’s a doozy.

To recap, the small business owner became frustrated with what he believed were fake negative reviews being posted online about his pizza eatery, so he retaliated by writing fake 5-star reviews of his own. Eventually, he flipped the script entirely and encouraged even his happiest customers to write 1-star reviews, kicking off a viral sensation that attracted tons of media attention and foot traffic to his business.

This is an extreme example, and you may not agree with this business owner’s methods. But the story is a microcosm of the growing problem of fake online reviews, and the frustrations it creates for local business owners and operators who feel they have no recourse.

Local businesses are struggling to adapt to a world where online reputation drives offline sales, and fake reviews are making the transition harder. What’s more, the fake review problem is getting worse. As one example, a Harvard study found that fake reviews on Yelp grew from 5% to 20% over several years.

There are lots of reasons for this trend, but this is an area where big data can be used to the benefit of consumers and businesses to increase trust. This means it’s on the tech community—not small businesses—to fix fake reviews. Just as media platforms have a moral obligation to avoid the spread of fake news, review sites have a responsibility to their users and businesses to ensure their content is as accurate as possible.

What’s at stake for tech

The fake reviews problem isn’t trivial. It has real and far-reaching implications for a large and growing segment of the tech sector, and the millions of small, local businesses whose livelihoods are affected by them.

Two decades ago, people still relied on word of mouth, window shopping, and printed directories to find local businesses. Today, online review sites like Yelp, Google My Business, and TripAdvisor are the first stop for consumers looking to spend money locally. This trend will only deepen as location-based search continues to mature.

As online reviews have gone mainstream, valuations have soared for Silicon Valley’s review platforms. Yelp and TripAdvisor boast a combined market cap of nearly $10 billion. These companies, and others in the category, are reaping the benefits of having created a new online ecosystem for local brick-and-mortar commerce. There’s real economic value being created for all involved.

As we’ve written before, online review platforms have been a net-positive for small businesses, but fake reviews are an existential threat to the entire category. Silicon Valley has mostly avoided a crisis in public confidence despite recent scandals in various corners of the growth-or-bust tech world, but regulators are starting to call for action on this issue. Let’s not let fake reviews become a record-scratch moment.

How online reviews impact small business revenue

In the early days of the online review movement, small business owners bristled at fake reviews as a matter of pride. After all, an attack on your business is bad enough if it’s from an actual customer. Increasingly, business owners are realizing that there’s more at stake than reputation.

Recently, Womply’s data science team analyzed a full year of transaction and review data for nearly 210,000 local businesses across the U.S. What we found is that nearly every aspect of a business’s online reputation has a strong correlation to revenue performance.

For example, our study revealed that businesses with ratings of 4-4.5 stars earn 28% more revenue, so there’s plenty of motivation to get a better star rating. Since a single bad review carries more weight for younger companies with nascent online reputations, the most vulnerable businesses are disproportionately harmed by fake negative reviews.

Our study also found that local businesses can withstand a few negative reviews, especially if they’re legitimate and the business owner responds. Surprisingly, we also found that 5-star businesses do worse than 3-star ones, suggesting that authenticity matters a lot to consumers. As such, fake reviews pose a material threat to revenue for small businesses that are already running on razor-thin margins.

Businesses that do even a little better on review sites do a lot better financially, and company sales equal personal income for entrepreneurs on Main Street. It’s easy to see why current market incentives actually encourage business owners to exacerbate the fake review problem as they grasp for ways to improve their online reputation.

Solving the fake reviews problem with authentication

Currently, every online review is presumed to be legitimate unless proven otherwise, and the bar to identify and remove fake reviews is prohibitively high.

In practical terms, it’s impossible for most small businesses to make a case against fake reviews. The average local business doesn’t even keep a list of their customers, let alone have a way to tie customer data to reviews on Google or Yelp.

Technology companies collectively do have that data, and the software chops to make it sing. The simple solution is to build an authentication layer into the review ecosystem for offline businesses, similar to what Amazon Verified Purchase does in the online realm. Imagine how much more useful a review would be if you knew it came from a real customer, validated by some combination of transaction, location, or social data.

Connecting local commerce data points for review authentication is more about will than anything else. We just need the right companies to come to the table with the common purpose of trying to expose and eradicate fake reviews. The rest would be a modest investment of time and engineering resources, at best, and it would produce a massive societal benefit.

The fake reviews problem won’t get solved if we put it on small business owners. Online review platforms are valuable forums that benefit everyone if we keep authenticity at the center. Let’s take a few small steps to clean them up.

Toby Scammell is founder and CEO at Womply, a CRM and marketing software company serving more than 150,000 American small businesses.

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