Are Amazon Book Reviews Completely Biased?

Is Amazon missing some helicopters?
Is Amazon missing some helicopters?

My ratings obsession

Anyone who knows me knows that I look at a lot of ratings before I decide to do anything. A good friend of mine once joked I wouldn’t turn left if Yelp didn’t tell me to. Have I taken it too far? – probably – I mean I’m writing a blog post on ratings.

Recently, I was looking for a new book to read when I came across Goodreads. I signed up because it has a recommendation engine that can tell  you what you might like based on books you have read and what your friends are reading.

As I browsed the ratings on Goodreads I wondered if they were any different than Amazon’s. What I saw was surprising – books had a very different ratings on Amazon vs Good Reads, even after having hundreds and thousands of ratings. So which one is better?

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The Data: Goodreads versus Amazon – Ratings distribution

Based on an index of 10 books equally weighted (weighted towards business books):
These books received 15K reviews for Amazon and 315K reviews for Good Reads

Goodreads versus Amazon - Ratings distribution

How can thousands of reviews have such a different mean on one site versus the other? And why do Amazon’s ratings have such a  “U” shape compared Goodreads?

Alexa Goodreads.com
Alexa Goodreads.com
Alexa stats Amazon.com
Alexa stats Amazon.com

At first thought you might think – different audiences?

Thanks to Alexa we see it’s not age, education, or family status. The only major difference is that Goodreads skews female more heavily than Amazon. But that doesn’t explain it – why would women on average rate books lower and have a more uniform distribution in ratings. It must have something to do with the ratings system itself. It turns out it probably does (thanks to Sid for helping remind me of the bias in #1):

1) The more work one must do to submit a review, the more extremes you will see in the rating (“U” shape) On Goodreads you simply have to fill out a star rating while on Amazon you have to write a full review. Hence you’ll see many more 1s and 5s on Amazon than what might be true in the real world. So when you look at reviews on Amazon, realize in reality there are a lot of people in the middle who think the books are really 3s and 4s who didn’t review it.

2) There are penalties for dishonesty on Goodreads. Goodreads is a recommendation site. To start getting recommendations you have to rate 20 books you have read. If you aren’t harshly honest about the books you stand the risk of getting bad recommendations.
Amazon, on the other hand, is much more outward facing. In a public review of the book, you may say it was good but it wasn’t for you and settle at 4 stars, but you definitely don’t want to read something like that again so it might get 2 stars on Goodreads.
(Amazon has recommendations too – but these are much more skewed towards browsing history)

All this is to say I think Goodreads reviewers have more skin in the game and are a more representative sample. For now Goodreads = better reads.

5 Things we can learn from Amazon’s Acquisitions

Online retail, though it has grown leaps and bounds, still has significant secular growth left – only 10% of US sales are online today. Ok, so that’s a big market but Amazon owns approximately 20% of U.S. Online Retail sales (ex Travel / Auto / Auction) and the larger it gets the faster it could grow.

Top eCommerce Sites Gaining Market Share in US, 3Q’09 vs. 3Q’10 Excludes Auctions, Autos and Large Corporate Purchases
So how do you compete with Amazon given the significant economies of scale its been able to capture namely purchasing power, shipping infrastructure and mountains of consumer data?
The answer can be found by looking at Amazon’s acquisitions. You can bucket Amazon’s acquisition in US in the last 5 years in 5 major categories:
  1. Vertically Focused sites (e.g., Diapers.com, Zappos.com, Drugstore.com, Fabric.com, Abebooks) SPENT $1.5B
  2. Infrastructure solutions (Kiva Systems) SPENT $0.8B
  3. Digital sales (e.g., Audible.com, Brilliance Audio, Lovefilm International, LexCycle, Amie Street) SPENT $0.3B
  4. Flash sales / Local Sales  (e.g., invesment in Livingsocial.com, buyout of Buy VIP and Woot) – went on to build MyHabit SPENT $0.1B on disclosed acquisitions – not counting its partial stake in Livingsocial
  5. Content (e.g., Digital Photography Review, Foodista) UNDISCLOSED so likely not material to financial results

Given the number of e-commerce operations that exist out there – Amazon has hardly been acquisitive choosing to bet big on a few names. But there are a number of things you can learn from the data points or the lack thereof:0

0. Its tough to get acquired by Amazon. This may be obvious to some of you but I’m amazed at how few acquisitions they’ve made.

  1. Avoid being a content creator Content creators, even those that link very clearly to purchases, don’t get a big payoff. They reside in a different part of the value chain and create leads for the retailers and that hasn’t led to large $ acquisition by Amazon.
  2. Develop a vertical focus and build efficiencies around that vertical. This intense focus on a category enables you to have effiecieny and understanding of a customer that would be difficult for Amazon to easily replicate. In the case of Diapers.com the intense focus on Moms allowed Diapers to solve a major problem: How do you make money selling / shipping bulky low value items? The answer was to build super-efficient supply chain and warehouses, kill diapers as a category, and make money on other household items.
  3. Avoid deep discounts. Margins online are already thin. And there will be constraints to growth as you outgrow your deal inventory.
  4. Obsess over customers – that’s what Zappos did. It built a culture around customer obsession and that was one of the primary reasons Amazon bought Zappos. Categorizing shoes, paying for returns, etc. – Amazon could have done this itself and thrown a lot of money at, but the culture is difficult for any company to replicate
  5. Keep betting on digital delivery – its the way the world is moving and Amazon is investing.

Okay so this begs the question – What verticals are left to focus on? Electronics, toys, and baby products categories, for example, already have near 20 percent online market share.

So the things to compete on are apparel, home furnishings, cosmetics etc. Or tackle consumers segments like Diapers did e.g., child going to college /moving, buying a house, career change, mid-life crisis (just brainstorming), etc. Picking a category of items or a customer and really studying the microcosm intensely is the way to build a retail business that Amazon would look at acquiring.

Is Internet Retail in India Entering An Inflection Point?

There’s a buzz in India around Internet Retail. Every day I come across a new website that is catering to the Indian thirst for consumption (found a magic retailer today). Furthermore,  e-commerce has launched into mass marketing. FutureBazaar, part of Kishore Biyani’s Future Group, and SnapDeal, part of Jasper have both spent sizeable amounts on marketing to the masses. This has made me wonder is Internet Retail in India finally at an inflection point? With this mission in mind I started looking for Google search traffic data to see what I could learn. Continue reading “Is Internet Retail in India Entering An Inflection Point?”