In the current issue of the Harvard Business Review, there is an article discussing some of the results from this working paper by Feng Zhu and Qihong Liu. They look at products on Amazon which are available only through a third-party seller. The authors try to understand how Amazon decides which new products to add. Specifically, for objects previously available from a third-party, you have a bunch of data which may be able to help distinguish one item from another.
In the past there have been two possible motivations proposed for platform owners: They might identify items which the third-party market is not handling well, or they might instead try to improve their profits as much as possible. The article makes an empirical case for the latter objective, which makes sense. The point of this post is to explore if entering markets as a customer service move also makes sense.
First we have to wonder, does the platform owner entering a market necessarily improve the customer experience? There are some cases I can think of where it would, but also cases where it would not. If the product is good, presumably the right distribution would lead to satisfied customers. In Amazon's case, they need to identify if the manufacturer (e.g., packaging, understaffed distribution office) or the third-party seller (only ships on Tuesdays) is to blame for the poor distribution. Working with the manufacturer directly could improve the customer service experience for those cases.
Bad products are a somewhat different situation. Should the platform owner allow the bad product to stay on their platform? It depends why the product is bad. Just yesterday Apple banned hundreds of apps which violated users privacy. Similarly, you can find lots of stories online of Amazon sellers being banned without recourse for alleged violations. But what about the Fizz Saver which is just a terrible product? Does it help or hurt Amazon to let this product continue to be sold on their platform?
One final question: How can we use algorithms to distinguish from a bad product and merely bad distribution? For example, in my hunt for an exceptionally bad product I found many things which got either good or bad reviews as a joke. Does the existence of these kind of products on the platform have any effect on Amazon?
In the past there have been two possible motivations proposed for platform owners: They might identify items which the third-party market is not handling well, or they might instead try to improve their profits as much as possible. The article makes an empirical case for the latter objective, which makes sense. The point of this post is to explore if entering markets as a customer service move also makes sense.
First we have to wonder, does the platform owner entering a market necessarily improve the customer experience? There are some cases I can think of where it would, but also cases where it would not. If the product is good, presumably the right distribution would lead to satisfied customers. In Amazon's case, they need to identify if the manufacturer (e.g., packaging, understaffed distribution office) or the third-party seller (only ships on Tuesdays) is to blame for the poor distribution. Working with the manufacturer directly could improve the customer service experience for those cases.
Bad products are a somewhat different situation. Should the platform owner allow the bad product to stay on their platform? It depends why the product is bad. Just yesterday Apple banned hundreds of apps which violated users privacy. Similarly, you can find lots of stories online of Amazon sellers being banned without recourse for alleged violations. But what about the Fizz Saver which is just a terrible product? Does it help or hurt Amazon to let this product continue to be sold on their platform?
One final question: How can we use algorithms to distinguish from a bad product and merely bad distribution? For example, in my hunt for an exceptionally bad product I found many things which got either good or bad reviews as a joke. Does the existence of these kind of products on the platform have any effect on Amazon?
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