Amazon has an enormously powerful platform that has completely transformed the way people shop for millions of products everyday. For all the criticism the company faces, it's at least worth mentioning that the company has made it possible for millions of small businesses to sell their products to a far wider audience than they ever could have on their own.
At the same time, according to a Wall Street Journal report yesterday, those small businesses may not be competing on a level playing field when it comes to the way Amazon promotes products on its site through both advertising and search results. Instead, the report indicates that Amazon has made controversial changes to its search algorithm that favor items that are more profitable to the company, even if they aren't the most relevant to the customer.
To be fair, Amazon has denied the Journal's reporting, saying in a statement to Verge that "The Wall Street Journal has it wrong." I reached out to Amazon for additional comment, but did not immediately receive a response.
Part of the problem is that every search engine algorithm is designed by humans who decide which factors and signals to include in determining which results are the most relevant. In an ideal world, those considerations are made with the best interest of the customer in mind, and the algorithm is "neutral" with respect to considerations like which products are most profitable to the owner of the search engine.
Until recently, the team that controlled the algorithm, known as A9, was kept separate from the retail team responsible for selling products from both third-parties and Amazon. That's no longer the case, with the search team reporting to the head of the retail division. According to the Journal's report, it's a move that appears to be designed to use search as a tool for boosting the profitability of Amazon's own branded products.
And no one would fault Amazon for wanting to promote and sell more of its own products, especially if they are more profitable for the company. That's something that every brick and mortar retailer does every day. Grocery stores promote store brands prominently on the shelves next to national brands. Department stores feature sections devoted to their own exclusive clothing lines. That's not a problem, as long as that promotion is transparent to the customer.
Adjusting a search algorithm isn't transparent. That's because customers expect those results to be a fair representation of the best answer to their search inquiry. People are smart enough to understand that if you search Google, the results at the top (which are all marked as ads), aren't reflective of what is necessarily most relevant. Instead, they show up at the top because someone paid money to be there. It doesn't mean they're bad results, it just means they aren't neutral.
That's the problem with being both a platform and a seller, and is the primary reason Amazon has come under increased scrutiny over allegations that it engages in anti-competitive behavior by using the platform to favor its own products. That scrutiny now includes investigations on both sides of the Atlantic, and a multi-billion dollar fine from the European Union.
But there's another consideration if you're an entrepreneur--whether its worth it to build a business on someone else's platform, especially when that platform is building their own business. Amazon offers the largest audience for selling online, but at what cost? How much control over your own business are you willing to give up, and how many of your eggs are you willing to put in someone else's basket?
It's always going to be hard to compete for shelf space with the products made by the guy who owns the store.