• by Ross Fadner , December 19, 2004

Publishers of online business directories must include ratings, reviews, and other social networking elements to draw consumers to their sites, according to a new report of The Kelsey Group.

The report, "Social Networking: Building a Better Local Online Marketplace," reveals that consumers today use social networking platforms for a variety of activities from finding referrals for services providers such as doctors or babysitters to help in buying or selling used merchandise like computers, coffee tables--even cars.

"Online word of mouth is very, very powerful," said Greg Sterling, managing editor and program director of The Kelsey Group. He pointed to sites such as Craigslist and eBay, saying they prove the effectiveness of word of mouth--particularly with the 18-34 demographic, which no longer uses print newspaper classifieds as a local market reference.

"Word of mouth is also the most effective source of leads for local businesses," Sterling added. Including reviews in business listings are also a good way to build consumer loyalty--provided the publishers don't attempt to manipulate consumer discussions, said Sterling.

Still, while user reviews can help businesses, including them in directories presents challenges. For one thing, said Sterling, convincing consumers to take the time to share opinions can be difficult. It's a lot easier, said Sterling, to convince someone to review a movie than the local dentist.

Another roadblock is that many publishers will be reluctant to add reviews or ratings, because they fear that bad reviews will alienate their advertisers.

But Sterling said that online Yellow Pages publishers will have to adapt in order to meet the increased demand for unbiased user-generated review. Otherwise, he warned, Yellow Pages publishers risk losing market share to sites such as CitySearch.

Some product vendors and content providers are also starting to add ratings and reviews. Online movie rental service Netflix, for example, recently added ratings and reviews to its Web site in an attempt to compete with Blockbuster Video.

At the other end of the social networking spectrum are "super-communities," such as Friendster, LinkedIn, ZeroDegrees, and Tribe. The report notes that in the long term, it's unclear whether these social networking communities can sustain themselves once growth stabilizes. Sterling said the market will likely consolidate, as there are currently too many similar sites with unstable business models. One of the first examples of this consolidation happened in May, when online classifieds giant Monster Worldwide acquired online dating and networking site Tickle.com.