BUSINESS WEEK ARTICLE
How Good Are the Gomez Ratings?
Secrecy and selling data to brokers it ranks draws fire
For online brokers, getting a top rating from Gomez Advisors Inc. is like winning an Oscar. 'It's the Academy Awards of online brokerage,' says Douglas Doyle, director of product marketing for E*Trade Group Inc. (EGRP) And no firm was happier than E*Trade when Gomez, which calls itself 'The eCommerce Authority,' named it the nation's top broker. On Sept. 29, E*Trade took out full-page newspaper ads to boast of its accolade and plastered the award on its Web site.
But the high-profile Gomez ratings, which are updated quarterly, are coming under fire. Companies rated by Gomez, as well as rivals in the online-ratings business, question the objectivity of its rankings. The problem: Gomez doesn't disclose the criteria used in its ratings and generates all of its revenue by selling advertising on its Web site and market research to the companies it ranks. 'Their system is subject to bias,' says Farhad Mohit, president of rival online-ratings service BizRate.com. 'If a top-rated company is a top advertiser, are they going to easily be knocked down in the rankings?'
But Gomez CEO Julio Gomez insists he maintains a strict separation of church and state. 'There is nothing that can be bought in terms of our rankings,' he says. 'Our integrity is paramount.' He says his ratings are based on 250 criteria that he keeps confidential for fear that competitors will clone his system. 'Am I supposed to give a couple of college kids the blueprint for my business so they can knock it off?'
What you see on the Web site is a summary scorecard. Right now, for example, Gomez rates E*Trade tops in ease of use, but the Web site does not detail what criteria Gomez used to determine that. Firms rated by Gomez can buy data that might help them improve their sites and thus move up in the rankings. At a cost of $24,000 to $48,000 annually, depending on the size of the firm, they can gain access to about 40 criteria, along with a host of other data, Gomez says. Gomez recently launched a Web-based version of its research service, called GomezPro, which Gomez calls 'the platform for the next generation of knowledge transfer and market intelligence for e-commerce.'
Many online brokers consider the Gomez ratings an important evaluation of how they stack up. But some industry execs question the Gomez research service because it encourages companies to 'pay to play,' says one former Charles Schwab Corp. exec. When Schwab's Gomez rankings slid into the teens in early '98, company execs said they asked the firm what they needed to do to improve their standing. The firm suggested Schwab sign up for its consulting service. 'We didn't care to associate with them at first because of the appearance of a conflict,' says the exec. A Schwab spokeswoman denies that there was any hesitation in signing up with Gomez and says: 'They provide thoughtful, first-rate information.'
WHY THE MOVE? Gomez says Schwab eventually did sign up and received 'a general analysis of the site and recommendations' about how to improve it. He says Schwab did not receive any detailed information from the scorecard data. But he adds that Schwab has implemented some suggestions and made others on its own, and that has moved Schwab up in the ratings. Schwab now ranks second behind E*Trade for overall performance.
Schwab isn't the only online brokerage that is buying Gomez' data. About half of Gomez' nearly $2.5 million in revenues over the past 15 months came from its research business, according to public filings with the Securities & Exchange Commission.
Gomez says he wants his firm to become the 'Consumer Reports of the Internet.' But he is taking a different approach from Consumers Union, which publishes Consumer Reports magazine (page 182). Consumers Union fully discloses the criteria it uses in its rankings and refuses any financial relationship with companies whose products it rates. It also refuses to let companies with top ratings promote that fact in ads.
PUBLIC PUSH. Consumers Union is also nonprofit, while Gomez is a classic Internet startup, pushing eagerly toward an initial public offering. Some 70% of Gomez' privately held voting stock is owned by Ashton Technology Group Inc., a publicly traded Philadelphia-based holding company for startup-stage technology companies. In April, Gomez Advisors, based in Lincoln, Mass., completed a $5.5 million private placement that requires the company to go public by April, 2002, or return the capital. Gomez says the process for an initial public offering is under way, and he hopes to go public early next year.
In preparation for the IPO, Gomez is rapidly expanding its ratings service into areas of e-commerce beyond financial services. So far this year, it has launched 19 scorecards for industries ranging from apparel to furniture. 'We are building a valuable tool for consumers,' he says. By yearend, Gomez says he'll have research products built around the scorecards for the retail, health care, and travel industries.
Gomez faces stiff competition in becoming a resource for online consumer advice. Many Net companies are developing consumer ratings services or have other approaches to guiding consumers through the maze of e-commerce. Yahoo! Inc. (YHOO) is starting to rate shopping sites, and Amazon.com Inc. (AMZN) offers products reviews and recommendations.
Gomez' most direct threat may be BizRate.com. The Web site claims to be 'the only independent shopping guide that provides unbiased ratings'--and develops its ratings through online consumer surveys, not Gomez-style staff research. BizRate recently entered into an alliance with Consumer Reports.
Gomez has a long way to go to make its Web site tops in the e-commerce ratings game. The site does not register among the top 1,500 measured by Media Metrix (MMXI), a leading firm that tracks Web usage. Boosting consumer confidence in its ratings might help it on its way.
By Geoffrey Smith in Boston |
