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Two Horrid Wall Street Journal Stories Show What a Malefactor Amazon Has Become

Summary:
By Lambert Strether of Corrente Two recent articles in the Wall Street Journal, “Amazon Has Ceded Control of Its Site. The Result: Thousands of Banned, Unsafe or Mislabeled Products” and “Amazon Changed Search Algorithm in Ways That Boost Its Own Products“, show what a wretched hive of scum and villainy Amazon has become. (Let me note at the outset that here, as with the Boeing saga, we’re seeing really solid reporting from the WSJ, reporting that really puts WaPo and the New York Times to shame, as the Financial Times also regularly does, albeit mostly on the analytical side. Why, oh why, can’t we have a better press…). I’m not sure how much value I can add to the material, except to continually drop my jaw in creative and/or spectacular ways, but we haven’t looked at either article in

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By Lambert Strether of Corrente

Two recent articles in the Wall Street Journal, “Amazon Has Ceded Control of Its Site. The Result: Thousands of Banned, Unsafe or Mislabeled Products” and “Amazon Changed Search Algorithm in Ways That Boost Its Own Products“, show what a wretched hive of scum and villainy Amazon has become. (Let me note at the outset that here, as with the Boeing saga, we’re seeing really solid reporting from the WSJ, reporting that really puts WaPo and the New York Times to shame, as the Financial Times also regularly does, albeit mostly on the analytical side. Why, oh why, can’t we have a better press…). I’m not sure how much value I can add to the material, except to continually drop my jaw in creative and/or spectacular ways, but we haven’t looked at either article in depth, and I think that is useful to readers in and of itself. So I’ll start with the first story in time (“Amazon Has Ceded…”) and then move on to “Amazon Changed Search Algorithm.”

From the lead of “Amazon Has Ceded…”

Many of the millions of people who shop on Amazon.com see it as if it were an American big-box store, a retailer with goods deemed safe enough for customers.

In practice, Amazon has increasingly evolved like a flea market. It exercises limited oversight over items listed by millions of third-party sellers, many of them anonymous, many in China, some offering scant information.

I can’t find (readers may do better) any scholarly work on whether a flea market is an Akerlovian lemon market, but I would expect that the information asymmetry between buyer and seller would make it so. Of course, this asymmetry is to some extent mitigated by reviews (assuming they’re not fake), which leads to the pleasing conclusion that Amazon’s market capitalization (which, AWS aside, ultimately depends on its reputation for being a reliable venue in which to shop) rests on nothing more technical or brain-genius level than being a good, old-fashioned content provider. Also, maybe that long, long supply chain to China has some unexpected downsides?

The scope of problems with third-party products is significant (i.e., more than the flimsy off-brand cables and bad chargers I’ve managed to buy over the years):

A Wall Street Journal investigation found 4,152 items for sale on Amazon.com Inc. ‘s site that have been declared unsafe by federal agencies, are deceptively labeled or are banned by federal regulators—items that big-box retailers’ policies would bar from their shelves. Among those items, at least 2,000 listings for toys and medications lacked warnings about health risks to children.

Sounds like those baby formula manufacturers have moved on. More:

“Safety is a top priority at Amazon,” says a spokeswoman.

Sounds like Boeing. More:

Amazon uses automated tools that scan hundreds of millions of items every few minutes to screen would-be sellers and block suspicious ones from registering and listing items, using the tools to block three billion items in 2018, she says.

The question isn’t how many items are blocked; the question is how many got through. Especially the items that were blocked, tried again, and got through the second time:

Within two weeks of Amazon’s removing or altering the first problematic listings the Journal identified, at least 130 items with the same policy violations reappeared, some sold by the same vendors previously identified by the Journal under different listings.

I’ll skip the many amusing and well-documented horror stories — like 4,510 balloons sold without choking-hazard warnings, or the 1,412 electronics listings falsely claimed to be UL certified, or the brightly-painted musical instruments contaminated with lead, or the magnetic toys that rip abdominal tissue, or the paint strippers linked sudden death from toxic fumes — to get to the essential question: Who’s responsible? Unfortunately:

Amazon declined to make executives available for interviews.

Shorter: “[family blog] you, Wall Street Journal reporter!” Given that the executives are hiding under their desks and chewing their hands, we might surmise that they are responsible. Here, however, the WSJ is far more circumspect. Piecing together snippets from the article:

Amazon’s struggle to police its site adds to the mounting evidence that America’s tech giants have lost control of their massive platforms—or decline to control them.

Actually, firms don’t control platforms, or decline to; individuals do. That’s why we have executives!

This is emerging as among the companies’ biggest challenges…. Amazon’s common legal defense in safety disputes over third-party sales is that it is not the seller and so can’t be responsible under state statutes that let consumers sue retailers. Amazon also says that, as a provider of an online forum, it is protected by the law—Section 230 of the Communications Decency Act of 1996—that shields internet platforms from liability for what others post there.

Lol, Amazon’s status as a content provider is working out very well for them, isn’t it?

Third-party sellers are crucial to Amazon because their sales have exploded—to nearly 60% of physical merchandise sales in 2018 from 30% a decade ago, Amazon says…. In its early days, Amazon operated a lot like big-box stores, largely in direct control of its supply and distribution chains. Customers got products directly from Amazon or a known retail partner such as Toys “R” Us. In 2001, third-party sellers made up 6% of Amazon’s physical merchandise sales, company data show.

The same year, the company articulated a core philosophy that helped spur the growth of third-party sellers. According to published company histories, founder Jeff Bezos and other officials scribbled an image of a “virtuous cycle”: It depicted how third-party vendors would want to sell to Amazon’s customers and would add more products at less expensive prices, attracting even more customers and more sellers.

Wait, we left out the part where every sale means money for Amazon. For example:

At one point in 2013, some Amazon employees began scanning randomly selected third-party products in Amazon warehouses for lead content, say people familiar with the tests. Around 10% of the products tested failed, one says. The failed products were purged, but higher-level employees [how high?] decided not to expand the testing, fearing it would be unmanageable if applied to the entire marketplace, the people familiar with the tests say. Amazon declined to comment on the episode.

“Unmanageable,” meaning “unprofitable,” I would guess. Anyhow, folks, that’s as far as we get on who’s responsible: “founder Jeff Bezos and other officials,” and “higher-level employees.” Not a lot of documents or memos or interviews on there though, in great contrast to the terrific reporting done on the products. So, I guess we’ll have to wait for depositions? Which will doubtless show that Amazon, as a firm and a “platform,” hasn’t “ceded control” at all; it’s just controlling for the metric it wants to optimize: Profit. Shocking, I know.

The second story, “Amazon Changed Search Algorithm in Ways That Boost Its Own Products,” is less horrid in that Amazon isn’t running a flea market that sells lead-contaminated musical instruments to parents with toddlers. So there’s that. The lead:

Amazon.com Inc. has adjusted its product-search system to more prominently feature listings that are more profitable for the company, said people who worked on the project—a move, contested internally, that could favor Amazon’s own brands.

Late last year, these people said, Amazon optimized the secret algorithm that ranks listings so that instead of showing customers mainly the most-relevant and best-selling listings when they search—as it had for more than a decade—the site also gives a boost to items that are more profitable for the company.

So, for this story, we have sources (employees or contractors) who actually worked inside Amazon. Dare we hope for similar sourcing on a follow-up to “Amazon Has Ceded”?

The Amazon search team’s view was that the profitability push violated the company’s principle of doing what is best for the customer, the people familiar with the project said. “This was definitely not a popular project,” said one. “The search engine should look for relevant items, not for more profitable items.”

The whole thrust of the first story is that Amazon does not have a “principle of doing what is best for the customer.” How can running a flea market selling products that rip abdominal tissue be best for the customer? So I don’t understand why this second story ticks off the developers, but the first one doesn’t. More:

The A9 team—named for the “A” in “Algorithms” plus its nine other letters—controls the all-important search and ranking functions on Amazon’s site…. Executives from Amazon’s retail divisions have frequently pressured the engineers at A9 to surface their products higher in search results, people familiar with the discussions said…. Amazon’s private-label team in particular had for several years asked A9 to juice sales of Amazon’s in-house products…

Now here comes the bureaucratic maneuvering, the change in reporting relationships:

For years, A9 had operated independently from the retail operations, reporting to its own CEO. But the search team, in Silicon Valley about a two-hour flight from Seattle, now reports to retail chief Doug Herrington and his boss Jeff Wilke —effectively leaving search to answer to retail.

And with the change in reporting, pressure change to the algo:

Amazon retail executives, especially those in its private-label business, wanted to add a new variable for what the company calls “contribution profit,” considered a better measure of a product’s profitability.

Enter Bud from Legal:

Amazon’s lawyers rejected the overt addition of contribution profit into the algorithm, pointing to a €2.42 billion fine ($2.7 billion at the time) that Alphabet Inc.’s Google received in 2017 from European regulators who found it used its search engine to stack the deck in favor of its comparison-shopping service

The executives tell the developers to code around the legalities:

Variables added to the algorithm would essentially become what one of these people called “proxies” for profit: The variables would correlate with improved profitability for Amazon, but an outside observer might not be able to tell that.

Hope they documented how the proxies work. BWA-HA-HA-HA-HA!!!!!

And the whole mess circles round and round and is finally emitted by Public Relations:

Amazon’s Ms. Newman said: “When we test any new features, including search features, we look at a number of metrics, including long term profitability, to see how these new features impact the customer experience and our business as any rational store would, but we do not make decisions based on that one metric.”

No, it’s just that “that one metric” is of over-riding importance when the executives say it is. And it sounds like working in a cube is just as hellish as working in the warehouse.

* * *

Amazon should really go back to selling books, now that independent bookstores have proved unkillable. Books don’t choke babies or throw off toxic fumes. Or maybe we should just nationalize it, so corrupt executives don’t suborn decent developers. I mean, is this the sort of “innovation” we need? Oh, and as it turns out Amazon was built not just on regulatory arbitrage from evading state and local taxes, it was built on regulatory arbitrage from evading product safety regulation that brick-and-mortar stores routinely do. But now Amazon has giant Pentagon contracts and the boss owns his own vanity press. So it’s all good. Woot woot!

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