When people often think about what is Amazon’s greatest competitive advantage they often think it’s their network. Their distribution network. However, long before Amazon was offering free 2 day shipping, Jeff Bezos made a controversial decision that will create such strong network effects that Amazon will become the everything store he dreamed about. He pioneered customer reviews.
Amazon knew it had one major advantage on neighborhood bookstores, it could carry a huge selection of books that no physical retailer could hold. On the other hand, many customers relied on bookstore employees to get unbiased recommendations for books. While Amazon could not replicate the dialog between a book shopper and their neighborhood bookstore, it could create the wisdom of the crowd. Crowdsourced customer reviews proved to be a genius way to scale the young platform. It is hard to imagine how many resources Amazon would need to invest in order to write every product review on its site.
Customer reviews create significant value for customers in ecommerce. If we are buying a product for the first time, it is quite difficult to assess the product’s performance and quality. When shopping in a brick and mortar store we might be able to see the product in action (for example when shopping for a TV) or feel it (for example kitchenware). We can also speak to the sales person and get an “expert” opinion. However, in the information age, customers have learned that sales agents have agendas and products on display might be misleading. I’ll tell you what’s not misleading- hundreds or even thousands of objective customers reviews. We can read the good and the bad and make our own decision based on herd mentality…
“When we pioneered customer reviews, it was incredibly controversial. I got letters from publishers saying, “You don’t understand your business. You make money when you sell things. Take down those negative customer reviews.” We’ve never done anything of real value that wasn’t at least a little bit controversial when we did it. But if you want to be a pioneer, you have to be comfortable being misunderstood.”- Jeff Bezos
20 years ago industry experts believed that letting customers rant on products is retail suicide, but in reality it created value for customers and companies alike. Suddenly, if you had a good product out there, the Amazon platform would ensure many customers discover your product and through Amazon’s sorting algorithms, products with plenty of positive reviews would be positioned atop the search results. Customer review’s also proved to be very valuable if you had a bad product out in the market. Through Amazon’s platform users were telling other users exactly what they don’t like about a product which by way gave the manufacturer honest and direct customer feedback.
Amazon’s customer reviews are so powerful they seriously threat Google’s business model. Because Amazon’s product selection and review system are so robust customers are starting and finishing the product discovery and purchasing within Amazon. Google is used to earning its revenue by having customers search for products on Google and then press on paid links. Since customers know they can find what their looking for in Amazon as well as all the product information and reviews, many customers are starting their product search on Amazon and not Google.