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https://www.wsj.com/articles/amazon-changed-search-algorithm-in-ways-that-boost-its-own-products-11568645345

◆ WSJ NEWS EXCLUSIVE

Amazon Changed Search

Algorithm in Ways That Boost Its
Own Products
The e-commerce giant overcame internal dissent from
engineers and lawyers, people familiar with the move say

By Dana Mattioli
Sept. 16, 2019 10 49 am ET

Amazon.com Inc. AMZN -0.01% has adjusted its product-search system to more
▲

prominently feature listings that are more profitable for the company, said people who
worked on the project—a move, contested internally, that could favor Amazon's own
brands.

Late last year, these people said, Amazon optimized the secret algorithm that ranks
listings so that instead of showing customers mainly the most-relevant and best-
selling listings when they search—as it had for more than a decade—the site also gives
a boost to items that are more profitable for the company.

The adjustment, which the world’s biggest online retailer hasn’t publicized, followed a
yearslong battle between executives who run Amazon’s retail businesses in Seattle and
the company’s search team, dubbed A9, in Palo Alto, Calif., which opposed the move,
the people said.
Any tweak to Amazon’s search system has broad implications because the giant’s
rankings can make or break a product. The site’s search bar is the most common way
for U.S. shoppers to find items online, and most purchases stem from the first page of
search results, according to marketing analytics firm Jumpshot.

The issue is particularly sensitive because the U.S. and the European Union are
examining Amazon’s dual role—as marketplace operator and seller of its own
branded products. An algorithm skewed toward profitability could steer customers
toward thousands of Amazon’s in-house products that deliver higher profit margins
than competing listings on the site.

Amazon’s lawyers rejected an initial proposal for how to add profit directly into the
algorithm, saying it represented a change that could create trouble with antitrust
regulators, one of the people familiar with the project said.

The Amazon search team’s view was that the profitability push violated the company’s
principle of doing what is best for the customer, the people familiar with the project
said. “This was definitely not a popular project,” said one. “The search engine should
look for relevant items, not for more profitable items.”

Amazon said it has for many years considered long-term profitability and does look at
the impact of it when deploying an algorithm. “We have not changed the criteria we
use to rank search results to include profitability,” said Amazon spokeswoman Angie
Newman in an emailed statement.

Amazon declined to say why A9 engineers considered the profitability emphasis to be a

significant change to the algorithm, and it declined to discuss the inner workings of its
algorithm or the internal discussions involving the algorithm, including the qualms of
the company’s lawyers.

The change could also boost brand-name products or third-party listings on the site
that might be more profitable than Amazon’s products. And the algorithm still also
 Amazon CEO Je Bezos has propounded a ‘customer obsession’ mantra. PHOTO: JIM WATSON AGENCE FRANCE-
PRESSE GETTY IMAGES

stresses longstanding metrics such as unit sales. The people who worked on the project
said they didn’t know how much the change has helped Amazon’s own brands.

Amazon’s Ms. Newman said: “Amazon designs its shopping and discovery experience
to feature the products customers will want, regardless of whether they are our own
brands or products offered by our selling partners.”

Antitrust regulators for decades have focused on whether companies use market
power to squeeze out competition. Amazon avoided scrutiny partly because its
competitive marketplace of merchants drives down prices.

Now, some lawmakers are calling for Washington to rethink antitrust law to
account for big technology companies’ clout. In Amazon’s case, they say it can
bend its dominant platform to favor its own products. Sen. Elizabeth Warren (D.,
Mass.) has argued Amazon stifles small businesses by unfairly promoting its private-
label products and underpricing competitors. Amazon has disputed this claim.
During a House antitrust hearing in July, lawmakers pressed Amazon on whether it
used data gleaned from other sellers to favor its own products. “The best purchase to
you is an Amazon product,” said Rep. David Cicilline (D., R.I.). “No that’s not true,”
replied Nate Sutton, an Amazon associate general counsel, saying Amazon’s
“algorithms are optimized to predict what customers want to buy regardless of the
seller.” House Judiciary Committee leaders recently asked Amazon to provide
executive communications related to product searches on the site as part of a probe on
anticompetitive behavior at technology companies.

Amazon says it operates in fiercely competitive markets, it represents less than 1% of

global retail and its private-label business represents about 1% of its retail sales.

Amazon executives have sought to boost profitability in its retail business after years
of focusing on growth. A majority of its $12.4 billion in operating income last year came
from its growing cloud business.

Pressure on engineers
An account of Amazon’s search-system adjustment emerges from interviews with
people familiar with the internal discussions, including some who worked on the
project, as well as former executives familiar with Amazon’s private-label business.

SHARE YOUR THOUGHTS

When you search for products on Amazon, how should it determine what listings to
show? Join the conversation below.

The A9 team—named for the “A” in “Algorithms” plus its nine other letters—controls
the all-important search and ranking functions on Amazon’s site. Like other technology
giants, Amazon keeps its algorithm a closely guarded secret, even internally, for
competitive reasons and to prevent sellers from gaming the system.

Customers often believe that search algorithms are neutral and objective, and that
results from their queries are the most relevant listings.

Executives from Amazon’s retail divisions have frequently pressured the engineers at
A9 to surface their products higher in search results, people familiar with the
discussions said. Amazon’s retail teams not only oversee its own branded products but
also its wholesale vendors and vast marketplace of third-party sellers.

Amazon’s private-label team in particular had for several years asked A9 to juice sales
of Amazon’s in-house products, some of these people said. The company sells over
10,000 products under its own brands, according to research firm Marketplace Pulse,
ranging from everyday goods such as AmazonBasics batteries and Presto paper towels,
to clothing such as Lark & Ro dresses.

Amazon’s private-
label business, at
about 1% of retail
sales, would
represent less than
$2 billion in 2018.
Investment firm
SunTrust Robinson
Humphrey estimates
the private-label
business will post
$31 billion in sales
Inside an Amazon ful illment center. PHOTO: KRISZTIAN BOCSI BLOOMBERG NEWS by 2022, more than
Macy’s Inc. ’s annual
revenue last year.
The private-label executives argued Amazon should promote its own items in search
results, these people said. They pointed to grocery-store chains and drugstores that
showcase their private-label products alongside national brands and promote them in-
store.

A9 executives pushed back and said such a change would conflict with Chief Executive
Jeff Bezos’ “customer obsession” mantra, these people said. The first of Amazon’s
longstanding list of 14 leadership principles requires managers to focus on earning and
keeping customer trust above all. Amazon often repeats a line from that principle:
“Leaders start with the customer and work backwards.”

One former Amazon search executive said: “We fought tooth and nail with those guys,
because of course they wanted preferential treatment in search.”

For years, A9 had operated independently from the retail operations, reporting to its
own CEO. But the search team, in Silicon Valley about a two-hour flight from Seattle,
now reports to retail chief Doug Herrington and his boss Jeff Wilke —effectively leaving
search to answer to retail.

After the Journal’s inquiries, Amazon took down its A9 website, which had stood for
about a decade and a half. The site included the statement: “One of A9’s tenets is that
relevance is in the eye of the customer and we strive to get the best results for our
users.”

Mr. Herrington’s retail team lobbied for the adjustment to Amazon’s search algorithm
that led to emphasizing profitability, some of the people familiar with the discussions
said.

When a customer enters a search query for a product on Amazon, the system scours all
listings for such an item and considers more than 100 variables—some Amazon
engineers call them “features.” These variables might include shipping speed, how
highly buyers have ranked product listings and recent sales volumes of specific listings.
The algorithm weighs those variables while calculating which listings to present the
customer and in which order.

Nate Sutton, an Amazon associate general counsel, at a House Judiciary Subcommittee hearing on antitrust in July.
PHOTO: ANDREW HARRER BLOOMBERG NEWS

The algorithm had long placed a priority on variables such as unit sales—a proxy for
popularity—and search-term relevance, because they tend to predict customer
satisfaction. A listing’s profitability to Amazon has never been one of these variables.

Profit metric
Amazon retail executives, especially those in its private-label business, wanted to add a
new variable for what the company calls “contribution profit,” considered a better
measure of a product’s profitability because it factors in non-fixed expenses such as
shipping and advertising, leaving the amount left over to cover Amazon’s fixed costs,
said people familiar with the discussion.

Amazon’s private-label products are designed to be more profitable than competing

items, said people familiar with the business, because the company controls the
manufacturing and distribution and cuts out intermediaries and marketing costs.
Amazon’s lawyers rejected the overt addition of contribution profit into the algorithm,
pointing to a €2.42 billion fine ($2.7 billion at the time) that Alphabet Inc.’s Google
received in 2017 from European regulators who found it used its search engine to stack
the deck in favor of its comparison-shopping service, said one of the people familiar
with the discussions. Google has appealed the fine and has made changes to Google
Shopping in response to the European Commission’s order.

To assuage the lawyers’ concerns, Amazon executives looked at ways to account for
profitability without adding it directly to the algorithm. They turned to the metrics
Amazon uses to test the algorithm’s success in reaching certain business objectives,
said the people who worked on the project.

When engineers test new variables in the algorithm, Amazon gauges the results
against a handful of metrics. Among these metrics: unit sales of listings and the dollar
value of orders for listings. Positive results for the metrics correlated with high
customer satisfaction and helped determine the ranking of listings a search presented
to the customer.

Now, engineers would need to consider another metric—improving profitability—said

the people who worked on the project. Variables added to the algorithm would
essentially become what one of these people called “proxies” for profit: The variables
would correlate with improved profitability for Amazon, but an outside observer might
not be able to tell that. The variables could also inherently be good for the customer.

For the algorithm to understand what was most profitable for Amazon, the
engineers had to import data on contribution profit for all items sold, these people
said. The laborious process meant extracting shipping information from Amazon
warehouses to calculate contribution profit.

In an internal system called Weblab, A9 engineers tested proposed variables for the
algorithm for weeks on a subset of Amazon shoppers and compared the impact on
contribution profit, unit sales and a few other metrics against a control group, these
people said. When comparing the results of the groups, profitability now appeared
alongside other metrics on a display called the “dashboard.”

Amazon’s A9 team has since added new variables that have resulted in search results
that scored higher on the profitability metric during testing, said a person involved in
the effort, who declined to say what those new variables were. New variables would
also have to improve Amazon’s other metrics, such as unit sales.

A review committee that approves all additions to the algorithm has sent engineers
back if their proposed variable produces search results with a lower score on the
profitability metric, this person said. “You are making an incentive system for
engineers to build features that directly or indirectly improve profitability,” the person
said. “And that’s not a good thing.”

Amazon said it doesn’t

automatically shelve
improvements that
aren’t profitable. It said,
as an example, that it
recently improved the
discoverability of items
that could be delivered
the same day even
though it hurt
profitability.

An Amazon warehouse in Mexico in July. PHOTO: CARLOS JASSO REUTERS Amazon’s Ms. Newman
said: “When we test any
new features, including search features, we look at a number of metrics, including long
term profitability, to see how these new features impact the customer experience and
our business as any rational store would, but we do not make decisions based on that
one metric.”
In some ways, Amazon’s broader shift from showing relevant search results is
noticeable on the site. Last summer, it changed the default sorting option—without
publicizing the move—to “featured” after ranking the search results for years by
“relevance,” according to a Journal analysis for this article of screenshots and postings
by users online. Relevance is no longer an option in the small “sort by” drop-down
button on the top right of the page.

Write to Dana Mattioli at dana.mattioli@wsj.com

Copyright © 2019 Dow Jones & Company, Inc. All Rights Reserved

This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit
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