Putting Your Customers to Work
By Oliver Ryan FORTUNE reporter

(FORTUNE Magazine) - Ever since the first book review was written on Amazon.com (Research) in 1995, online shoppers have relied on one another for product intelligence. Whether it's a flat-screen TV or a Crock-Pot, someone somewhere has reviewed it, often in frightening detail. But despite Amazon's success, few other retailers have embraced reviews on their sites.

"Every year it came up, and every year we nixed it," says PETCO's vice president of e-commerce, John Lazarchic. The problem? "We had no knowledge of what the return on investment would be." Retailers of all stripes have been scared off by the cost of managing an online review community, not to mention the prospect of negative reviews and unforeseen legal liabilities.

Now, however, two tech startups with A-list VC backing are looking to break the impasse with hosted models that shift much of the cost and risk. And big names, including PETCO (Research) and CompUSA, have already signed on. Harnessing the seemingly inexhaustible spirit of volunteerism that has powered MySpace and Wikipedia, the budding industry has the promise to affect inventory management, marketing, and consumer service.

Austin's Bazaarvoice, which has been operating in beta form since the fall and officially launched in January, charges as much as $8,000 a month to handle everything from designing the review area on a retailer's site to moderating discussions and analyzing user comments. PowerReviews of Millbrae, Calif., delivers similar features but doesn't charge clients. Instead it retains the right to post the reviews at powerreviews.com. (The goal is to build an ad-supported destination site that competes with the likes of Bizrate and Shopping.com.)

CompUSA, a client of Bazaarvoice, reports that reviews--which show up on search-engine result pages--drew 20,000 additional visitors to its site in December. What's more, those visitors were 50% more likely to buy. PETCO has found another benefit: using Bazaarvoice product reviews in its advertising copy. Increased traffic is nice, says PowerReviews CEO Andy Chen (who also founded Fogdog.com), but the big opportunity for retailers is to mine this new customer feedback.

"A focus group can cost $5,000 to $10,000 for 20 people," says Chen. "I can give you feedback from 5% of all your buyers for free."

Oliver Ryan is a reporter at FORTUNE magazine. You can reach him at oryan@fortunemail.com.

Why Amazon's effort to compete with iTunes will fail. Top of page