The Digitization of Word-of-Mouth: Promise and Challenges of Online Feedback Mechanisms

Abstract

Online feedback mechanisms harness the bi-directional communication capabilities of the Internet in order to engineer large-scale word-of-mouth networks. Best known so far as a technology for building trust and fostering cooperation in online marketplaces, such as eBay, these mechanisms are poised to have a much wider impact on organizations. Their growing popularity has potentially important implications for a wide range of management activities, such as brand building, customer acquisition and retention, product development, and quality assurance. This paper surveys our progress in understanding the new possibilities and challenges that these mechanisms represent. It discusses some important dimensions in which Internet-based feedback mechanisms differ from traditional word-of-mouth networks and surveys the most important issues related to their design, evaluation, and use. It provides an overview of relevant work in game theory and economics on the topic of reputation. It discusses how this body of work is being extended and combined with insights from computer science, management science, sociology, and psychology in order to take into consideration the special properties of online environments. Finally, it identifies opportunities that this new area presents for OR/MS research.

Keywords: Online Feedback Mechanisms, Reputation Systems, E-commerce, Internet, Game Theory, Management Science, Operations Research