Why Data Centralization is Bad

First and foremost, data centralization is perceived as great for shoppers. A marketplace like Amazon is the most efficient shopping experience due to product variety and the ability to price shop within an encapsulated environment; its seen as a significant value add to be able to go to Amazon rather than going to an individual brand’s site. As a result, Amazon now owns that trust layer between the brand and the shopper. They’ve developed world class efficiencies at getting us our products swiftly and inside of the terms that make sense for us. But there’s a deficiency that has been occurring for the Shopper over the last several years that’s about to see a significant spike: margin extraction.

In order to continue to extract as much margin as possible out of every transaction, the Walmarts and the Amazons of the world are now having to move rapidly into private line development. For example, as a shopper, one used to be able to go to Amazon to buy Energizer or Duracell, but Amazon Basic batteries now dominate the search query.

We see a lot of testing in the emergence of private development from Amazon through product lines like Amazon Basics. They have dozens and dozens of private lines that operate as independent companies and entities so that they can start to remove all the value from the brands that originally generated the demand. By collecting all data related to the shopper’s response to those brands’ products, they gain insights into the products’ successes and failures. Based on that data, they build out different private lines across diverse product categories, undercutting brands in a variety of incredibly harmful ways.

While a shopper might value the convenience provided over the future of brand, these tactics have a negative impact on them as well. Amazon has shown the tendencies to manipulate pricing once they’ve isolated and controlled the product category. So, a simple example is batteries. Once they own the vertical in the product category, they control the market and are able to dictate online pricing. Its relevant to expect this behavior to increase for shoppers.

While these big detriments of price manipulation and relegated product selection are clearly of importance, the shift to private line development erodes culture. The artisans, the creators, and all the people who put the time into research, those who dedicate years to developing products, understanding products, and creating raw product goods, they are literally robbed of their rewards and creativity. There’s a moral opportunity to make sure and think about giving shoppers legitimate product selection. As these environments move sharply into private line development, the artisans and fashion designers are removed from the workflow. By no means is the private line fashion team at Amazon capable of developing anything like these actual brands and manufacturers can from a creative and culturally relevant standpoint.

Originally published at medium.com on January 20, 2018.

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