In September 2019 a detailed report appeared in the Wall Street Journal. It stated Amazon changed the search algorithm to favor its own products. In this way more profitable listings would be created. Amazon’s retail executives gave the call to change, or as they called it; optimize, the secret algorithm that, for over a decade, showed the most relevant and the best-selling results. After the change, the search results showed the most profitable products for Amazon, including its private label. Insiders say this is despite all resistance from Amazons search engineers and lawyers. They say this goes against their mission to focus on the customer’s best interests (Sterling, 2019) (Holmes, 2019)(Mattioli, 2019).
This raises the question whether Amazon can order their search results in anyway they want, or that this biased algorithm can create a distrust among marketers and consumers. With multiple surveys stating Amazon is more often used as consumer starting point on the search for product information in the U.S., didn’t Amazon acquire some kind of social responsibility? Apart from the social responsibility, Amazon faces an investigation by the Federal Trade Commission on misuse of its dominant position to gain more sales over competitors (Sterling, 2019).
E-commerce has been an important way for small retailers to sell their products. With more and more platforms offering the possibility for 3rd parties to reach new and more customers, the future ahead was a bright one. With Amazon.com being the number one e-commerce platform in the U.S., it has almost half of the online retail market. For smaller retailers Amazon offers the opportunity to sell their products on the platform. But earlier this year a report appeared in Bloomberg, stating Amazon is increasingly selling more private label products, that compete with the products offered by the much smaller 3rd parties (Smith, 2019). A recent paper observed Amazon’s behavior over time. It appeared that Amazon introduces products for niches that 3rd party retailers did the work of discovering by monitoring customer’s needs. The report also showed that Amazon private label products would appear in the search results, when searching for 3rd party products. The other way around, isn’t possible. Amazon doesn’t sell search placements for results on their own private label products (Zhu & Liu, 2019).
All this gives Amazon an easy advantage over its competitors. Amazon is slowly changing to a winner takes it all model. Can we afford to let this happen in a world becoming more and more reliant on e-commerce and platforms such as Amazon.com?
References:
Holmes, A. (2019). Amazon reportedly altered its search algorithms to favor its own products, against the advice of its own lawyers. [online] Business Insider Nederland. Available at: https://www.businessinsider.nl/amazon-search-algorithms-altered-to-favor-own-products-report-2019-9?international=true&r=US [Accessed 17 Sep. 2019].
Mattioli, D. (2019). WSJ News Exclusive | Amazon Changed Search Algorithm in Ways That Boost Its Own Products. [online] WSJ. Available at: https://www.wsj.com/articles/amazon-changed-search-algorithm-in-ways-that-boost-its-own-products-11568645345 [Accessed 17 Sep. 2019].
Smith, N. (2019). Bloomberg – Amazon’s Winner-Take-All Approach to Small Business. [online] Bloomberg.com. Available at: https://www.bloomberg.com/opinion/articles/2019-02-19/amazon-uses-search-to-undercut-small-businesses-on-its-site [Accessed 17 Sep. 2019].
Sterling, G. (2019). Report alleges Amazon manipulating search results to boost its products, profit – Search Engine Land. [online] Search Engine Land. Available at: https://searchengineland.com/report-alleges-amazon-manipulating-search-results-to-boost-its-products-profit-322147 [Accessed 17 Sep. 2019].
Zhu, F. and Liu, Q. (2019). Harvard Business School – Competing with Complementors: An Empirical Look at Amazon.com. [online] hbs.edu. Available at: https://www.hbs.edu/faculty/Publication%20Files/amazon_2018-06-05_4a83c515-af0c-4366-9fba-8fb059d0b4f6.pdf [Accessed 17 Sep. 2019].
Hi Olivier,
Interesting post!
Regarding your question on whether we are becoming more reliant on e-commerce platforms, I think the answer is an definite yes. The trends within shopping have been shifted towards digital. I think everyone is becoming more reliant on ordering everything online, instead of going to the actual store. In fact, e-commerce is being predicted to be the largest retail channel in the world in only two year from now (Selz, 2019). E-commerce statistics say that consumers all over the world will spend 4.8 trillion (!) dollars online by the year of 2021. According to Amazon favoring its own products over the others, I think is not very fair towards the other retailers, and actually kind of manipulative. Especially when it is not possible for the other retailers to try it the other way around. However, it is a clever move from a business perspective, at the end, Amazon wants to become bigger and bigger and they want to sell the most of their own products. Although I think it is not a very ethical and neat way of doing business, I do believe that at the end, is just how businesses operate, by trying to make the biggest profits.
Hi Olivier,
Thank you for this interesting article, and making me and others aware of this potential threat. It is interesting though, how Amazon has created such an ecosystem. However, they are acquiring so much power over what kind of products people are consuming. We live in a consumption era, as everything is focused on it. Amazon has even changed how we consume products, for instance, the kindle (e-books). How will they shape future consumption habits?
HI Olivier,
Interesting read! It is very nice to see that such a brand as Amazon keeps on growing its assortment and reach over the globe. It is very funny to see that this aim of Amazon is actually shared among other big E-commerce players as well. For example a bit more closer to home we have Bol.com, and in the Far-East AliExpress is expanding its market. Just recently the CEO of Bol.com Huub Vermeulen shared his vision on the future of retail since it is a global and very competitive business nowadays. In this interview he discusses how copes with and learns from these international superpowers, and most importantly whether he would want to interfere in their market share. Very interesting to see!
Coming back to your stated question, I think we can and should become more and more reliant on e-commerce and platforms such as Amazon.com of Bol.com. I mostly believe this because I believe this way of doing business is the future, a centralised platform in which everything you need is offered. A lot of entrepreneurs are supported since their can use the website as their intermediary broker, bringing supply and demand closer to each other. The development online warehouses can, in my opinion, be compared to the rise of supermarkets. A welcome development years ago, so why would this not be a welcome development right now? Moreover, centralising retail can bring along positive effects on sustainability since transportation and thus the emission of CO2 can be more controlled and reduced.
Hi Olivier and Mane,
Thank you both for your viewpoints on this topic.
On the one hand, I do understand Mane saying that this it “just how business operates”. Amazon has tremendous amounts of data, so why should they not make the best use of it? For Amazon, predicting which products are the most profitable ones with the highest margin is a piece of cake. From a purely business perspective you’d say: “Yes, why not?”.
But, I’d like to elaborate on the point that you, Olivier, already emphasized: Does Amazon not have some kind of social responsibility? My answer: yes!
At Amazon, all employees are driven by 14 leadership principles. All of them can be used interchangeably but one. Customer Obsession needs to be on top – always. It is defined as “Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust […].”
This principle is considered as the most important one, being responsible for the great success of Amazon. But considering your blogpost, I would even go so far as to say that Amazon just violated their most valuable principle. With manipulating the search algorithm, the company’s earnings seem to be increasingly more important than their customers. It appears, that customers can no longer trust the results of the “neutral and transparent” search engine. Customers trust Amazon to independently and transparently display the most relevant and best-selling products. Instead, they violate the blind faith to influence sales in its favour. Hence, I agree that Amazon went a step too far and misused its dominant position. It is indeed a good thing that the Federal Trade Commission investigates the case to ensure fair competition in the future.
Amazon Leadership Principles: https://www.amazon.jobs/en/principles
Hi Olivier,
Thanks for sharing this! I think the dilemma here is indeed that companies can become so big, that people start to see it as an independent service, instead of a company that is in the business of making money. I personally feel that Amazon has every right to favor their own products on their website, if it makes them more money. For me, I think the boundary is when the actions of the company hurt customers, especially when the company has a big impact on customers. In this case, I feel this is not happening. However, I do think that we should be constantly monitoring what happens in the real world around this dilemma. With Amazon as a hub company, and more industries changing to industries with a few dominant hub players, this dilemma will be more and more important in the future. This is why I also think regulators should pay a lot of attention and should not lack behind in the constantly changing world containing these dilemma’s.
Thanks your interesting article, Olivier. There are two things I would like to add. First of all, in my opinion, there indeed should be regulations regarding fair competition in marketplaces that are this big. This is because I don’t like the idea of living in a world where single companies like Amazon have so much power. However, companies like Albert Heijn are also pushing their own products. Should that also be illegal then? Second, I find it fascinating (and at the same time terrifying) that technology is often moving at a faster pace than that regulations can keep up with. Your post is a great example of this, because it shows clearly how a small technological difference can have a big impact on a lot of stakeholders, in a short amount of time.