The early 2000s were the time when Amazon faced severe competition from eBay. Series of successful strategic decisions allowed Amazon to beat eBay; this battle has been studied thoroughly by the business scholars. Nowadays, the competition in the industry has been heating up again. This time, however, it is Amazon who is being challenged: Chinese market Alibaba has been consistently threatening Amazon’s growth. In this post I argue, that Amazon’s valuable competitive advantage that once was key to them overtaking the Ebay is being diluted.
One of the pivotal points in Amazons win over Ebay was 2006 introduction of third-party sellers in their warehouses. Amazon would take care of deliveries, customer service and refunds while benefiting from the substantial increase of the good available. This came with a trade-off: policing the sellers and ensuring the quality of the goods is costly.
Amazon is aiming to ensure the best quality goods are delivered to the buyers by employing the algorithms to select which products are listed first. Initially, the algorithms considered products that are in cards and wishlists of users; this led to whole offices being set up in developing countries where employees would create accounts to add products to wishlists. Once Amazon has realized the issue, it addressed it by using user reviews instead of lists.
This was more difficult to falsify as only reviews after a purchase would count. Nevertheless, the benefit associated with paying a company to buy your products and falsify reviews would outweigh the costs. The amusing part was that the product would be actually shipped to a random address in US for the review to be counted by the algorithm. Washington Post journalist Elisabeth Dwoskin wrote an article on companies and mentioned a facebook page (Amazon Review Club) where sellers find providers for fake reviews. According to her, more than 50% of reviews are fake in some categories.
This brings me to 2018: the year when Amazon opened their store to international third-party sellers due to competitive pressure from Alibaba. While increasing the product offering, this made policing virtually impossible. Banning the seller only means they can set up a new store for a few hundreds of dollars. The buyer’s trust is eroding quickly. Ironically, the step taken to compete with Alibaba destroys the quality that set Amazon apart Alibaba.