Home / net.wars / Jumping the shark – Net.Wars by Wendy Grossman

Jumping the shark – Net.Wars by Wendy Grossman

This week, the Wall Street Journal claimed that Amazon has begun ordering item search results according to their profitability for the company. ( (The story is summarized at Ars Technica, for non-WSJ subscribers.) Amazon has called the story “not factually accurate”, though, unsurprisingly, it declined to explain its algorithm’s inner workings.

My reaction: “Well, that’s a jump the shark moment.”

Of course we know that every business seeks to optimize profits. Supermarkets – doubtless including Amazon’s Whole Foods – choose the products to place at the ends of aisles and at cash registers only partly because those are the ones that tempt customers to make impulse buys but also because the product manufacturers pay them to do so. Both halves of that motivation have to be there. But Amazon’s business and reputation are built on being fiercely devoted to putting customers first. So what makes this story different is the – perhaps only very slight – change in the weighting given to customer welfare.

In this, Amazon is following a time-honored Silicon Valley tradition (despite being based 800 miles north, in Seattle). In 2017, the EU fined Google $2.7 billionfor favoring its own services in its shopping search results.

Obviously, Amazon has done and is doing far worse things. Just a few days earlier, the company announced changes that will remove health benefits for nearly 2,000 part-time employees at Whole Foods. It seems capriciously cruel: the richest man in the world, who last year told Business Insider he couldn’t think of anything to spend his money on other than space travel, is willing to actively harm (given the US health system) some of the most vulnerable people who work for him. Even if he can’t see it himself, you’d think the company’s PR department would.

And that’s just the latest in the catalogue. The company’s warehouse workers regularly tell horror stories about their grueling jobs – and have for years. It will pay no US federal taxes this year for the second year in a row.

Whether or not it’s true, one reason the story is so plausible is that increasingly we have no idea how businesses make their money. We *assume* we know that Coca-Cola’s primary business is selling soft drinks, airlines’ is selling seats on planes, and Spotify’s is the sort of combination of subscriptions and advertising that has sustained many different media for a century. But not so fast: in 2017, Bloomberg reported that actually airlines make more money selling miles than they do from selling seats. Maybe the miles can’t exist without the seats, but motives go where the money is, so this business reality must have consequences. Spotify, it turns out, has been building itself up into the third-largest player in digital advertising, collaborating with the PR and advertising holding company WPP to mine the billions of data points collected daily from its users’ playlists and giving advertisers a new meaning for the term “mood music”.

In the most simple mental model, we might expect Amazon to profit more from items it sells itself than from those sold on its platform by marketplace sellers. In fact, Amazon noted in its 2008 annual report (PDF, see p32) that its profits were about the same either way. This year, however, the EU opened an investigation into whether the company is taking advantage of the data it collects about third-party sales to identify profitable products it can cherry-pick and make for itself. No one, Lina Khan wrote in 2017in a discussion of the modern failings of the US’s antitrust enforcement, valued the data Amazon collects from smaller sellers’ transactions, not even in those annual reports. Revenue-neutral, indeed.

In fact, Amazon’s biggest source of profits is not its retail division, which even The Motley Fool can’t figure out if it makes money. Amazon’s biggest profit center is Amazon Web Services; *Netflix* was built on it. It may in fact be the case that the cloud business enables Amazon to act as an increasingly rapacious predator feasting on the rest of retail, a business model familiar from Uber (though it’s far from the only one).

So Spotify is a music service in the same sense that Adobe and Oracle are software companies. Probably none of their original business plans focused on data exploitation, and their “pivot” (or bait and switch) into data passes us by while Facebook and Google get all the stick. Amazon may be the most problematic; it is, as Kashmir Hill discovered earlier this year, hard to do without Google but impossible to excise Amazon from your life. Finding alternatives for retail can still be done with enough diligence, but opting out of every business that depends on its cloud services can’t be done.

Amazon was doing very well at escaping the negative scrutiny accruing to Facebook, Uber, and Google, all while becoming arguably the bigger threat, in part because we think of it as a nice company that sends us things. But if its retail customers are becoming just fungible piles of data to be optimized, that’s a systemic failure the company can’t reverse by restoring 2,000 people’s health benefits, or paying taxes, or getting its owner to say, oh, yeah, space travel…what was I thinking?

Illustrations: Great white shark (via Sharkcrew at Wikimedia).

Wendy M. Grossman is the 2013 winner of the Enigma Award. Her Web site has an extensive archive of her books, articles, and music, and an archive of earlier columns in this series. Stories about the border wars between cyberspace and real life are posted occasionally during the week at the net.wars Pinboard – or follow on Twitter.

About Karolina Janicka

Leave a Reply