From The Wall Street Journal:
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.
The adjustment, which the world’s biggest online retailer hasn’t publicized, followed a yearslong battle between executives who run Amazon’s retail businesses in Seattle and the company’s search team, dubbed A9, in Palo Alto, Calif., which opposed the move, the people said.
Any tweak to Amazon’s search system has broad implications because the giant’s rankings can make or break a product. The site’s search bar is the most common way for U.S. shoppers to find items online, and most purchases stem from the first page of search results, according to marketing analytics firm Jumpshot.
. . . .
Amazon’s lawyers rejected an initial proposal for how to add profit directly into the algorithm, saying it represented a change that could create trouble with antitrust regulators, one of the people familiar with the project said.
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.”
. . . .
Amazon declined to say why A9 engineers considered the profitability emphasis to be a significant change to the algorithm, and it declined to discuss the inner workings of its algorithm or the internal discussions involving the algorithm, including the qualms of the company’s lawyers.
. . . .
Amazon executives have sought to boost profitability in its retail business after years of focusing on growth. A majority of its $12.4 billion in operating income last year came from its growing cloud business.
. . . .
Amazon’s private-label team in particular had for several years asked A9 to juice sales of Amazon’s in-house products, some of these people said. The company sells over 10,000 products under its own brands, according to research firm Marketplace Pulse, ranging from everyday goods such as AmazonBasics batteries and Presto paper towels, to clothing such as Lark & Ro dresses.
. . . .
One former Amazon search executive said: “We fought tooth and nail with those guys, because of course they wanted preferential treatment in search.”
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.
After the Journal’s inquiries, Amazon took down its A9 website, which had stood for about a decade and a half. The site included the statement: “One of A9’s tenets is that relevance is in the eye of the customer and we strive to get the best results for our users.”
Link to the rest at The Wall Street Journal (Sorry if you encounter a paywall)
PG has previously expressed concern that one of the results of the breakup of Jeff Bezos’ marriage has been that Bezos has taken his eye off the ball at Amazon.
PG takes this latest WSJ disclosure as further evidence that Bezos is mentally and physically absent from Amazon.
The tweaking of Amazon’s search algorithms to favor Amazon’s own products is pure MBA-conventional thinking, 180 degrees from the fresh and innovative ideas that brought Amazon to the top of a very competitive heap of online merchants. One MBA argument in the OP read as follows:
The private-label executives argued Amazon should promote its own items in search results, these people said. They pointed to grocery-store chains and drugstores that showcase their private-label products alongside national brands and promote them in-store.
Amazon didn’t reach the pinnacle of online retailing by emulating grocery-store chains and drugstores.
The revolt of the A9 engineering group is, perhaps, the best evidence that those calling the shots at Amazon have violated some basic corporate values. If Amazon is just another tech company, one whose vision centers on dollars and nothing else (“grocery stores and drugstores”), the best A9 engineers can find another job in Silicon Valley, probably with a higher salary, in about ten minutes.
When the brains start walking out the door, a tech company is in trouble. As the WSJ article points out, the majority of the income and profit for Amazon comes from its cloud computing business, not Amazon.com retail sales, so disaffection with Amazon among the engineering class could have much larger implications for Amazon’s future than a revolt among those involved in the tech details of Amazon’s search engine.
PG will also note that the OP indicates that Amazon’s lawyers opposed the changes the MBA’s demanded in the product search engine. As mentioned, one of the concerns of the lawyers was a variety of pending and threatened antitrust investigations.
If you wanted to take management’s attention away from running a company properly, you could hardly make a better choice than subjecting that company to a serious antitrust investigation and accompanying litigation.
IBM was enmeshed in a massive antitrust investigation and suit for 13 years during the 1970’s and 80’s. IBM actually won the lawsuit, which was dismissed in 1982. Many business observers contend that IBM did not recover from the effects of the investigation and suit until well into the 90’s because IBM continued to avoid any actions that might re-ignite antitrust actions. Among other challenges, while the suit was ongoing, IBM managers were often not permitted to reduce product prices to meet competition or increase sales.
Microsoft was also involved in lengthy and expensive antitrust litigation over monopolization of the market for operating systems in microcomputers. The investigation began in 1992. Microsoft was sued by the Justice Department in 1998, with antitrust regulators seeking to break up Microsoft. Microsoft lost at trial in 2001, with the district court judge ordering the company’s breakup. On appeal, that decision was reversed and the case was sent back to the trial court for yet another trial.
Bill Gates and CEO Steve Balmer had secretly decided to quit their jobs at Microsoft if the lawsuit was successful. While the case was being retried, Microsoft agreed upon a settlement that included outside monitoring of Microsoft’s systems, records and source code for a period of years, finally ending in 2009. Bill Gates retired from Microsoft in 2008.
Suffice to say, in PG’s monopolistic opinion, no sane person in a position of responsibility at Amazon should want to take any action that would result in an antitrust dispute. He will note that, in Microsoft’s case, in addition to litigation brought by the US Justice Department, nine states and the District of Columbia were also plaintiffs in the suit against Microsoft.