Pluralistic: 27 Feb 2022

Today's links

Jean-Leon Gerome's painting Pollice Verso, 1872, depicting gladiators in an arena with noble onlookers giving a thumbs-down gesture. The tapestry before the nobles has been replaced with a US $100 bill in which Ben Franklin's mouth has been replaced by an Amazon smile logo.

Amazon's $31b "ad business" isn't (permalink)

Looking at Amazon's quarterly financials, it would be easy to mistake the company's $31b ad division as a serious shift in the online advertising industry, but that would be a huge mistake. You see, Amazon's not really selling ads.

Nearly all of that $31b is for an "ad" on Amazon itself: that is it's Amazon collecting billions from the sellers who rely on the company as their main retail channel, who are locked in a bidding war to buy the top spots in search and product pages.

This is a huge shift for Amazon in every way. In 2015, the company was booking $1b in annual ad revenue. The explosive growth of ad revenue was accompanied by an increasing presence of third-party Amazon Marketplace sellers: 3% in 2000, 60% today.

But just as significant is the shift in how Amazon presents its merchandise. As Marketplace Pulse succinctly put it, "Everything on Amazon is an Ad."

In a search result, the first 3-7 thumbnails are "sponsored results." On a product page the top bar, the bottom third, and large swathes of the right bar and main body are for sale.

To make this clear: Amazon retail business today is as an intermediary, a chokepoint capitalist marketplace with customers corralled on one side and merchants on the other, with a gate in between where it collects rent to let one side talk to other.

Amazon calls itself "Earth's most customer-centric company," a slogan that pits the people who rely on Amazon for goods against the sellers who provide those goods, the warehouse workers who pack the goods, and the delivery drivers who drop off the goods. Sure, Amazon says, your conscience might twinge for the small business people squeezed by Amazon, or the workers being maimed in the warehouses or peeing in bottles in their vans. But we do it all for you: we have figured out how to match you with the things you need at the best price.

But Amazon's ad business – the third-largest ad business in the world – is the opposite of a "customer-centric" business. As Trung Phan reminds us, Amazon launched with a much-vaunted "collaborative filter" whose recommendations were driven by users, not sellers:

In its seminal paper on the system, Amazon promised a store that "radically changes based on customer interests":

Remember when Amazon's screen real estate was given over to "Customers who bought this also bought this" and "Customers who viewed also viewed"? Today those slots are filled with "Sponsored products related to" and "Brands related to this category."

In other words, Amazon has converted its "customer-centric" personalization system, which emphasized the products it predicted you would like best, into an auction house, where the products that have paid the most come first.

Amazon sellers – 60% of the platform and rising – have to choose whether to spend their money on better products or better placement on Amazon. If they choose better products, you'll never find them. Amazon made $32b last year contributing to the crapification of everything it sold.

No wonder that Amazon Marketplace is being gobbled up by "gators" – Amazon aggregators who raised billions in the capital markets to buy out independent sellers, rolling them up into deep-pocketed conglomerates.

Gators are like miniature Amazons: markets where success is based on capital, not quality. They are systems for multiplying investor cash, not by making better products at better prices, but by outmaneuvering smaller rivals who can't afford to bribe Amazon to give them pride of place.

As an employee at Thrasio, a $10b gator, told Krista Brown for The American Prospect: "I cannot imagine being an individual seller."

There is one major seller that is immune from this arms-race to buy your business from Amazon: Amazon itself. Amazon's own-brand business – which data-mines its business customers' sales data, manufacturing information, and other commercial intel, and then knocks them off – doesn't have to buy the top of the page. Amazon's own products get those slots for free.

Which means that Amazon has tied a $32b anchor around its sellers' necks, then asked them to compete with its knockoffs of their products by outbidding them in search- and product-pages, on which Amazon can top any third-party bid by writing an unlimited check to itself.

Amazon became Amazon because of extremely specific, explicit political choices that were made by a string of US administrations, starting with Ronald Reagan and ending with Donald Trump.

As Lina Khan wrote in her seminal "Amazon's Antitrust Paradox," the "consumer welfare" theory of antitrust that Reagan ushered in required regulators to tolerate any monopolistic behavior, no matter how egregious, so long as it resulted in "consumer benefits" (lower prices and/or better products):

Under this theory, Amazon was able to use predatory pricing, abusive labor practices, and anticompetitive acquisitions to corner markets, so long as it could claim to be "Earth's most customer-centric company."

But the "consumer welfare" benefits of monopolies are inevitably fleeting. Amazon's "customer-centrism" was and is a tactic, not a goal. The goal is maximizing profits. If "customer-centrism" – in the form of abuse of workers and suppliers to secure lower prices – brings in our business, Amazon will do that. But once Amazon locks us in – say, by convincing us to buy a subscription to its products in the form of a Prime "membership" – that "customer-centrism" takes a back seat to revenue extraction.

Prime isn't merely a tool for locking is customers – it's every bit as much a tool for locking in sellers. Being a Prime seller is a prerequisite for scoring high on search results. To be a Prime seller, you have to hand over 45% of your revenues to Amazon, and pledge not to sell more cheaply anywhere else.

That means that anyone serious about selling on Amazon is a Prime seller, and therefore has to charge extra in order to avoid losing money on every Amazon sale. That higher Amazon price becomes the universal price, thanks to Amazon's most-favored-nation status. In other words, Amazon has figured out how to raise prices not just for its own customers, but for all of its rivals' customers, too.

Every now and again, there will be a "fake Amazon review" scandal, in which we learn that billions are changing hands behind the scenes to "inauthentically" boost inferior products to the top of Amazon search results:

But "fake reviews" are just an end run around Amazon's own $32b payola racket. If Amazon was serious about being "Earth's most customer-centric company," search results would be determined by predictions about the suitability of merchandise, not the vendor's ability to buy the top of the page.

Which isn't to say that fake reviews aren't a problem. They really are, especially in light of Amazon's pivot to selling recommendations to the highest bidder. Customers who understand that Amazon's search results are a game of moneyball (not a merit-based sorting) use those reviews as means of sorting the wealthy from the useful, relying on 5-star counts to guess at the best products.

But with Amazon selling search-results and sleazy fake-ad peddlers selling reviews, there's no reliable way to sort the good from the bad. "Earth's most customer-centric company" has captured the market, raised prices, lowered quality, and clobbered independents, all while pitting shoppers against workers.

The ad-tech market is a hive of scum and villainy, but Amazon's version of ads – payola – is an entirely separate industry, with its own multitude of sins.

(Image: Jean-Leon Gerome, US Treasury, Amazon; modified)

This day in history (permalink)

#20yrsago The Chilling Effects project

#20yrsago Jack Valenti pushes mandatory DRM for every computer

#20yrsago Michael Moore versus Bill O’Reilly,2933,46116,00.html

#10yrsago SKS, world’s largest microfinance service, drives debtors to suicide

#10yrsago Author discovers that Amazon can reprice his indie Kindle books however they want and cut his royalties, at will

#10yrsago Repo Man director urges fans to “pirate a bunch of my stuff right away”

#10yrsago Save Disney World from Disneylandification

#10yrsago Labour to Britain’s Internet: drop dead

#10yrsago Rumblefish claims to own copyright to ambient birdsong on YouTube

#10yrsago Wikileaks releases “Global Intelligence Files” — 5MM emails from private spook outfit Stratfor

#10yrsago Danish collecting society blocks band from playing anti-ACTA gig

#10yrago Techdirt post about SOPA censored from Google results due to bogus DMCA complaint

#5yrsago The Body Orifice Security Scanner is why the rectally smuggled phone is called “Beat the BOSS”

#5yrsago The Amazon reviews for a phone designed for rectal smuggling are pretty interesting reading

#5yrsago THEFT: A History of Music

#5yrsago Three kinds of propaganda, and what to do about them

#5yrsago The CPAC replacement speaker for Milo Yiannopoulos was a notorious Japanese cult-member

#1yrago Privacy is not property: Interests, not exclusive rights

#1yrago K-Zombies: Zombies conquer Korea

#1yrago Against hygiene theater: Wired: Ventilation. Tired: Handwashing. Fired: Sterilization.

Colophon (permalink)

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