Too Short for a Blog Post, Too Long for a Tweet 192

Here are a few excerpts from a long-form article I recently read, "What is Amazon," by Zach Kanter.

With every seller that signed up for Amazon Marketplace, Walmart’s prized vendor selection machine became more and more of a liability. Here was an entire organization optimized towards one constraint – shelf space – and that constraint had been almost completely removed overnight. Even if Walmart had recognized this immediately, it would have been an enormous ship to steer – and, in the meantime, Amazon’s SKU aggregation juggernaut was running an unbound search for customer value nationwide, while Walmart’s army of finely-tuned retailer gatekeepers was still running a bounded search in local geographies. The effects began to compound, and Amazon’s ecommerce growth accelerated further.

 

As these examples of the same pattern – Marketplace, AWS, and catalog – emerged around the same time in 2002, Jeff Bezos had the most important insight he would ever have: in the world of infinite shelf space – and platforms to fill them – the limiting reagent for Amazon’s growth would not be its website traffic, or its ability to fulfill orders, or the number of SKUs available to sell; it would be its own bureaucracy. As Walt Kelly put it, “we have met the enemy, and it is us.” In order to thrive at ‘internet scale,’ Amazon would need to open itself up at every facet to outside feedback loops. At all costs, Amazon would have to become just one of many customers for each of its internal services.

And so, as told by former Amazon engineer Steve Yegge, Jeff Bezos issued an edict: 1) All teams will henceforth expose their data and functionality through interfaces, 2) teams must communicate with each other through these interfaces, 3) all interfaces, without exception, must be designed from the ground up to be exposed to developers in the outside world, and 4) anyone who doesn’t do this will be fired.

For high-volume categories, product reviews should not live on in perpetuity. After a period of time, product reviews should be removed – the faster-selling the item, the shorter the period. This serves a dual purpose: 1) it ensures that product reviews apply to the most current state of the product – solving the problem of an increase or decrease in manufacturing quality over time, while 2) evening the playing field for newcomers. For a fast-moving item, the review lifespan could be set, for example, as a rolling six-month period; rather than competing against 5 years of accumulated reviews, a new entrant would only need to compete against the most recent ones that were given over the past six months.

Instead of solving the root cause of the discovery problem, Amazon layered a solution on top: ads. This would normally be a reversible decision, but the extraordinary amount of ad revenue it is generating will likely prove impossibly addictive for a company with Amazon’s appetite for capital. One way of thinking about this is that the $8 billion generated by Amazon Advertising fuels roughly ⅓ of Amazon’s entire R&D budget.

This may seem like a minor footnote in the grand picture of Amazon, but it is an absolutely devastating misstep for Amazon’s retail business. This isn’t “just” search results; search results are the entire driver of Amazon’s retail engine. Remember that in the world of infinite shelf space, the ranking algorithm is practically the entire merchandising strategy. Organic, customer-centric product rankings – the strategy that brought Amazon to $250 billion in retail revenue – has been permanently distorted. And everyone is praising them for it.