Amazon Built a Massive Advantage From This Very Smart Thing It Did Years Ago. (There’s Just 1 Little Problem)

Amazon Built a Massive Advantage From This Very Smart Thing It Did Years Ago. (There’s Just 1 Little Problem)

Amazon has a big advantage in its retail business that people rarely talk about.  It's the fact that many years ago, it started convincing mi

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Amazon has a big advantage in its retail business that people rarely talk about. 

It’s the fact that many years ago, it started convincing millions of customers to write product reviews

It’s a brilliant system, albeit one that might be under threat:

  • More reviews = more traffic;
  • More traffic = more sales;
  • More sales = more reviews.

I’ll bet you’ve even used Amazon’s product reviews while buying from another retailer.

I did this just the other day: standing in an aisle at Target, looking up products on Amazon, and then making my choice and buying it right there at Target. 

In fact, it’s my guess that if Amazon were to somehow spin its reviews off as a standalone business, it would be worth billions, just judging by how the stock market values other large review-based businesses.

(Comparisons: Tripadvisor has a roughly $5.3 billion market capitalization as I write this; Yelp comes in at about $2.5 billion.)

There’s one big asterisk next to all of this, however: the question of how many reviews on sites like Amazon and elsewhere are actually fakes — posted by unscrupulous vendors in order to boost their own ratings or else drag down the competition.

In April, the website The Hustle investigated the problem. 

A reporter spent two weeks “in the underbelly of Amazon’s fake review economy,” and found that “the fake Amazon review economy is a thriving market, ripe with underground forums, ‘How To Game The Rankings!’ tutorials, and websites…”

Separately, a former Amazon employee named Chris McCabe, who now runs a consulting firm for Amazon retailers, told the Wall Street Journal recently that he thinks that about “30 percent” of reviews on the site are “inauthentic.”

Amazon puts the number much lower, around 1 percent, and told the Journal that last year it spent $400 million to combat fake reviews and misconduct, and took action against “more than 5 million reviewers.” 

If you own a business that uses Amazon or other smaller retailers with reviews as a sales channel — or if you wind up with reviews on other sites like Yelp, Google or TripAdvisor — this isn’t just a curiosity. 

For some businesses it can be the difference between success and failure.

A couple of years ago, a British man who’d made a living writing five-star reviews on TripAdvisor decided to run an experiment. He created a fake listing for a restaurant that didn’t exist on the site, and used the dark arts of fake-review-generating he’d learned to boost its reputation.

Eventually, it was the top rated in all of London on Tripadvisor. People called for reservations and were disappointed when they couldn’t get in (because again, it didn’t exist).

TripAdvisor shut him down, eventually. 

But in another case, it cooperated with Italian prosecutors to shut down a fake review scheme, and its leader wound up serving time in prison. And separately, in the U.S., the Federal Trade Commission settled with the first company it prosecuted for fake Amazon reviews earlier this year. It amounted to a $50,000 fine.

Here’s my guess about when enforcement will get tough: about the time consumers perceive it as a big enough deal to threaten the whole system (and the multibillion dollar value of the networks that companies like Amazon have built).

Until then: buyer (and rater) beware. 

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

This article is from Inc.com

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