Trustpilot: approval seeking

Data may be the new oil, but trust is even more valuable. In the age of fake news and internet anonymity it is in short supply. Review site Trustpilot thinks the solution is an open-to-all online reviews platform. Hoping for positive feedback from investors, the Danish lossmaking group revealed plans for a London initial public offering on Monday at a reported value of £1bn.

Consumers want assurances that goods and services purchased online come from reliable suppliers. For companies that list on review platforms such as Trustpilot or Yelp, there is an incentive for groups to seek positive public feedback. Trustpilot has honourable motives. But trust and online anonymity are uneasy bedfellows.

Anyone can leave a review about any company on Trustpilot’s platform. Sales are generated from companies that pay a subscription and that wish to promote their presence. That can include selecting customers to offer reviews. Revenues of $102m (£73m) last year mean the mooted valuation assumes growth will be sustained, delivered by powerful network effects.

External limits on reviews could scupper this. Last May, the Competition and Markets Authority opened an investigation into whether websites such as Trustpilot do enough to protect consumers from fake and misleading reviews. Incentives for reviews are part of the probe. Trustpilot has published a transparency report that noted the removal of 2.2m fake reviews last year. 

Will that be enough? Regulators should also look into the ability of client companies to have negative feedback taken down and to select friendly reviewers.

Online reviews are more popular than ever. Academics at the University of Cambridge found customer satisfaction was higher for energy groups that engaged with customers on Trustpilot.

But to justify its mooted valuation, Trustpilot must be able to do two things. First, emerge from regulatory scrutiny without serious damage to its business model. Second, satisfy the public appetite for honest reviews and corporate customers’ hunger for promotion. Investors should not put their trust in Trustpilot shares if either condition is unlikely to be met.

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