Anyone who uses a cab-hailing service such as Uber or Ola will have noticed this. Pretty much every driver is rated over 4.5 on 5. The really good ones hover around 4.7 and their very worst tend to be just below 4.3. It is as if the rating system wants to tell us that even the most horrible cabbie is actually very, very good. Compare this to how horrible movies routinely get rated around 2 or 3 out of 10 on a site like IMDb. There clearly seems to be a different definition of what ‘good’ is in the gig economy. One can see this trend elsewhere too in the many marketplaces that the startup revolution of the past decade or so has created. Seller ratings are almost always overwhelmingly closer to 100% and not as spread out as one would expect such ratings to be.
Digging into this led me to an interesting paper, simply titled ‘Reputation Inflation’, by John Horton and Apostolos Filippas from New York University, and Joseph Golden, the CEO of Collage.com (on a side note, it really will be lovely to see more collaborations between academia and entrepreneurs in producing such papers that have the right balance of rigour and insight). After a comprehensive study, they established that this indeed does happen all the time in the gig economy and marketplaces that have cropped up in recent times. But it does not stop there; the researchers posit that this sort of reputation inflation happens because there is too high a cost associated with the ratings for those who receive them, and in turn that high cost influences those that give the ratings to inflate them. They established this by comparing how their ratings differed as soon as the costs associated were lowered.
This epiphany, that people use kid gloves if their ratings have a cost to those getting rated, has consequences for startups that are much more than something that affects marketplaces and gig economies. Because at the base of it all is a fairly fundamental humanistic thought that says “do not hurt someone if we can afford to not hurt them”. This explains why businesses are much more forgiving of small companies that provide Enterprise SaaS solutions, when compared to what they expect from a Microsoft or SAP. Even in the world of B2C startups, we see this. This pretty much, or maybe combined with the idea of ‘too convenient to fail’ that I talked about in my previous column, is the reason why a certain hyperlocal startup, the name of which rhymes with the sort of journalism that Hunter S Thompson practised, has such entrenched fans despite their many obvious shortcomings.
Startups also need to understand that while this gives them a leg up in taking on bigger companies, this is not an invitation for being mediocre. Even in cab-hailing services, the really bad drivers do get weeded out well before they start enjoying this magnanimity. And so it goes among startups too. You do get a longer rope because of the inflated nature of reputation, but if your hands are greased, you will fail all the same.
The author heads product at a mid-sized startup in the real estate space
