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Chicago and were awarded three Michelin stars. Ask the same question to someone in Copenhagen and he or she will probably brag that Noma was named the best restaurant in the world. As with beauty, the best restaurant is in the eye of the beholder.

There are many sources of horizontal differentiation, such as location. Diners will disagree about their favorite restaurants for many other reasons, based on preferences for different cuisines and ambience and how they feel about service. Such disagreements arise for virtually all horizontally differentiated goods and services, including entertainment, clothing, and automobiles. As long as consumers are not too strongly differentiated, vertical certification (i.e., “this seller is best”) plays an important role because the certifier’s favorite seller is likely to be among everybody’s favorites. But certifiers can do more than offer a vertical ranking. With the right information, certifiers can match consumers to the horizontally differentiated firms that best meet their idiosyncratic needs. By using unprecedented amounts of information about consumer habits to refine this matching process, firms such as Google and Facebook have revolutionized how products are made and marketed.

Recall that when shopping for experience goods, consumers often rely on friends and family. This can be especially helpful for horizontally differentiated goods because consumers usually know something about their friends’ tastes. This may explain why teenage children do not ask their parents for movie recommendations! Third-party certifiers of horizontally differentiated goods can fulfill the same role as trusted friends, by tailoring recommendations to the specific tastes of individual consumers. For example, consumers might read reviews by several movie and restaurant critics and gravitate toward those who share similar tastes.

When newspapers and magazines provided the bulk of movie and restaurant reviews, most individuals necessarily had access to only a few reviewers. This made it hard to find reviewers with the same tastes. This problem was not confined to artistic endeavors. Consumers might find it just as difficult to find someone with similar tastes for clothing or child care. And the shopping problem could be very difficult for medical patients needing specialized care because few if any friends and family have similar medical problems.23

The Internet is changing all this by making it possible for hundreds of millions of individuals to become certifiers, thereby allowing consumers to find a certifier with similar idiosyncratic preferences. For example, someone who enjoyed the Lord of the Rings movies can go to Amazon where he will find lists of movie recommendations by other fans of the fantasy trilogy. By allowing consumers to discuss and debate where to shop for personal services, clothing, food, and nearly everything else, the Internet is like the nineteenth-century town square on steroids. Chicago foodies no longer have to ask their neighbor if they have tried the new fusion restaurant; they can read dozens of reviews at opentable.com and decide which contributors to trust. Even better, their friends can provide instantaneous certification by tweeting reviews at Twitter.

When any Internet user can be a certifier, opportunities for biased certification multiply. Motivation bias and survivor bias remain problems. Market researchers compile lists of influential tweeters and offer them payments to try to influence their tweets. And authors sometimes conspire to increase downloads of their books on eReaders like Amazon’s Kindle through “review swapping”—raving about each other’s works. Netflix has taken the review-matching process one step further, as described in Example 10.6.

When Sellers Search for Buyers

We normally think of certification as a way to help buyers find sellers. But certification can also help sellers find buyers. In vertically differentiated goods markets, sellers include strong certification results in their marketing campaigns. For example, Jaguar

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EXAMPLE 10.6 THE NETFLIX CHALLENGE

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launched an expensive advertising campaign in 2009 after JD Powers ranked it first in reliability, helping it to overcome a bad reputation that had emerged, in part, from poor reliability ratings in Consumer Reports. It can be much more difficult for sellers of horizontally differentiated goods to reach out to buyers because this requires knowledge of individual customer tastes. Television facilitated some matching by allowing firms to place ads that reach a target market. For example, Chevrolet advertises pickup trucks during football games, while Mercedes promotes golf tournaments and Smuckers Jams sponsors figure skating. Cable television further subdivides the market and allows even more targeted marketing.

It goes without saying that horizontally differentiated sellers would like to know as much as possible about the spending habits of potential customers so as to most efficiently place their advertisements. While television and cable may allow for some targeting; the Internet goes one step further. At web sites such as Google and Facebook, every user click is compiled and catalogued. A user who spends time learning about hotels in Florence may soon receive pop-up ads, banner ads, and floating ads from Tuscan goldsmiths. (We know this because one of the textbook authors is still besieged by these ads!) Users who spend time at ikea.com may get ads from other furniture makers, electronics retailers, even real estate brokers. Moreover, advertisers only pay when users click through the message, forcing these web sites to constantly improve their ability to match buyers and sellers.

The revenue model for Google, Facebook, Craig’s List (an online classified ad site), and countless other web sites that do not sell their own goods and services is similar to the revenue model for traditional television and newspapers. These firms make money by allowing sellers to get the attention of potential customers. Thanks to the Internet, sellers can more easily target their messages than ever before. This means not only that consumers are being bombarded with more sales messages than ever before, but also that these messages are more relevant to their idiosyncratic tastes.

As this business model evolves, the shopping problem may return to its roots. Before there was widespread branding and third-party certification, consumers relied on friends and family—the town square—to help evaluate experience goods. Consumers who are steered to sellers by Google or Craig’s List will continue to value information about that seller’s quality. Only now they will obtain that information from virtual town squares. But technology has its limits. Customer satisfaction