http://www.business2.com/content/magazine/ebusiness/2001/03/12/27491#


Settle This
Which technology resolves disputes best?
March 20, 2001 issue

Michael Grebb

St. Louis retiree David Hubert couldn't have been happier to score a replica 
of a $3,000 Charles Eames leather chair on eBay -for only $450. When it 
arrived, he tore open the box, pulled away the bubble wrap, and immediately 
sunk into the chair to ease his bad back. "As soon as I sat in it, I could 
tell...whoa, this isn't right," he says. "It had a bad mildew smell-I mean, a 
really bad mildew smell." Distraught, Hubert emailed the seller to demand 
that he either pay to clean the chair or take it back. The seller refused. 
"He basically stonewalled me," Hubert says. So Hubert filed a grievance with 
SquareTrade, a San Francisco-based startup that helps resolve disputes on 
eBay.

A SquareTrade online mediator-a real person who corresponds with both parties 
via email-immediately began negotiations. After a week of back-and-forth, the 
seller finally agreed to send Hubert $150 to have the chair cleaned. Hubert 
and the seller never were in contact. "I think it went really smoothly," 
Hubert says.

Mediation has been a popular alternative to lawsuits to resolve disputes, 
especially those involving small amounts of money. For businesses, conflicts 
between state and international laws have made dispute resolution costly, no 
matter how big the transaction.

With $657 billion changing hands through Internet transactions worldwide, it 
comes as little surprise that a raft of new dot-coms plans to move the 
mediation process further online. Everyone expects online mediation to grow 
as the number of transactions conducted online continues to grow. "Regardless 
of the market fluctuations and a fair amount of blood on the street, 
ecommerce is here to stay and is growing at a steady pace," says Steven 
Abernethy, president and CEO of SquareTrade. "There is wealth of commerce 
online to keep us and others busy for a while."

The American Arbitration Association estimates that dispute resolution is a 
$200 million-a-year industry, but there's no way to know how much of that 
would migrate online. "I'm not sure it would necessarily shift," says 
association spokesperson Toni Griffin. "Online transactions may simply 
generate more disputes, which would grow the whole market." American 
Arbitration-the largest dispute resolution company with 140,000 cases per 
year as of 1999 and $65 million in annual revenue-recently announced its own 
online mediation business.

Online mediators agree that easier dispute resolution will drive faster 
adoption of ecommerce by businesses and consumers, many of whom may now avoid 
online transactions for fear of getting hosed. According to Forrester 
Research, two-thirds of businesses say they would not conduct an online 
transaction with a party they don't already know.

What they can't agree on is how to use technology to resolve disputes. Some 
companies, such as SquareTrade, eResolution, or Online Resolution, have had 
experience resolving disputes. They are mediating disputes online simply by 
substituting an online chat session or email for the conference table or 
telephone. But a few upstarts say these companies aren't harnessing new 
technologies that allow mediation to be automated.

"This is not as simple as slapping up a Website," sniffs Charles Brofman, 
president and CEO of Mount Kisco, N.Y.-based Cybersettle.com. He doesn't 
mediate disputes but offers an automated blind bid system to negotiate 
settlements when liability has already been established. Here's how it works: 
The aggrieved party enters a demand; the liable party enters the most it will 
pay (Neither side sees the other's entry, hence the term blind bid.) If the 
numbers are within 30 percent of each other, the software automatically 
splits it down the middle and settles the claim. For each dispute, the 
parties get three tries, after which they must start over if their entries 
still haven't come within 30 percent. The company says the site can handle as 
many as 10,000 simultaneous sessions per second.

Brofman says he has signed insurance companies to flat-rate subscription 
plans in which Cybersettle offers discounts for a certain number of claims 
per year. "This system just takes all of the ego and personality and whittles 
it down to what it should have been-settling the claim," he says. That's 
especially important, he says, for international disputes in which cultural 
differences can muddy an otherwise objective claims process.

Rival clickNsettle.com offers a service similar to Cybersettle's, but doesn't 
limit parties to three bids per cycle. Instead, it uses a monetary 
disincentive to stop parties from gaming the process. ClickNsettle doesn't 
set a bid limit, but charges a small fee for every settlement offer made. CEO 
Roy Israel says the fees are just annoying enough to keep parties from 
wasting bids on outlandish demands. "It eliminates the ridiculous," he says. 
"It keeps someone from asking for millions of dollars. It causes people to 
get real-real quick. No one wants to waste $100 on bids that don't go 
anywhere."

Israel criticizes Cybersettle's three-bid process, calling it inflexible 
because it "artificially terminates" the process even when parties haven't 
settled. And as you might expect, Brofman is equally skeptical of 
clickNsettle's unlimited bid system. "If you go to infinity, people just try 
to game the system," he says. "And once insurance companies realize you can 
game the system, they're not going to use it."

His clickNsettle.com was called National Arbitration and Mediation for eight 
years before adopting a dot-com moniker last year. "We're not just an 
Internet startup trying to capitalize on dot-com hysteria," Israel says. 
"We're a mediation business evolving into a Web-enabled business." In fact, 
its existing mediation infrastructure allows the company to give users the 
option of moving disputes offline if necessary.

The question is whether either Cybersettle or clickNsettle-or any of the 
other mediation sites-will catch on. "I'm skeptical of these automated 
mechanisms," says Forrester analyst Charles Rutstein. "It's a little too 
'Let's-let-the-machines-do-it.'" He wonders whether all the messaging 
back-and-forth makes sense for many disputes that could be easily settled 
using traditional means. "Just pick up the friggin' phone," he says.

Web Judges
clickNsettle.com , Great Neck, N.Y.
Specialty: Traditional claims process goes online
Selling point: Allows each side to bid until settlement is reached (with a 
60-day time limit)
Size: About 8,000 law firms as clients, as well as 500 members using its 
online component
pricing: The first party pays a $15 registration fee, each subsequent offer 
costs $10 for the first 20 days, $15 for the next 20 days, and $20 for the 
final 20 days

Cybersettle.com , Mount Kisco, N.Y.
Specialty: Automated blind-bid mediation service
Selling point: Future plans include an "online small claims court" to handle 
minor disputes
Size: 90 employees; claims more than 16,000 registered users
pricing: Fee scaled to size of settlement. If plaintiff receives up to 
$5,000, there is a $100 "success fee"; $5,000 to $10,000 costs $150; 
defendants' fees start at $100 for a settlement up to $5,000; more than 
$10,000, a $200 fee.

eResolution , Montreal
Specialty: Is also an applications service provider, licensing its software 
to other dispute resolution companies
Selling point: Honed experience settling domain name disputes
Size: About 30 employees
pricing: A sliding scale ranging from 1 percent for the biggest cases 
($150,000 or more) to more than 20 percent for small potatoes ($500 or less).

iCourthouse , Lafayette, Calif.
Specialty: Online jurors judge the case
Selling point: "At this point, we're doing this for entertainment," says CEO 
Clyde Long.
Size: 10 employees
pricing: Free. Another service, JurySmart, costs $189 per case.

Online Resolution , Cambridge, Mass.
Specialty: Disputes of more than $2,000 involving insurance, employment, and 
B-to-B commerce.
Selling point: Tailored for common B-to-B disputes
Size: 13 employees; 500 mediators
pricing: For disputes of less than $10,000, each party pays $50 per hour; for 
disputes $10,000-$50,000, each pays $75 per hour; disputes of more than 
$50,000 cost $100 per hour; organizations that sign up for packages receive 
major discounts per case.

SquareTrade , San Francisco
Specialty: Mediation for the masses
Selling point: Offers mom-and-pop online merchants a "Square Deal" 
certificate-a seal of approval-for as much as $6,400
Size: More than 250 mediators and arbitrators on contract; claims to have 
processed more than 35,000 disputes
pricing: $20 per dispute for mediation; if the transaction is valued at more 
than $1,000, it also takes a 1 percent fee. Mediators are paid on a 
per-dispute basis.

WebMediate , headquarters: Boston
Specialty: Focused exclusively on business-to- business exchanges and 
marketplaces
Selling point: Brainiac board includes several Harvard and MIT law and 
management professors.
Size: 8 employees and 100 online mediators under contract
pricing: Will charge clients an hourly rate for mediators; will take a cut of 
the mediator's fee or a percentage of monetary disputes when the automated 
system is used. 
Michael Grebb (cablegrebb@aol.com) is a Washington, D.C.*based contributor 
for Business 2.0.