Business Model

As we mentioned, PowerReviews provides the reviews service for free. The business model is based on monetizing the review content through advertising and pay-per-click mechanisms from their shopping portal (not yet launched, but you can get a sneak peek). The popularity of the shopping portal will probably hold the key to monetize PowerReviews services, so a lot hangs on its success when launched.

This distributed user review model might just succeed in breaking Amazon.com‚Äôs stranglehold on user-generated product reviews. No wonder other players ‚Äì e.g. Bazaar Voice and Mwave ‚Äì are also active in the market, albeit with different monetization models. 

Potential Issues

The devil though might be in the details. To sign up retailers, who are focused on pushing products and generating revenue, PowerReviews has to provide flexibility for retailers to pick and choose reviews (imagine a review which recommends a product that the retailer does not carry!). This means that PowerReviews has to maintain a custom set of data for each retailer and a process for handling all new reviews, on a day-to-day basis. Which potentially increases the cost of providing the service.

User Reviews Aggregation

Another significant issue is likely to be UI and data integration. Web retailers are usually very concerned about developing a site that is easy to use and has a consistent look and feel. As such, embedding PowerReviews content is going to require significant customizations. For example see the depth of integration needed at RitzCamera (a PowerReviews customer). 

Also, retailers are expected to have slightly differentiated products and bundles in order to provide unique value propositions to their customers - and to retain some pricing power. Indeed, beta users can already see some duplicate products being displayed on the shopping portal (see Cameras). To address this, PowerReviews will need to maintain a master catalog of all different products and bundles, with information about which products and bundles map to each other. The need for this kind of data integration and UI integration is going to impose significant costs on PowerReviews and the retailers.

Review quality

Any business that provides product reviews as its core value is likely to only be as successful as the quality and credibility of those reviews. Now, ensuring the quality and credibility of reviews generated by users in such a distributed environment -- is going to be a tough task. Even Amazon.com, despite having a unified site, struggles with ensuring the quality of its user reviews.

To address the issue of credibility of reviews, PowerReviews has introduced the concept of ‚ÄúVerified Purchaser‚Ä?. A ‚ÄúVerified Purchaser‚Ä? is a person who a retailer identifies as having purchased the product under review. While this mechanism is likely to address some credibility issues, it still might not be effective - as retailers might be reluctant to share information about the reviewer‚Äôs purchases with PowerReviews. Since most retailers allow anonymous users to post reviews, it is easy to see how people might go about gaming the system. To address this potential issue, PowerReviews moderates each review (some of it is delegated to the retailers). Again, this could be a very expensive process and might introduce unforeseen biases in the data. A potential solution here could be to build a reputation system for reviewers (similar to Amazon.com‚Äôs top reviewers) that incentivizes and rewards reviewers for submitting quality reviews. But again, such a system is going to be hard to setup and manage, in a distributed environment.

Conclusion

In summary, PowerReviews sounds like an interesting startup with a lot of promise. They are likely to run into a number of marketing, burn-rate and data quality issues – none of which seems insurmountable though. It’s going to be challenging, but if they pull it off then they will be a significant player in a big money segment.