Which technology resolves disputes best? ,
 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 replic=
a=20
of a $3,000 Charles Eames leather chair on eBay -for only $450. When it=20
arrived, he tore open the box, pulled away the bubble wrap, and immediately=
=20
sunk into the chair to ease his bad back. "As soon as I sat in it, I could=
=20
tell...whoa, this isn't right," he says. "It had a bad mildew smell-I mean,=
 a=20
really bad mildew smell." Distraught, Hubert emailed the seller to demand=
=20
that he either pay to clean the chair or take it back. The seller refused.=
=20
"He basically stonewalled me," Hubert says. So Hubert filed a grievance wit=
h=20
SquareTrade, a San Francisco-based startup that helps resolve disputes on=
=20
eBay.

A SquareTrade online mediator-a real person who corresponds with both parti=
es=20
via email-immediately began negotiations. After a week of back-and-forth, t=
he=20
seller finally agreed to send Hubert $150 to have the chair cleaned. Hubert=
=20
and the seller never were in contact. "I think it went really smoothly,"=20
Hubert says.

Mediation has been a popular alternative to lawsuits to resolve disputes,=
=20
especially those involving small amounts of money. For businesses, conflict=
s=20
between state and international laws have made dispute resolution costly, n=
o=20
matter how big the transaction.

With $657 billion changing hands through Internet transactions worldwide, i=
t=20
comes as little surprise that a raft of new dot-coms plans to move the=20
mediation process further online. Everyone expects online mediation to grow=
=20
as the number of transactions conducted online continues to grow. "Regardle=
ss=20
of the market fluctuations and a fair amount of blood on the street,=20
ecommerce is here to stay and is growing at a steady pace," says Steven=20
Abernethy, president and CEO of SquareTrade. "There is wealth of commerce=
=20
online to keep us and others busy for a while."

The American Arbitration Association estimates that dispute resolution is a=
=20
$200 million-a-year industry, but there's no way to know how much of that=
=20
would migrate online. "I'm not sure it would necessarily shift," says=20
association spokesperson Toni Griffin. "Online transactions may simply=20
generate more disputes, which would grow the whole market." American=20
Arbitration-the largest dispute resolution company with 140,000 cases per=
=20
year as of 1999 and $65 million in annual revenue-recently announced its ow=
n=20
online mediation business.

Online mediators agree that easier dispute resolution will drive faster=20
adoption of ecommerce by businesses and consumers, many of whom may now avo=
id=20
online transactions for fear of getting hosed. According to Forrester=20
Research, two-thirds of businesses say they would not conduct an online=20
transaction with a party they don't already know.

What they can't agree on is how to use technology to resolve disputes. Some=
=20
companies, such as SquareTrade, eResolution, or Online Resolution, have had=
=20
experience resolving disputes. They are mediating disputes online simply by=
=20
substituting an online chat session or email for the conference table or=20
telephone. But a few upstarts say these companies aren't harnessing new=20
technologies that allow mediation to be automated.

"This is not as simple as slapping up a Website," sniffs Charles Brofman,=
=20
president and CEO of Mount Kisco, N.Y.-based Cybersettle.com. He doesn't=20
mediate disputes but offers an automated blind bid system to negotiate=20
settlements when liability has already been established. Here's how it work=
s:=20
The aggrieved party enters a demand; the liable party enters the most it wi=
ll=20
pay (Neither side sees the other's entry, hence the term blind bid.) If the=
=20
numbers are within 30 percent of each other, the software automatically=20
splits it down the middle and settles the claim. For each dispute, the=20
parties get three tries, after which they must start over if their entries=
=20
still haven't come within 30 percent. The company says the site can handle =
as=20
many as 10,000 simultaneous sessions per second.

Brofman says he has signed insurance companies to flat-rate subscription=20
plans in which Cybersettle offers discounts for a certain number of claims=
=20
per year. "This system just takes all of the ego and personality and whittl=
es=20
it down to what it should have been-settling the claim," he says. That's=20
especially important, he says, for international disputes in which cultural=
=20
differences can muddy an otherwise objective claims process.

Rival clickNsettle.com offers a service similar to Cybersettle's, but doesn=
't=20
limit parties to three bids per cycle. Instead, it uses a monetary=20
disincentive to stop parties from gaming the process. ClickNsettle doesn't=
=20
set a bid limit, but charges a small fee for every settlement offer made. C=
EO=20
Roy Israel says the fees are just annoying enough to keep parties from=20
wasting bids on outlandish demands. "It eliminates the ridiculous," he says=
.=20
"It keeps someone from asking for millions of dollars. It causes people to=
=20
get real-real quick. No one wants to waste $100 on bids that don't go=20
anywhere."

Israel criticizes Cybersettle's three-bid process, calling it inflexible=20
because it "artificially terminates" the process even when parties haven't=
=20
settled. And as you might expect, Brofman is equally skeptical of=20
clickNsettle's unlimited bid system. "If you go to infinity, people just tr=
y=20
to game the system," he says. "And once insurance companies realize you can=
=20
game the system, they're not going to use it."

His clickNsettle.com was called National Arbitration and Mediation for eigh=
t=20
years before adopting a dot-com moniker last year. "We're not just an=20
Internet startup trying to capitalize on dot-com hysteria," Israel says.=20
"We're a mediation business evolving into a Web-enabled business." In fact,=
=20
its existing mediation infrastructure allows the company to give users the=
=20
option of moving disputes offline if necessary.

The question is whether either Cybersettle or clickNsettle-or any of the=20
other mediation sites-will catch on. "I'm skeptical of these automated=20
mechanisms," says Forrester analyst Charles Rutstein. "It's a little too=20
'Let's-let-the-machines-do-it.'" He wonders whether all the messaging=20
back-and-forth makes sense for many disputes that could be easily settled=
=20
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=
=20
60-day time limit)
Size: About 8,000 law firms as clients, as well as 500 members using its=20
online component
pricing: The first party pays a $15 registration fee, each subsequent offer=
=20
costs $10 for the first 20 days, $15 for the next 20 days, and $20 for the=
=20
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 handl=
e=20
minor disputes
Size: 90 employees; claims more than 16,000 registered users
pricing: Fee scaled to size of settlement. If plaintiff receives up to=20
$5,000, there is a $100 "success fee"; $5,000 to $10,000 costs $150;=20
defendants' fees start at $100 for a settlement up to $5,000; more than=20
$10,000, a $200 fee.

eResolution , Montreal
Specialty: Is also an applications service provider, licensing its software=
=20
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=20
($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 CE=
O=20
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, an=
d=20
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; f=
or=20
disputes $10,000-$50,000, each pays $75 per hour; disputes of more than=20
$50,000 cost $100 per hour; organizations that sign up for packages receive=
=20
major discounts per case.

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

WebMediate , headquarters: Boston
Specialty: Focused exclusively on business-to- business exchanges and=20
marketplaces
Selling point: Brainiac board includes several Harvard and MIT law and=20
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=20
the mediator's fee or a percentage of monetary disputes when the automated=
=20
system is used.=20
Michael Grebb (cablegrebb@aol.com) is a Washington, D.C.=01*based contribut=
or=20
for Business 2.0.
mark.taylor@enron.com, marcus.nettelton@enron.com, 