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Opinion Papers

The Importance of Online Reputation Systems

As difficult as it is to determine the reliability or trustworthiness of businesses, people, products, and services in the real world, it is exponentially more difficult on the Internet. Anonymity and privacy are keystones of life online, but safety and security can suffer. Online enterprises and the online community as well as government are beginning to explore solutions.

An online reputation system would solve this problem. It would collect, aggregate, and provide information to anyone on the historical behavior or performance of organizations, individuals, products, and services. It also would preserve individual privacy. Some popular but limited pioneers include BizRate, on which customers rate the performance of businesses; eBay, on which buyers and sellers rate each other's performance; Epinions, which provides expert product reviews; and another expert site, Slashdot.org, which provides "news by and for nerds."

As more and more people use the Internet when making important decisions -- about employment, finance, love interests, or costly purchases, for example -- with significant consequences for their lives, they need easier access to comprehensive and reliable information. This information must be quantitative as well as qualitative; it must be from various online and offline sources; it must be consolidated; and it must maintain anonymity.

We need to develop a reputation system for individuals who participate in peer-to-peer interactions and transactions such as in chat rooms, with dating services, and on auction or fixed-price sites. There are some existing solutions, but they are limited to rating businesses, products, or services, or to customers of a single site. What Internet users need is a universal system. As the Internet becomes a part of everyday life for more people, evaluation is becoming more important.

Anonymity and Privacy vs. Safety and Security
Industry vs. Government Regulation

Anonymity is both the best and the worst aspects of the Internet. It liberates users from the superficial limitations of age, ethnicity, and gender; however, it also conceals the identities of unscrupulous users. Although the amount of fraud and other illegal activity on the Web is not the epidemic the nightly news often suggests, there is significant reason for concern. In particular, the avoidance of knee-jerk government action.

Of approximately 325 million Americans, an estimated 222 million used the Internet in 2004.* According to the Internet Crime Complaint Center (IC3) Internet Fraud Report prepared by the National White Collar Crime Center and the FBI, in 2003 the IC3 received 124,509 complaints primarily related to the Internet, of which 95,064 were referred to law enforcement agencies. The complaints reported auction fraud, non-delivery, and credit or debit card fraud, as well as computer intrusion, spam or unsolicited e-mail, and child pornography. The IC3 referred 63,316 complaints of fraud, the majority of which were committed over the Internet or similar online service. The total dollar loss from all referred fraud cases was $125.6 million. Internet auction fraud comprised 61% of referred complaints. Undelivered merchandise and failure to pay accounted for 20.9% of complaints. Credit and debit card fraud made up 6.9% of complaints. The remaining complaints reported check fraud, identity theft, business fraud, and investment fraud. *Internet usage information is from data published by Nielsen//NetRatings, by International Telecommunications Union, and by other reliable sources. For more information, please visit InternetWorldStats.com.

In light of these statistics, should government intervene in Internet commerce and community? No! That government involvement can create inefficiencies is an understatement. Control by the people can be much more effective, and the private sector is both willing and able to implement non-intrusive self-regulation.

There is no need to reveal an individual Internet user's real identity. Although probably effective in reducing fraud, it also would be a heavy-handed approach that would take away the privacy rights of the vast majority of Internet users who are law abiding. The technology is available to construct and present a virtual identity of a user, including information on what kind of person the user is and what he or she has done online in the past. It isn't necessary to reveal who a person is, just what he or she does. This gives other Internet users the data they need to make informed decisions about interacting or transacting business with each other. This in turn builds consumer confidence, which benefits not only peer-to-peer businesses, but also online business in general.

Peer-to-peer reviews and related information about individual users are the only effective way to reduce fraud without affecting privacy. Granted, community-based trust and security models aren't perfect -- there are no perfect solutions -- but they get the job done without compromising privacy, which is one of the great benefits of the Internet.


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