We have a love-hate relationship with private labeling. On the one hand it has allowed many sellers launch their own brands, and thus move beyond reselling. But on the other hand private labeling done at scale is ruining Amazon's catalog.

Sure, there is different involvement private labelers take in creating their products. It might be even argued that the difference between manufacturers creating products, and private labelers is not often clear. Many private labelers do just as much work as a traditional manufacturer would do, they just happen to have outsourced R&D elsewhere.

The problematic, and likely the biggest, category though are brands successful only because of Amazon expertise. For a while incentivized reviews were the silver bullet, but Amazon has since realized the noise they were creating, and made them mostly disappear. Now the toolbox includes product details management, keywords optimization, ad campaign management, external traffic, etc.

The question we raise is who do these products benefit?

As in, are customers - the #1 focus point for Amazon - benefiting. Maybe. But looking from afar the true beneficiary are the sellers and their brands. And the way they look at their products is purely from a point of view of optimizing for Amazon search, even if they claim otherwise. In Private Label and the Future of Marketplaces we wrote:

"But the rise of competition-less products has brought new problems. The key one being saturation of marketplaces with very similar, but just-a-bit different products. Most private label products are almost identical to competition. Thus the competition moved to SEO optimization, keyword ranking, product reviews buying, etc. All in an attempt to rank the product higher.

Yet for customers this is confusing, because they went from being able to get the best deal for a particular product, to now having to find the best product first. In many ways this is breaking the core idea of a marketplace. Amazon catalog continues to grow, but a big part of it is thousands of copies of the same product."

Amazon today reminds of Google search a decade ago. For many years Google was easily exploited through what are known as black-hat SEO tricks. But as Google grew in size it also got better at not getting tricked by websites, making it increasingly harder to outrank other websites in search results just by for example stuffing keywords. It is not perfect yet, but has gotten drastically better. Amazon in many ways is going through this now.

Recently Amazon made some changes to keywords - "Amazon launched a feature that limits the length of the generic keywords attribute to less than 250 characters." This change simply limits the number of keywords Amazon will index for search. These sort of changes rise to limit abuse, and clearly keywords have started to get out of hand. Google made similar changes many years ago (for example the kewyords html element is ignored).

Most retailers look at selling from the catalog point of view. Walmart and other big chains have always built their stores and relationships with suppliers with the catalog in mind. Suppliers had to fit a certain niche in the catalog. The invitation-only Walmart marketplace is the online representation of that, clearly picking sellers who can expand the catalog.

But the growth of search-optimization-powered private labeling does not fit in this view. Amazon is adding thousands, or tens of thousands, of new products every day, all trying to outrank other products. The market picks the winners, as brands come and go. The multi-hundred million catalog is fluid.

Marc Lore, founder of Jet.com and now director of e-commerce at Walmart, recently said "I am less concerned about getting to parry on long-tail assortment. It’s more about getting the brands that really matter" when speaking about their online catalog growth. It is safe to say that Walmart does not want the chaos of private labeling on their online platforms.

The bigger the catalog the more Amazon will have to spend on search, recommendation, and curation efforts. Searching for "t-shirt" already returns over 46 million products on amazon.com. This means that brands are inevitably having to spend on advertising (a win for Amazon), as customers have no good discovery tools to filter through all that noise. Nor are brands to talk to them in any way.

eBay has been spending years on the structured data initiative, as their catalog of more than a billion listings was lacking in detail to build new features. Amazon might face challenges in the future, as the long-tail products make it hard to build discovery and personalization features. This will lead to changes, as we think the current relative ease, and profitability of private labeling is not going to last forever.

For traditional brands - especially those not yet on Amazon - this must look like complete madness. And the shocking realization that what they thought is their brand value leads to no sales once they enter the marketplace. It is all up to search optimization and advertising, this is how online retail is. Or at least this is how Amazon made it to be.

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