Some Thoughts On Transparency

Last week I had one of those conversations that kept re-asserting itself in other discussions in the days that followed. The conversation itself was not confrontation nor was the subject matter particularly uncomfortable. Briefly, a colleague and I got into a broad discussion about companies leveraging user-generated content (UGC)–specifically consumer user reviews of and feedback on companies, products and professionals–in particularly novel and innovative ways. While it’s axiomatic that there are significant businesses being built collecting, analyzing and publishing this content (and a great deal of value being derived therefrom), we both struggled with some of the issues coming to light around the impact of this kind of information when propagated without strict quality controls and proper diligence to ensure authenticity and accountability.

With little argument, the notion of delivering “transparency”  — in whatever form – has been at the underpinning of so many web-based business models in recent years. Additionally, with few exceptions, that goal has been a noble and appropriate one. Opacity has been the bane of so many consumers in so many markets that it scarcely makes sense to examine whether or not technology-enabled solutions seeking to open markets to greater and fairer competition have delivered long-lasting value to consumers.  Let’s stipulate that they have and just move on. 

Where things get sticky for me–and, I would imagine, for a growing number of investors and market participants — is the notion accepted almost as religion in some quarters that transparency is always and everywhere a market good. Heretical as it may sound, I think it is time that many in the venture and start-up community have an adult conversation about where and how full transparency is appropriate and about whether enough companies are living up to the weighty responsibilities that come with publishing information that can profoundly damage the reputations of businesses, professionals and/or their products or services.

Regular readers of Adventure Capitalist may recall that I have raised these issues in some form before, particularly in a piece on the state of online reputations. In that post, I drew some examples from the current legal (at least at that time) problems facing Yelp and similar sites from aggrieved small businesses. While I give Yelp and other sites credit for continually refining how reviews are collected, filtered and published, it is clear to me that we are a long way from being able to glean the true benefit of anonymous user reviews and feedback without exposing people and businesses to the risks that reckless and unfair user comments can pose. I remain deeply committed to the notion that platforms that enable users to call out by name and rate/review businesses while those users remain comfortably concealed behind the cloak of anonymity creates a sweeping invitation for mischief.

In the months since that original post on online reputations, I have received an alarming number of reports–both confirmed and anecdotal–about consumers engaging in troubling practices akin to extortion whereby demands are made for deep discounts and freebies that those consumers are not entitled to from local businesses. The not-so-thinly veiled threat is that the consumer(s) will trash the online reputation of those businesses if the demands are not met.

Again, I firmly believe that the majority of users and contributors to online review/reputation sites act responsibly. That said, more work has to be done by companies that reside at the intersection of online reviews and reputation so that all participants are held to the highest standard of ethics and accountability. 

My hope is that this post will spur a discussion. I don’t purport to have an elegant solution to the problem inherent in user-generated reviews and feedback but I am becoming increasingly mindful of the backlash brewing in the small business community against online reputation and review platforms. I am also seeing some of the limits of transparency in specific marketplaces when the end result of that openness is not greater efficiencies and fairness in a given market but, rather, the same kind of unfair leverage, collusion and monopolistic power that transparency was meant to eradicate.

Online Reputations Are Dead. Long Live Reputations?

Some months ago I went on a bit of a rant in a post ostensibly about User Generated Content (UGC) against online sites that were, in my view, providing a dangerous outlet for irresponsible and unsubstantiated charges against businesses and professionals by anonymous posters. This subject has taken on renewed interest in the wake of the launch of new online services that will allow people to post comments on others’ personal reputations, as opposed to just feedback on businesses and professionals.

TechCrunch’s Michael Arrington has just done me one better with a thoughtful piece on the evolving nature of online reputations and how, according to Mike, we all need to just lighten up and embrace our indiscretions. While I applaud Mike for his somewhat Zen-line perspective on how to navigate a world increasingly open to mischief when it comes to reputations — one’s own and other people’s – I question some of his prescriptions.

To take liberties with an old cliché, in the future there will be two types of people – those whose reputations have been trashed online and those whose reputations are about to be. In truth, the notion that all of our online reputations will eventually be tarnished is not that extreme when one considers the avalanche of online data about every person remotely connected to the digital world and the freedom with which others can, legitimately or mischievously, add their own narrative – anonymously, of course.

Arrington would argue that the sheer volume of data that will be attached to our online reputations ultimately dilutes the value of online reputations in general. Thus, to fret about negative feedback from customers, or ex-employees, or bad dates, or old roommates, is unnecessary and unproductive. Data will level the playing field, so goes the logic. The bad stuff will be counterbalanced with the good — assuming others will come to your aid online — and the result of all your feedback will average out along with everyone else’s. The net of this will be that online reputations will become more and more meaningless, so why worry?

Interesting point. Where I would differ is that this “free market” or laissez-faire approach, predicated on data self-cleaning the good with the bad, will take a good long time and presupposes that fair-minded, well-meaning people will be equally vocal as people complaining or wishing to do us harm. As any restaurateur knows, this is hardly the case. Gripers always make the most noise and trump satisfied patrons. Happy customers usually just pay the check, push in their chairs, and go about their business; they will rarely take the time to sing your praises online — and certainly not as fervently as those who felt ill-treated and have an ax to grind.

Conceptually, I like the notion that the sheer volume of online information about us all (coming soon to a website near you!) will somewhat self-inoculate. I can’t be all that bad, the logic goes, because look at all the other people accused of being a lousy friend, noisy next door neighbor, inattentive date, sloppy kisser, or bad tipper. Moreover, I appreciate the Zen-like perspective of accepting our flaws — the idea being that the bad stuff we’ve done is going to come out anyway so why not just embrace it, neutralize it, and move on? Sounds very New Age and I’m sure it would have saved countless political careers over the past decade that have come to ruin over allegations that might have had a more muted impact had the offenders shrugged them off instead of resisting mountains of evidence. As the saying goes, it is rarely the act; it is more often the cover-up.