Amazon Destroys Brands

By John Wantz, December 8th, 2018

Dear Amazon recruiters, please see below:

If you’ve looked at Chinese e-commerce giant Alibaba and said that it got to be the largest business in China without the collusion of the Chinese Government, you might get laughed at.

Similarly, when discussing Amazon, it would be impossible not to claim that the domestic e-commerce monster got where it did today without the officially sanctioned collusion of the American government.

The problem with an all-knowing, all-selling monopoly like Amazon is that it not only kills innovation and small businesses, but it also encourages corruption among other companies that attempt to replicate the same type of massive marketplace growth across retail, food delivery, and other on-demand services. Jet.com, for example, tried to achieve the same results as Amazon, but it turns out that it’s difficult to compete in this way.

This is not to say Amazon hasn’t innovated, but the relationship they now have with American business and offshore dollars has become malignant at best. While Amazon may improve convenience, it is achieved on the backs of a suffering middle class and through the abuse of both big and small businesses in the USA. What’s even more incredible, is that the US Government has allowed this to happen unabated.

Here’s a list of the three methods Amazon leveraged to achieve market dominance through policy meandering and tax dodging which I believe are questionable.

Tax Gymnastics

  • “A new report says Amazon paid zero dollars despite making $5.6 billion in profits last year, and will be getting a $789 million tax cut thanks to the Trump administration’s new law in 2018. (source)
  • The company’s zero percent rate in 2017 reflects a longer term trend. During the previous five years, Amazon reported U.S. profits of $8.2 billion and paid an effective federal income tax rate of just 11.4 percent. This means the company was able to shelter more than two-thirds of its profits from tax during that five year period.
  • Good Jobs First estimates that Amazon could soon surpass Wal-Mart as the largest retail-sector recipient of state and local government aid, meaning that it would have received over $1.2 billion in public subsidies. (source)
  • At the end of 2016, Good Jobs First and the Institute for Local Self Reliance (ILSR), a progressive policy group focusing on sustainable community development, pegged Amazon’s record for state and local subsidies at just over $1 billion ( for data on Amazon-awarded subsidies since 2015, see chart below). The new year began with Amazon committing to build out its rapid-delivery business model, and states and municipalities lined up to help. In less than three months, Amazon racked up another $92 million in tax credits and exemptions to develop warehouses and fulfillment centers in California, Illinois, Kentucky, Maryland and Michigan. (source)
  • The company’s early success as a retailer was due in part to its refusal to collect state sales and use taxes. Amazon cloaked itself in immunity under the nexus standard established by the U.S. Supreme Court in Quill Corp. v. North Dakota504 U.S. 298 (1992), which bars states from requiring remote sellers to collect and remit taxes if the vendor lacks a physical presence in the state.
  • Critics contend the practice provided Amazon with a 6 percent to 10 percent price advantage over traditional retailers, which were obligated to collect such taxes due to their physical presence within each taxing jurisdiction. Before 2005, Amazon maintained warehouses and distribution centers in just a handful of states to avoid physical nexus and maintain its market advantage in the vast majority of states.
  • Using data developed through “ Subsidy Tracker,” Good Jobs First’s national search engine for economic development subsidies, Mitchell said Amazon collected tax subsidies totaling $613 million between 2005 and 2014 as it constructed 77 warehouses and fulfillment centers. Amazon also grabbed $147 million in tax benefits linked to its development of data centers, bringing it $760 million in total benefits through 2014.

(source)

More on taxes: https://itep.org/amazons-local-state-and-federal-tax-issues-explained/

Worker Abuse

Amazon’s warehouses comprise about 80 percent of the company’s U.S. workforce. The way they treat workers is deplorable.

  • Many of the workers in Amazon warehouses are subcontracted temporary workers, which the company refers to as “seasonal,” but are, in many cases, year-round “permatemps.” This set-up allows Amazon to skirt responsibility for these workers and any injuries they suffer on the job, and helps deter its direct hires from advocating for better conditions.
  • Employees describe running across warehouses that sprawl the distance of 17 football fields; production quotas, or “rates,” that can be set 60 percent higher than the industry standard and a disciplinary system that tracks workers’ every action and inflicts “points” for any deviation from Amazon’s standard. (source)
  • “If you’re a picker you have this scanner gun that counts down 22-seconds between every pick and you’re running sometimes to the other side of the warehouse to get that pick,”
  • “One day we came in to work and they said, ‘Your rate is now 500 units per hour,’”
  • Another worker, this one assigned to be a “picker,” told the paper, “It started with 75 pieces an hour. Then 100 pieces an hour. Then 125 pieces an hour. They just got faster and faster and faster.”
  • As Beth Gutelius, a researcher who has looked extensively at Amazon, told us, “It’s actually impossible to meet the productivity standards and do so safely.”155 The International Business Times has reported that these production quotas are set intentionally too high. “Amazon’s productivity numbers are apparently purposely designed to be unattainable for most workers so that employees feel that they are falling down on the job and push harder to hit the impracticable levels,” IBTimes wrote. “This strategy [is] known as management by stress.”
  • Closely managing workers’ injuries so that they don’t get reported. For instance, “A former warehouse safety official said in-house medical staff were asked to treat wounds, when possible, with bandages rather than refer workers to a doctor for stitches that could trigger federal reports,” a Seattle Times investigation found.
  • Drawing on more than 1,300 wage postings on Glassdoor.com, we found that that Amazon’s fulfillment center positions pay an hourly mean wage of $12.32,167 which is 9 percent less than the industry average for comparable work, according to Bureau of Labor Statistics (BLS) data.
  • In the Dallas-Fort Worth area, where Amazon has seven large facilities, its mean hourly wages were 11 percent lower; in Seattle-Tacoma, where Amazon has five warehouse facilities, wages were 18 percent lower. The smallest gap was in the Phoenix metro area, where Amazon workers make an average of 6 percent less than other warehouse workers. The largest gap was in Kenosha, Wisc., where Amazon has one fulfillment center and one sortation center, and pays an average wage of $12.23–22 percent less than the average wage for comparable work, and 26 percent less than the living wage for the county.
  • Across these eleven metro areas, we found that Amazon wages were an average of 15 percent below the wages for comparable positions. It’s important to note here that though there are examples of better warehouse jobs, much warehouse work is not very well-paid to begin with and Amazon is dragging those low wages down further. Amazon is paying 15 percent less than an already low-wage job. These low wages disproportionately affect African-American and Latino workers, who comprise 45 percent of Amazon’s warehouse workforce, but only 8 percent of the company’s management.
  • Workers have been dying in Amazon warehouses since 2014 (source)

Merchant Abuse

  • Read this source.
  • Amazon merchants fear their voices are drowned out by the company when policy decisions are made that affect their livelihoods and the future of e-commerce. They think an association will help them lobby more effectively. (source)
  • The Online Merchants Guild has big ambitions, which include negotiating better terms with Amazon, pushing the company to respond more effectively to sellers’ complaints and lobbying government officials to make sure merchants’ viewpoints are being heard.
  • Amazon raised seller fees for several categories, increasing the percentage of the sale it takes from third parties, according to analysis from Instinet. The company raised the fee for the Clothing & Accessories category from 15% to 17% and for the Handbags & Sunglasses category from 15% to 18% on items priced above $75. Items under $75 will still be charged the 15% rate. (source)

Amazon has eliminated about 149,000 more jobs in retail than it has created in its warehouses, and the pace of layoffs is accelerating as Amazon grows.

Many more jobs are at risk: the retail sector currently accounts for about 1 in every 8 jobs, and unlike Amazon jobs, these jobs are distributed across virtually every town and neighborhood.

By using Prime to corral an ever-larger share of online shoppers, Amazon has left rival retailers and manufacturers with little choice but to become third-party sellers on its platform. In effect, Amazon is supplanting an open market with a privately controlled one, giving it the power to dictate the terms by which its competitors can operate, and to levy a kind of tax on their revenue.

Already there’s evidence that Amazon is using its huge trove of data about our buying habits to raise prices, and it’s also started blocking access to certain products, charging higher prices, and delaying shipping times for customers who decline to join its Prime program.

To focus too much on prices, though, is to miss the real costs of monopoly. Amazon’s tightening grip is damaging our ability to earn a living and curtailing our freedom as producers of value.

New business formation has plummeted over the last decade, which economists say is stunting job creation, squeezing the middle class, and worsening income inequality.

The case for damaging centralization, monopoly, and oligarchy are strong with Amazon. Something must be done…

Blockchain + Retail Use Cases

My thoughts on four use cases that blockchain can directly benefit merchants involved in online retail.

It’s been a buzzword we all hear every day, but blockchain is much more than a fad. The technology — which provides the foundation of cryptocurrencies like Bitcoin, Ethereum, Litecoin, and more — has the potential to transform the retail landscape, from inventory management and payments, to financing, insurance, supply chain management, and more.

Improved Checkout

A recent Barilliance study found that 3 out of 4 Shoppers do not purchase items that they put into their carts. This is obviously a huge loss of revenue for eCommerce stores. It also goes to show how important a frictionless user experience (UX) is to combat this trend.

Bringing that elevated experience design to independent merchants is a major driver in the success of market leaders like Shopify and Squarespace Commerce. Given their large R&D budgets, these firms can afford to test and iterate successful UX at a level that SMBs simply cannot. Blockchain can take this to the next step.

Blockchain technology enables more secure payments, an easier checkout, and a consistent user experience across multiple stores. Imagine being able to conveniently share your payment information with every vendor without having to log in, or being able to purchase items across the world with the same ease as purchasing goods locally in your local currency.

Breaking Borders

In 2018, it’s estimated we’ll see almost $700 billion in cross-border shopping spend. By 2020, cross-border eCommerce is estimated to reach $1 Trillion. Around 54% of US digital shoppers reported making online purchases from a foreign site in the past, and 67% of global consumers who shop abroad claim to do so because prices are lower outside of their own country. (source)

This means Brands and retailers need a simple way to accept a broad array of cross-border payment types including credit, debit, prepaid, fiat, and cryptocurrency.

Blockchain technology, with its ability to seamlessly facilitate cross-border transactions, supply chain management, and shipping and customs practices, can be the driving force towards broadening access to international eCommerce and global shopper inclusion. As proof, Chinese multinational eCommerce giant Alibaba recently announced their T-Mall is moving all cross-border eCommerce to blockchain.

Connecting with Shoppers

In today’s retail landscape, all of the power resides with a handful of big international marketplaces like Amazon, Walmart, and Alibaba. These marketplaces force both brands and individual consumers to play by their rules because they control all traffic and the resultant user data.

We believe there will be a shift from this current centralization model to a focus on decentralized eCommerce stores because, increasingly, users are not comfortable with the data collection practices of large corporations, and brands are suffering from extreme margin squeeze. Even more alarming is the fact that Brands are being forced out of their own markets by having to compete with marketplace private line development that copies their most successful products.

Most important, however, is the simple fact that niche Brand stores can provide a much more personalized, curated experience for Shoppers, while decentralized marketplaces would allow for Brands to flourish in an environment where data is shared, and ultimately return more value to the platform.

Opening access to user data can help facilitate this shift and lead to a closer relationship between Brands and Shoppers and go a long way towards improving online experiences, products, and services.

This model provides for more than just margin maximization. Understanding Shoppers’ needs and preferences informs Brands’ product development and marketing strategies and enables them to offer more insightful promotions for sharing posts with friends, or discounts on future purchases.

Greater Transparency

Blockchain can empower consumers to capture and reclaim ownership of their personal data as they move across the web and permission that data to Brands within each transaction in return for discounts and loyalty rewards. This way, Shoppers enjoy personal data ownership while Brands get the valuable consumer insights they need to better serve them.

Protocols will be enabled that allow developers to easily create new decentralized shopping platforms and apps that deliver the efficiencies and inherent security of the blockchain.

Blockchain to the Future

Online retail sales are growing growing like wildfire and blockchain is poised to bring empowerment to both Brands and Shoppers more than ever. We look forward to being stewards of the forthcoming retail revolution.


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.

The Era of Shareholder Appeasement


Amazon has blossomed into a very diverse business with a massive product portfolio. As a shopper, we look at Amazon as this marquee marketplace for third party goods. Let’s be honest, they’re amazing at delivering products quickly and at a great price. But at what cost? And at whose expense? [10–30% of a brand’s margin, but we can get into that later.]

As eCommerce has fueled revenue growth, Amazon has compounded the value they’ve been able to gather off of shopper income and brand margin, but it is only sustainable so far. As Amazon has moved into other margin-gauging tactics like Amazon Ads, Amazon Fulfillment, and marketplace seller fees, there’s only so far they’re able to go into the share of a dollar from a merchant before it becomes a counterintuitive environment for certain product categories or for certain brands to sell through. In order for Amazon to maintain the clip of revenue generation that it has established for shareholders, they’re forced to enact net new strategies that maintain the upside of growth that people are hungry for.

It took Amazon a long time to get to the point where it was operating efficiently from a profit standpoint on the marketplace model, and now that they have, it isn’t a beast that they can afford to stop feeding. Enter strategies like private line development and the launch of the Amazon Media network, all enacted in order to hit revenue goals so that they can continue to appease shareholders. Is it sustainable? I don’t think it is. Amazon has diversified and is positioned to move into so many different sectors but they don’t realize the damage they’re actually inflicting on retail and eCommerce inside of fashion, home decor or any of the key categories. It’s got to be the smartest company on the planet but there’s no way that they can believe that these tactics and the damage that’s occurring against third party sellers and brands is part of a future where they’re a meaningful player in commerce.

At the end of the day, appeasing shareholders is at the top of the list. If you look at the personal net income of Bezos, I’d argue he’s shareholder Number 1. He has architected his share strategy so that he wins. There was a long time there where dividends were a faux pas, all the meanwhile Bezos was amassing wealth off of the margin of brands. While a brand is just wanting to develop meaningful products for shoppers, run their business, manage their inventory, and continue to provide jobs, they’re being as relegated out of the process as possible in order to afford for someone to build jets and try to take himself to the moon. So, when I talk about shareholder value, it’s a pretty tight scope of who that ends up appeasing.

Centralization and the Brand-Shopper Relationship

The relationship that brands and shoppers have is a dynamic one. Ten years ago it was much more of a linear, per channel strategy. A shopper would engage with a brand through products available at big box retailers as the result of a wholesale-retail distribution strategy. Alternatively, a brand or manufacturer would have an physical storefront where shoppers could come in to touch, try on, and test out products. The amount of insights that the brand would have about that activity would vary significantly based on what they were instructed to collect.

During this time, brands and manufacturers were managing product life cycles, forecasting, and developing trend analysis on rough quarterly-based and annualized numbers. When things moved digital, there was an opportunity for intermediaries to facilitate the transaction between a brand and a shopper based on new data attributes now on the table such as understanding shopping preferences about users and basic demographic information.

With the emergence of digital commerce, the primary strategy that dominated was one where significant big box retailers like Target or Walmart made meaningful investments to move catalogs online in order to facilitate these digital transactions direct to consumer. These became what we recognize today as modern marketplaces. Along those lines, brands started to grow competency in building their own digital commerce stores, known as eCommerce capabilities, standing up storefronts where they would have one-off relationships with a shopper coming into that digital environment.

For all the resources that very meaningful brands and manufacturers, like Louis Vuitton for example, have dedicated to ad spend and developing these capabilities, their ability to track individual shoppers to their standalone sites is extremely inefficient and cost-prohibitive compared to the activity that can occur in a marketplace. The modern state of retail is really that of intermediaries acting on behalf of the brands to facilitate the value exchange, leaving folks like Amazon, Target, and Walmart, sitting between the brand and shopper.

Brands are now almost back in the position where they’re operating off of very little data. How their products are performing in that environment, what kind of sell through rates compared to others inside of the product categories, the quality of their products, and return rates is very black-boxed. The relationship that brands have with these primary channels for online and/or physical distribution doesn’t return much insights, leading to inefficient production cycles and a mishandling of manufacturing, logistics and distribution-center activities. It blocks up the critical flow of data in the ecosystem.

For a shopper, they’re driven by price and selection. A lot of these marketplaces that allow for great brand experiences inside of this unified environment are perceived as helpful. These environments, typically much more technology friendly than brand-direct experiences, have really won. The network orchestration between that these marketplaces facilitate, the interaction models, and the data engagement tools that shoppers in have become the prevailing method.

The relationship that a shopper used to have with a brand has been regulated down to things like price and selection as opposed to any sort of authentic branded experience that would allow for a brand to capture and grow the subjective value associated with their product lines, their brand or the mental space that they may have shared, created or expanded upon with the consumer. Outside of that very myopic transaction, there’s very little to no information gathered by brands about any of the activity that occurs across channels.

Retail is Broken.

Retail today is Amazon. The efficiency, ease of use and selection for Shoppers has afforded Amazon an unparalleled dominance in modern Retail. Additional marketplaces such as Flipkart and Walmart rely on centralized processes to create and deliver internal value returns. This value creation requires the maintenance of running marketplaces at a substantial cost of capital. With these costs comes an expectation of increased value to Shoppers over time, but where does this value come from? The current centralized ecosystem creates an inescapable obligation to continue to extract margins from Brands, the products they bring to the marketplace, and those most vulnerable upstream.

I believe a Retail marketplace can only be healthy and sustainable if it provides valuable economic engagements for both the Brands and Shoppers. The current landscape of Retail does not reflect this.

With an obligation to external shareholders driven by economically incentivized humans, these centralized marketplaces have developed a business paradigm that drives value extraction by leveraging the exchange that occurs between Brands and Shoppers in order to increasingly consume Brands’ margin and a Shopper’s time and money.

The combination of these strategies driving the centralized system and Brands’ unfortunate tolerance for margin extraction will eventually cripple the ability for a Brand to participate in the marketplace altogether. With this impending reality, existing retail marketplaces have enacted a strategy of margin extraction combined with the leveraging of all data concerning product and related shopper interaction. Holding a superior position in understanding what products will serve the demand Shoppers have, they bypass the Brands they claim to serve by manufacturing private line goods based on that data.

Once Brands have been removed across key segments, selection decreases, price manipulation strategies begin, and the trust that the marketplace once brokered is eroded.

In short, all seems lost for the Brands creating the experiences we desire and for the Shoppers looking for the style, quality, and selection a free market should offer.

WHY RETAIL NEEDS TO DECENTRALIZE.

As someone who’s contributed to this problem personally over the years through my work in eCommerce, I’ve since developed a personal drive to help reverse this trend. To that end, my team has begun building a new open-source blockchain-based protocol (The SHOP Protocol) that will help restore balance to the system by providing a collaborative digital commerce data exchange that supports the transfer of value across Retail, Grocery, and Services supply chains in the following ways:

1. Control Over Their Data: Introducing yet another centralizing marketplace would be extremely fatiguing Brands. Another entity collecting their data within a far too recognizable system of looming fees or alternative monetization tactics would leave them listless and disempowered. We can’t re-centralize their data for our independent intentions and benefit. The opportunity to standardize and organize their data within a co-op environment, one that is built on principles providing them the ability to monetize said data at every step, would only work within a decentralized ledger of data they own and control. Here, Brands maintain their existing independent systems while we maintain interoperability with those systems, allowing for them to move towards unleashing their data within our decentralized framework.

2. Control over the Marketplace: Committing to the scale of building a consumer retail marketplace would be irrational for us to pursue. There is a substantial difference in the level of effort it would take for a centralized entity to create all of the rules, business logic, product determinations and moves necessary to deliver on par with Amazon. However, if Brands have an incentive structure matched with permissioned control over their data, they can dictate said logic, determinations and rules via ‘smart contracts,’ and a reward-bearing complementary governance, thereby removing the need for a centralized organization to fund the humans and processes needed.

3. Product Lifecycle Management: Brands need to better understand a Shopper’s interest in their product to effectively optimize downstream change in subsequent product or product line development. Once they enjoy the benefit of owning their data and understanding how that data moves through physical and digital commerce experiences to reach Shoppers, these Brands will be well positioned to respond with more agility and accuracy as they grow. Practically, this enables brands to intuit to what products to produce next for greater success.

4. True Market Diversification: If we’re left with commoditized Brand value and generic product designs made by the broken retail marketplaces of Amazon, Costco and Walmart, we will continue to see people wearing Kirkland jeans. With the SHOP Protocol we’re not moving Brand and Shopper data down into a new database environment so that they can access it better. By storing their data in a distributed ledger where those who need access to it will be forced to operate off of permissioned datasets rather than ripping off and centralizing the value in the data. We’re shifting the leverage in the equation back to the key participants: the makers (Brands) of the products and people (Shoppers) who want them.

[But how exactly are we going to bring decentralization to the market? We find out in the forthcoming Part II of why retail is broken.]

Amazon’s Advertising Hurts Brands


Yeah, I know buying on Amazon is amazing.

With Prime, you can get a couple of propane patio heaters for a little over $100 each delivered to your door for free in only two days, just in time for a party. That is nothing short of amazing. However, there are ways that Amazon is positioning itself in the market that aren’t so awesome for some of its key stakeholders: the brands. Ways that marginalize the brands even more than the margin pillaging fees are by trying to survive in an Amazon-dominated world, and that are ultimately bad for consumers.

In an earnings call late last month the biggest and most iconic of the Big Four ad agency conglomerates, WPP, slashed its forecast for the year. Now predicting 0–1% revenue growth, down from a 2% growth forecast, the news sent WPP’s stock tumbling to a 17-year low. The resulting shockwaves obliterated the advertising world. During that call, WPP chief Sir Martin Sorrell specified why: Amazon’s 2016 digital advertising earnings totalled a staggering $2.5 billion.

To explain, back up to 2013, when Amazon built its very own demand-side platform (DSP) for ad retargeting across web properties. Amazon now has developed a way to turn the massive amount of data it collects on its loyal online shoppers into advertising for itself.

It’s now becoming clear what that means.

The elephant in the room

You might be saying so what? Facebook and Google have been collecting our data for years so they can sell stuff to us, and we’ve pretty much bought into it, haven’t we? Isn’t this the price we pay for the addictive experiences we enjoy? Isn’t this simply the cost of convenience? Like and share if you agree.

For Amazon, the victims of ads aren’t just the consumers who see them, but the brands, whose exploited margins have funded Amazon’s ad network. Brands are tired of theoretical advertising metrics but will continue to give ad budget to Amazon for the sheer appearance of full funnel visibility. But for Amazon, the endgame is the same: maximize consumption activities on their properties to leverage consumer and funnel data.

While every engagement action a consumer performs on social media builds the targeted data profile, and you see the ads and sponsored content on those networks as evidence of exactly what they’re doing, the actual shopping data that Amazon collects is much closer to the funnel of dollars. That’s what everyone is after. And they are pushing further and further to control every aspect of that funnel in ways that, if it weren’t for the free shipping and great prices, would scare the pants off most of us. But it’s happening, albeit quietly and very sneakily.

Why wouldn’t Amazon do something like this? It makes perfect sense! And it does. From an economist’s standpoint, it looks like a good thing. Amazon is leveraging its assets for maximum earning potential.

But from every perspective other than Amazon’s, this is a cluster through and through.

From a Wall Street Journal article from a year ago:

To date, Amazon’s ad business has mostly focused on driving online sales with targeted ads on sites across the web, leveraging its rich supply of shopping data culled from years of operating a massive e-commerce business. It can, for example, help an advertiser target people who have recently searched for men’s apparel products.

Lately the company has been catering to a wider range of brands — the kind that advertise on TV and focus on “top of the purchase funnel” metrics, such as getting people to feel favorably about their brand. Amazon believes its data is just as useful for those marketers.

Why am I seeing Amazon’s incredible technical milestones and strategic direction as so blatantly bad? Because they are committed to using their massive pool of data, not just of “likes” and “pins” but actual purchase data, to increase the gap between brands and the consumers in favor of profit. While knowing that reduced product selection, removal of independent brands and leverage over product pricing across categories will negatively affect all consumers, they’ve got their money on their mind and nothing else matters.

All the things

Consumers always want more choice at a better price. You could argue that “owning” the consumer end of the supply chain is the most powerful place to be. This is the prime real estate that Amazon is going after with this play for ad business, at the expense of the product producer and, ultimately, the choice that consumers crave.

Looking today at a typical search on Amazon, you can see the encroachment on choices for the consumer. Take a search for something like a “microphone cable,” for example. In the results on my laptop, I see none of the old consumer-driven merchandising benefit that was the promise of the enormous data-collection machine started by Amazon, and remains a key driver of much of the rest of internet-based business, appear above the fold. No top-rated, most popular pick that my peers have determined to guide my choice. The page is instead dominated by sponsored links — even a scroll downward leads to “Amazon’s Choice” rather than the consumers’ preference.

But it’s what is at the very top of the page that is the most concerning of all. The entire top strip of the page highlights a selection of microphone cables by AmazonBasics, featuring a variety of options at more desirable price points compared to competitive cables offered on the same page. But what are AmazonBasics? Amazon has quietly started manufacturing and offering for sale on its properties a vast collection of hard goods that are of wide need and appeal to consumers. Everything from computer accessories, kitchenware, and even pet supplies are all available to you for an enormously discounted price from the rest of the competition.

One can imagine the volume of these categories of items that are sold through Amazon, and how that drove their inclusion in the collection of AmazonBasics. What Amazon is doing here is using the vast amount of data that is available to them and turning around to produce the very items that are most searched for, right down to the specs of the most sold items in each category.

Data that producers and brands don’t have access to.

One can also imagine the quality of such goods. And the future of what will be most available and accessible to consumers should this scenario play out to its foreseeable trajectory. Does everyone want to put AmazonBasics sheets on their beds, and send their kids to school with AmazonBasics backpacks? It’s such a great price. We have some indication today, with the availability of goods at Costco, or really any big store’s own brands. But we’re not all wearing Kirkland jeans or cashmere. It’s a great price, and surely it fills a need in some cases. But the choice that we all crave sends each of us in somewhat different directions, to different styles, cuts, and washes in our jeans.

To go back to the microphone cables, what is it that makes a good cable? As a musician you want a richness of the resulting sound that travels through them, as well as durability and reliability over time, among other specifications based on your own experience and need. Is Amazon the best company to deliver what you want in these cables? No. Do they care? Certainly not.

Meet the producers

You can see the potential effect on consumers of this control of the funnel, but what about producers?

When most producers start out, they begin with an affinity for an item or category, coupled with a unique vision for something different or better than what is available at the time. Sometimes it is a more straightforward view into a need in the market itself for a particular item or a different take on an existing item. And so the research and eventual production begins. As a small producer, perhaps selling directly to customers through your website or storefront, or even a marketplace like Etsy, or as a small merchant, on Amazon, you have access to information about who your customers are. Where they are, what they want, when they are happy with what you’ve produced, or not. But, as demand grows and the product begins to appear in other outlets, like bigger stores or outlets like Amazon, you lose that direct connection. At every point in the supply chain there is data that you no longer have access to. As you start to ship product to a warehouse, you don’t entirely know where it is going from there. What parts of the country are getting how much, and when? As it ships out, how long does it take to get there? Is it arriving in time for the right demand? And finally, in the store or outlet itself, who is buying, how much, and when? What are they searching for to find your product? What is their first experience with your product?

Over time Amazon, and others, really, if you look at Walmart’s actions and acquisitions (Jet) recently, have taken ownership of each of the points along this chain. And now they are working on closing that loop to the disadvantage of the producer, and ultimately the customer.

Within their properties, Amazon is slowly but surely moving to dominate the wide base of consumer goods, to the point of undercutting producers. Now, with the move into the ad space, they are moving beyond their properties and into most any other media you consume.

You’re already familiar with the kind of creepy phenomenon of having looked at a product online, only to see an ad for it as you browse elsewhere on the internet. With what Amazon is positioning, your shopping behaviour itself will feed the advertisements you see.

Here’s the thing though, it is creepy. That feeling is legitimate. Amazon has a whole story’s worth of data on you. And they are going to leverage the shit out of it at the expense of the brands you love.