Amazon Says It Puts Customers First. But Its Pricing Algorithm Doesn’t.
Julia Angwin and Surya Mattu report in ProPublica:
One day recently, we visited Amazon’s website in search of the best deal on Loctite super glue, the essential home repair tool for fixing everything from broken eyeglass frames to shattered ceramics.
In an instant, Amazon’s software sifted through dozens of combinations of price and shipping, some of which were cheaper than what one might find at a local store. TheHardwareCity.com, an online retailer from Farmers Branch, Texas, with a 95 percent customer satisfaction rating, was selling Loctite for $6.75 with free shipping. Fat Boy Tools of Massillon, Ohio, a competitor with a similar customer rating was nearly as cheap: $7.27with free shipping.
The computer program brushed aside those offers, instead selecting the vial of glue sold by Amazon itself for slightly more, $7.80. This seemed like a plausible choice until another click of the mouse revealed shipping costs of $6.51. That brought the total cost, before taxes, to $14.31, or nearly double the price Amazon had listed on the initial page.
What kind of sophisticated shopping algorithm steers customers to a product that costs so much more than seemingly comparable alternatives?
One that substantially favors Amazon and sellers it charges for services, an examination by ProPublica found.
Amazon often says it seeks to be “Earth’s most customer-centric company.” Jeffrey P. Bezos, its founder and CEO, has been known to put an empty chair in meetings to remind employees of the need to focus on the customer. But in fact, the company appears to be using its market power and proprietary algorithm to advantage itself at the expense of sellers and many customers.
Unseen and almost wholly unregulated, algorithms play an increasingly important role in broad swaths of American life. They figure in decisions large and small, from whether a person qualifies for a mortgage to the sentence someone convicted of a crime might serve. The weightings and variables that underlie these equations are often closely guarded secrets known only to people at the companies that design and use them.
But while the math is hidden from public view, the effects of algorithms can be vast. With more than 300 million active customer accounts and more than $100 billion in annual revenue, Amazon is a shopping giant whose algorithm can make or break other retailers. And so ProPublica set out to see how Amazon’s software was shaping the marketplace.
We looked at 250 frequently purchased products over several weeks to see which ones were selected for the most prominent placement on Amazon’s virtual shelves — the so-called “buy box” that pops up first as a suggested purchase. About three-quarters of the time, Amazon placed its own products and those of companies that pay for its services in that position even when there were substantially cheaper offers available from others.
That turns out to be an important edge. Most Amazon shoppers end up clicking “add to cart” for the offer highlighted in the buy box. “It’s the most valuable small button on the Internet today,” said Shmuli Goldberg, an Israeli technologist who has extensively studied Amazon’s algorithm.
Amazon does give customers a chance to comparison shop, with a listing that ranks all vendors of the same item by “price + shipping.” It appears to be the epitome of Amazon’s customer-centric approach. But there, too, the company gives itself an oft-decisive advantage. Its rankings omit shipping costs only for its own products and those sold by companies that pay Amazon for its services.
We found that the practice earned Amazon-linked products higher rankings in more than 80 percent of cases. Amazon’s offer of the Loctite glue, a respectable No. 5 on the comparison list, dropped to the 39th best deal when shipping was included. (The prices Amazon shows are ranked correctly for those who pay $99 per year for Amazon’s Prime shipping service and for those who are buying $49 or more in eligible items.) . . .
And read the whole thing for a survey of what the shaving world refers to as “shady business practices.”