Page last updated at 15:38 GMT, Monday, 18 February 2008

The high cost of a good reputation

eBay mugs on sale, AP
The changes Ebay made have upset many users of the auction site

Auction site eBay doesn't trust sellers to behave honestly. Bill Thompson isn't surprised.

Unlike some of my friends and family I'm not a heavy user of online auctions, and although I have an account on eBay my reputation as a seller or buyer doesn't really matter that much to me.

At the moment I've got 100% positive feedback but the number of transactions is so small that it doesn't really signify.

However, heavy sellers and those who make a substantial proportion of their income from the site care deeply about the reports they get from other buyers and sellers.

Their concerns about negative feedback are well-grounded: In 2002 Paul Resnick and his colleagues did a proper randomised control experiment to assess the value of an eBay reputation, looking to see how much people would bid for articles from sellers with different scores.

They found that sellers with established reputations can expect about 8% more revenue than new sellers marketing the same goods.

Bill Thompson
The move is being seen by some as a clear indication that the brave new world of online communities is faltering
Bill Thompson
Over the years the reputation system has received a lot of attention.

Cheerleaders for crowdsourcing, hive minds and the wisdom of the crowds like to point to eBay as an example of a working online community where little intervention is needed, a "self-governing nation-state" that essentially manages itself, according to Thomas Friedman in The World Is Flat.

Unfortunately, however, like many other communities that seem to be happy and relaxed but are in turmoil just beneath the surface, eBay is more like the fictional murder-prone village of Midsomer than the perfect market.

Buyers and sellers seem to be engaged in a war of attrition where negative feedback is one of the main weapons, and now eBay has announced that sellers will no longer be able to leave negative feedback on buyers, hoping that this will help to rebalance things.

Both sides in a transaction get to leave feedback on the site, but it seems that sellers are threatening to leave negative comments on buyers' profiles if they say anything at all critical, knowing that this will make it harder for them to trade in future.

When Bill Cobb, eBay's head of North American operations, announced the changes he admitted that "the biggest issue with the system is that buyers are more afraid than ever to leave honest, accurate feedback because of the threat of retaliation".

Honey bees on frame, SPL
The way eBay works has been likened to a colony of bees
The changes are deeply unpopular among the big power sellers on eBay. One survey of 1,640 readers of the AuctionBytes site found 90% opposed to them, and there are reports of a planned boycott by sellers, though the chances of concerted action by such a disparate group seem unlikely.

But eBay probably reckons that it can weather the storm and that its users will adapt to the new dispensation since the costs of setting up on another auction site are so high.

The move is being seen by some as a clear indication that the brave new world of online communities is faltering.

In the Financial Times Patti Waldmeir was sad that "the company has basically admitted that the cybersouk model does not work: buyers did not tell the truth about sellers, and sellers did not tell the truth about buyers. And in a market where traders lie, the trust that is so central to online commerce cannot flourish".

This seems to be an excessive response to the change, which is more about rebalancing the system than ditching the very idea of customer feedback.

eBay already relies strongly on external legal systems to support its business.

The company's "level of integration with and dependence on law enforcement is remarkable", as Jack Goldsmith and Tim Wu point out in their excellent book Who Rules the Internet, so taking some of the feedback elements away from the customers is not itself a radical shift.

No sale sign, Eyewire
Research shows a bad reputation can dent sales
Over time many communities find that they need to move from internal to external regulation, perhaps because the sheer number of members or the importance of the transactions between them grows.

We could see the development of policing in the 18th century as a similar process, one that reinforces community bonds by taking certain sanctions away from individuals and vesting them in the group as a whole.

In this light eBay's move marks a growing maturity, not a failure of nerve.

After all, as Nick Carr point out, no system managed by humans can be perfect or last forever.

"Sometimes, we're inspired by fellow-feeling", he says. "Other times, we act selfishly or with prejudice or we try to game whatever system we're part of. And the more times we're confronted with other people acting selfishly, or fraudulently, the more we retreat into self-interest ourselves."

eBay's reputation system did well for many years, and even with the changes in place it is far from useless for sellers or buyers.

Perhaps we should applaud the senior team for following Clinton, Obama and McCain, the front-runners for the US presidency, in being bold and embracing change instead of lambasting them for leaving a broken system in place just because they are afraid of the reaction.

Bill Thompson is an independent journalist and regular commentator on the BBC World Service programme Digital Planet.

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