The power of consumer reviews is undeniable in influencing purchasing behaviours.  However, I think it’s time we got our telescopes out and took a peek into the firmament to see what is driving reviews and ratings behaviour – in particular to assess whether review sites actually give a balanced perspective on the good, not so good and sometimes bad businesses or products listed thereon.

The 5-star-ratings model is the de facto standard for review sites.  But is the distribution of stars uniform over the 5-point range?  It would appear not … as this distribution from Yelp in September shows.

A whopping 67% of all reviews on this very popular site gave either 4 or 5 stars.  A measly 15% of reviews gave businesses 1 or 2 stars.   Why is this the case? and should we be worried about it?

I’ve just finished reading an intriguing report by Jupiter Research on the use of Web 2.0 technologies in Retail that highlighted a couple of very salient findings. For a start Jupiter underlined just how central reviews and ratings are to online purchasing decisions today as it found that 77% of US online shoppers look at product reviews and ratings.

But what really caught my attention was the difference in consumer behaviour after a positive and a negative shopping experience online.  Consumers are, according to the research, more likely to take a survey (43%) after a good experience than a bad one (17%), more likely to tell friends about good experience (31%) than a bad one (21%), and more likely to write a product review about a product they liked (9%) than one they didn’t (4%).

So it does appear that as consumers we really only want to tell the good news and this results in reviews being skewed towards the top end of the scale.  If this pattern of behaviour holds true then I would argue that the 5 point scale is potentially flawed as it presents an illusion of objectivity and a paucity of insight –   If 67% of the restaurants in a town I want to visit have 4 or 5 stars, how do I then choose between them?

And this gets me onto a second concern which is the trouble an aggregated star rating system has in conveying the richness of a product or service experience.  Julian Blom at LBi sent me this picture that illustrates the problem beautifully.

In this case a ‘neutral’ three star product rating is given based on the reviews of two consumers with polar opposite opinions.  This example shows that any aggregated rating system suffers from the degree of freedom it has from the original consumer experience.

Compound this distance from the original experience with the fact that consumers tend towards giving positive rather than negative reviews and I can’t help thinking that star-based review systems may have some fundamental limitations.

Looking beyond the instant gratification of a star rating, an alternative approach to getting deeper insight into a product or service experience, and the quality of the business providing it, is available through sites such as Get Satisfaction that enable consumers and businesses to interact openly around product or service issues.

Agencies, hosting companies, and domain registrars will all be rubbing their hands together at the opportunity to breathe new life into their business models. But I can’t quite help feeling that the whole shebang seems just a little passé …

On the Web the first time round, we all rushed onto the beach flinging our towels down and claiming our individual space. After a while we caught on that actually everyone was having fun at the bar, so we left our umbrellas where they were and joined the party. That’s Web 2.0.

Social networking is largely domainless (who cares or knows what my Facebook URL is!). What matters are the interactions on the platform and between platforms through data porting. So my Tweet is syndicated to my Friendfeed and then displayed on my Facebook profile. The ‘address’ of this information is actually irrelevant. The important bit is the community with which I am sharing my content and time.

The social Web is changing the landscape of ecommerce too. Some recent research from Quidco found that 62% of shoppers consult online communities before making a purchase. And that only 27% of consumers go directly to the retailer. And the top three reasons …

1. communities offer me unbiased facts about products and services (32%);

2. I trust the views of communities more than merchants (27%);

3. communities help me find the best deal available (27%).

Given the above, is spending a fortune to ‘protect the brand’ with a custom domain (and then spending even more to drive traffic to it) a worthwhile activity? Or should businesses take part in the communities where customers are already talking about their brand, engage them and turn them into advocates? In other words, will a hotel chain get more customer value out of a .hotel TLD, or a series of positive reviews on Tripadvisor? I strongly suspect the latter.

This is really a big business dilemma as SMEs won’t typically have the marketing budgets to worry about securing a new TLD. That could turn out to be an advantage, as whilst the big brands buy better picks and shovels to take part in the new gold rush, small business can be down at the saloon mixing it up with their customers and doing real business.

Two broad questions jumped out at me on this issue:

1. What role should communications play in online commerce?

2. Can ‘open’ communications work within a ‘closed’ walled garden?

The answer to the first question is actually very straightforward. Communication is at the heart of all commerce. People do business when they converse. Today that interaction between buyer and seller may be an email, or IM, or a blog comment, or just reading a review. But it could be also be video chat and will often be a plain old telephone call. In practice, the consumer journey moves between different modes of communication at different stages of the sales cycle and in no particular fashion.

The challenge then for players in online commerce is to facilitate these interactions between buyer and seller – to provide the touchpoints that take the commercial discussion a step further to a conclusion that could be online or offline. The good news is the tools are there today for developers. Acknowledging my BT-bias, BT’s Web 21C SDK is a great example of a set of web services that enables developers to integrate communications services into the fabric of their application/user experience. The likes of Jangl, Jaxter and indeed Skype promise similar.

However today, the leading lights of online commerce have held back from embracing communications as web services and embedding them as linchpins of their user experience. This brings us to question 2.

Communications, especially voice-based ones, threaten any web site with a business model based on containing interactions between its members within a walled garden. Taking the discussion off site fuels the grey market in a nutshell.

And so we have a conflict … buyers and sellers want to interact in many different ways in the sales cycle, but online markeplaces want to constrain those interactions to a narrow set that fit their business model. As I see it wherever there’s a conflict between people’s needs and existing solutions, there’s a massive opportunity, particularly in the realm of online commerce that is still very underdeveloped in the SME market. And that’s the opportunity the team at BT Tradespace is working away on – to build a platform that will facilitate conversations between businesses and their customers such that they can do business on their terms.