This week, The Wall Street Journal published an exclusive story detailing how Amazon uses its algorithms to prioritize its brands and products that are more profitable for the company. Amid the flurry of antitrust scrutiny and investigations into big tech, this seems like a big deal. Yet outside of big tech, prioritizing your own products and the products that make you the most money is called the basics of staying in business.
All technology policy debates fall victim to the same general fallacy—that Internet-based businesses are fundamentally different than those with four walls and a front door and therefore ought to be held to different standards.
We increasingly take the wonders that tech companies have given us for granted. The convenience and endless selection provided by businesses like Amazon are so incredible that our expectations of these firms have become completely detached from reality.
Yet Amazon is a business that faces the same fundamental challenges that brick-and-mortar stores like Walmart face. Let’s look at the parallels. Walmart and Amazon are retailers that sell products made by other companies as well as products under their own brand. The complaint against Amazon is that it structures its algorithm to prioritize certain products that are either its own brand or generate the most profit. Yet Walmart does the same thing in how it decides to physically structure its store.
If there were no rhyme or reason to the inside of a Walmart, it would just be a giant pile of unorganized products. Yet a great deal of resources have been dedicated by brick-and-mortar retailers in studying how to position and stock products inside of their stores. Around certain holidays, products related to those holidays, such as hot dog buns around the Fourth of July, can usually be found right as you walk in the door. Throughout the year, the stores are constantly reorganizing. Different products are put on display while some are left on the shelves or in the warehouse.
Brick-and-mortar stores also prioritize products through pricing. Generic or store-brand products are usually cheaper. Stores will also provide you with discount cards and coupons. These prioritize the purchase of certain products over others.
This is all to say that Walmart and all other retail stores want you to see certain products in certain places at certain times at certain prices. For example, there might be a certain brand of jeans that makes Macy’s more money than others. Those jeans are likely to be the ones put on a mannequin in the store window tagged as on sale. How is this any different than when Amazon uses its algorithm to put certain products near the top of the search results?
Following this logic, one ought to realize that Amazon’s business model is decidedly more pro-consumer and pro-competition than that of brick-and-mortar retailers. Amazon doesn’t face the kind of shelf-space limitation that a physical Walmart location does. So if a certain brand of product doesn’t make Walmart as much money as another, it may choose not to carry that product in its stores at all. Yet on Amazon, the accusation is not that the less profitable and non-Amazon brand products are unavailable, but rather are (*gasp*) two clicks on the mouse wheel down.
With Amazon and other online retailers having this enormous selection advantage, Walmart and other brick-and-mortar retailers are well along the way to ramping up their online businesses as well. This is all great news for the consumer.
Not long ago, if the local retail store didn’t have the specific product you wanted, you’d likely go without it or be forced to buy the substitute product or brand that the store determined made the most business sense for them to stock. Today, Amazon, Walmart, and all other retailers are vigorously competing to stock as wide of a selection as possible to best satisfy consumers. In short, the individual consumer experience has gone from a limited selection to a near limitless selection, but certain products might show up a few tiny movements of your hand away from the one you may actually want.
As my colleague Jessica Melugin recently pointed out on CNBC, the standard for antitrust violations under U.S. law is consumer harm. To suggest consumers are somehow worse off because their preferred selection is a mere click away, when it used to be in the back of the store or not available at all, is both a damning indictment of the weak cases being pursued against big tech and a credit to the incredible conveniences these companies have provided.