Fake online reviews cost $152 billion a year. Here's how e-commerce sites can stop them

Online reviews will influence $3.8 trillion of global e-commerce spend in 2021, according to a new study. This is, in theory, a good thing. In their most ideal state, online reviews serve a valuable economic function for all parties in a transaction. These nuggets of wisdom and caution help to bridge information asymmetries between buyers and sellers providing information that may not be otherwise disclosed.

However, as with many areas of the internet, while there are well-intentioned valid users, there are also malicious users and bots. In fact, this issue is significantly affecting ecommerce authenticity and even revenue.

Using official figures and self-reporting by the world's leading e-commerce sites (including Trip Advisor, Yelp, TrustPilot and Amazon) on average we find that 4% of all online reviews are fake.

Translating this into economic impact, the direct influence of fake online reviews on global online spending is $152 billion.

This problem can be further broken down into the impact of fake reviews on review-influenced e-commerce in some of the biggest e-commerce countries. Fake online reviews influence $791 billion of e-commerce spending annually in the US, $6.4 billion in Japan, $5 billion in the UK, $2.3 billion in Canada and $900 million in Australia.

Why are fake online reviews so resilient?

A significant reason is because the return on investment of soliciting fake reviews make them highly profitable. An extra star on a restaurant's Yelp rating can increase revenue by 5% to 9%. The Federal Trade Commission has shown that the outlay on fake reviews can provide a payoff times twenty.

For instance, in an enforcement case against Legacy Learning Systems Inc. it was found that $250,000 outlay on fake reviews generated more than $5 million in sales.

The deployment of fake reviews causes a substantial short-term rocket in organic search positions and sales ranks lasting four weeks, even after deletion or detection. And by using fake reviews, bad actors are able to "bootstrap" their reputations with fake information.

In general, the eventual culling of fake reviews occurs after around 100 days, giving fraudsters enough time to turn a profit. Like other online markets, such as ad fraud, the economic benefits outweigh the risks and costs of being caught. This incentivizes bad actors and the ongoing growth of this underground economy.

The trading of fake online reviews has become standardized with groups,

commission structures, and loyalty schemes. Payments change hands from around 25 cents to $100 per review. Marketplaces include online private groups that increasingly solicit buyers to purchase their product and leave a five-star review in exchange for a full refund, and in some cases a $5-10 commission. Some 23 fake-review related groups operate per day.

Just one automated operation can generate an unlimited number of fake reviews across the e-commerce landscape – and it doesn’t even require programming skills.

1. Identify and filter invalid reviews

Since reviews are often placed by bots rather than valid users, it is important to identify these invalid users and mitigate risk accordingly. The key is to get ahead and stop the reviews from happening in the first place.

Knowing where the risks come from and acting fast are key. The most basic fake review bot attack could be created and executed within a few hours.

Businesses can retaliate by ensuring that fake users on review sites aren’t making their way to a company’s site and by deploying customer acquisition security technology to ensure marketing efforts are going towards potential customers rather than malicious bots.

2. Protect global economic growth and small businesses

The direct costs of fake online reviews refer to the immediate losses imposed on society by the crime or attack. However, the US government has suggested that to best understand the cost of harm, estimates should consider both the financial and non-monetary effects.

By gaining a better understanding of how fake online reviews affect different industries and markets, the risk they pose to a specific business can be more accurately gauged and will reveal how that has a domino effect on other businesses and revenues. Education can be the first step toward better protecting an online reputation.

3. Get ahead of enforcement costs

The high price of court cases brought about – both by public bodies and competitors fighting each other's alleged treatment of fake reviews – is a major indirect cost that could be added to the $152 billion direct loss. The costs of enforcement, lawyer's fees, court time, executive and employee headspace, and litigating over fake reviews can stretch into millions of dollars.

When businesses protect their reputations by blocking online reviews through a few simple development steps, these costs can be minimized. The problem will only multiply if left to fester, as new technology brings new bots into the area. But if companies actively filter out these kinds of reviews they can ensure enforcement costs are as low as possible.

4. Prioritize action against fake reviews

Negative reviews can cause a negative economic impact on businesses, and when they are created by bots and invalid users they can be even more frustrating. In one case in Australia a plastic surgeon claimed that his business dropped by 23% in the week after a fake review was posted.

In a court case in 2018 (United States District Court Eastern District of California) California based Super Mario Plumbing said their business dropped 25% and were forced to reduce the work of two employees as a result of a competitor's fake review. Elsewhere, an Ottawa shop selling dumplings cited the time and money they spent: “It took 10 days for 13 years' worth of work to break down [the issue]”, says Kamilla Riabko of Ottawa Perogies.

By protecting online reputations and by blocking and filtering online reviews businesses protect their revenues. It’s understandable that unsatisfied customers might leave some constructive criticism here and there, but if bots are taking over your review platforms, then minimizing fake reviews should be a priority.

5. Maintain trust

The presence of fake reviews causes a loss of confidence, with 85% of consumers believing the reviews they read were "sometimes or often fake". Elsewhere, Bazaarvoice found 28% of respondents said a fake review would cause them to distrust other reviews, and 26% said it would lead them to distrust the brand.

Eliminating fake reviews when possible doesn’t just help with revenue and authenticity, but it also helps maintain trust among your existing and future customers. When consumers realize that a brand cares about promoting and championing the truth, they tend to want to continue to buy the service.

The ease and access to fake reviews is only increasing whether by humans or botnets, click farms or groups. This makes online reviews one of the largest markets hit by bad actors and among the costliest in economies where e-commerce has been further expanding during the COVID-19 pandemic and continues to grow.

This confirms a European Commission report citing fake consumer reviews as one of the most market-distorting factors in e-commerce causing severe consumer detriment. It has become a clear economic necessity to act against fake online reviews and further diminish the reach of bad actors undermining online buying decisions.

Taking necessary steps to minimize these risks positions brands as trustworthy and authentic and helps to expand businesses among authentic users.

Invalid traffic exists everywhere – but there are tools available to help mitigate these risks – not just on review sites but in the customer acquisition funnel and beyond. Businesses should act now.