NEW YORK (
) -- The notion that the reputation of a business relies on customer reviews can sometimes end up causing more harm than good. In the case of
, this marketing catch-22 presents a difficult choice for small service providers wondering if they should profile their company on the online review service.
Angie's List caters primarily to small businesses in the home repair/home renovation, auto and health professional industries. The premise is that businesses can be reviewed and rated on an "A" to "F" scale by customers at the local level.
It's up to business owners to decide whether being on a list that uses customer reviews to rate companies is the right one for them. In fact, while Angie's List is founded on reviews as a source of trust, a quick review of blog posts and tweets from users and commentators about the service is likely to raise as many questions as answers for the small business owner.
Online review service Angie's List is getting some mixed reviews itself.
Angie's List is currently available in 186 markets in the U.S. It plans to add more in the foreseeable future. The company has been around for 17 years, but it just went public in November.
To be sure, Angie's List has facilitated many positive experiences for members and listed businesses.
Yet some small businesses say the service isn't really worth it. These companies say either they don't get enough leads from the site or they don't trust the review process (even though Angie's List bases itself on providing quality reviews).
On the consumer side, the jury is still out on whether customers understand the business model and, frankly, whether they should trust such subjective comments from others.
For Angie's List, members (consumers) pay a fee for the right to rate service providers and access other members reviews on the website. Members can only write one review per service transaction. Non-members can also write reviews (but have limited access to the site). The site will not accept anonymous comments. Angie's List boasts that it has roughly 1.2 million memberships as of March 31, up more than 80% from a year earlier.
Businesses do not pay to be on Angie's List. Accounts can be created for free on the website, but the company does require an authorized user to be listed as a contact. The more positive reviews a business gets, the higher they will place in a member's search.
The premise that the higher your company is rated, the more customers you will acquire, should be appealing to businesses, Angie's List says. The service is an "effective way for reputable local service providers to shine," according to the company's S-1 registration filing with the
Securities and Exchange Commission
"The customer experience is becoming the new marketing. It's a good thing if the experiences are positive because it can spread much faster than old-fashioned marketing can, but if something goes wrong it can spread as well," says
, a customer service and marketing speaker, strategist, and author of
High-Tech, High-Touch Customer Service
. "The old rule that you can never win an argument with a customer is true times a million online. If you're arguing in public you can also lose the affection of everyone else who is watching the exchange."
Angie's List is a part of the crop of social online companies capitalizing on the trend toward customer-driven recommendations at the local level. Angie's List is competing in a space with
, among other names, which essentially offer the same services for free. (Yelp tends to be more for restaurants, leisure and hospitality.)
Yet the site has been getting some negative press lately. Stock critics complain that its business model is "unsustainable." Highly rated businesses on the site are encouraged to advertise. Currently, this is the larger source of revenue for the company compared with the member fees. Angie's List only allows businesses that are B-rated or higher to advertise. They cannot buy their way to raise their ratings or search listing. Higher-rated companies are also able to offer members discounted promotions such as the
-like "The Big Deal."
More recently, the company found itself embroiled in controversy over its decision to resume advertising with Rush Limbaugh last month, according to reports, even after the radio host made offensive comments about women in March that led to a defection of advertisers.
Angie's List declined to comment for this story, with a spokesperson saying it was in a quiet period due to the SEC filing. (The company announced Tuesday in the S-1 filing that it plans to raise $10 million from a sale of secondary equity. The proceeds would be used to fund further marketing efforts to drive membership growth as well as working capital, the filing says.)
, a certified landscaper and certified arborist, who runs his business in the Portland, Ore. area, has been on Angie's list since 2010. While he has gotten some business from the site, he says what concerns him is that he may actually be losing business based on reviewers giving companies higher ratings than they actually deserve.
"You're gambling because you're taking opinions from people that don't know enough to really know if what they think is good is really good. In some areas they can be correct," like customer service, billing, friendly workers, etc., but when it comes to skilled technicians, it's too subjective, Vaden says.
"The value proposition we offer to both consumers and local service providers strengthens our position as a trusted resource and allows us to derive revenue from both members and service providers," Angie's List says in the SEC filing. "As more members contribute reviews to our service, we increase the breadth and depth of content offered to members, attracting more members and enhancing the value of our service to reputable local service providers, for whom our members constitute a large pool of qualified customers for their services."
"My experience of knowing some companies on
Angie's List -- some of them I'm on good terms with -- and based on my knowledge and technical expertise I could see it having a lot of risk to the customer," he says. Vaden does not pay Angie's List any fees.
This could also be true in terms of reviewers who may hold a grudge.
Vaden says this happened to him. While most of his reviews are positive on the site, he received an "F" rating from a customer who he had some initial conversations with, but in the end with whom he did not do business.
According to Vaden the customer wanted a landscaping estimate from him, but when she told him she was getting estimates from other landscapers, he wanted to ensure his competitors were in fact state-licensed landscapers. Vaden said that rubbed the customer the wrong way and they parted ways. The woman ended up writing a poor review of Vaden's company and submitted excerpts of their emailed conversation to prove her point. Vaden responded with the rest of the email to prove his case.
Vaden says because of that review his rating has been lowered.
Situations similar to Vaden's Angie's List frustration can be found at websites like
, which lets consumers vent about poor customer experiences.
Other small businesses say while they have indeed completed profiles on Angie's List, the extra business has yet to be seen.
Dianne Jaramillo, who is responsible for marketing at
, a swimming pool service and repair service company located in Mission Viejo, Calif., says she keeps tabs on the company's profile and reviews for the potential clients it can bring in. That being said, the company has had only a few calls from interested members. Another Perfect Pool has not received any poor reviews from Angie's List members, according to Jamarillo.
Cindy Donaldson, the director of Marketing and Sales of
in Torrington, Conn., says she completed a profile of her company a year ago for similar reasons to Jamarillo.
"For the insurance industry, I'm not really sure that it's the place where people are going to look for insurance. It's much better for contractors, plumbers -- that kind of thing," Donaldson says. "For us it's the fear of not being on it. I want to make sure that if somebody is going to make a comment on there .. it's the best perception of who we really are."
So far Donaldson hasn't had anything to worry about. The company hasn't received any comments, but there may be a reason: They haven't had business from Angie's List as far as she knows.
-- Written by Laurie Kulikowski in New York.
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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.