BY TODD LUTWAK AND YUJIN CHUNG
On our last platform safari, we explored how incentives designed to prevent lion hunting in Kenya are surprisingly akin to policies designed to encourage free shipping on eBay.
From the king of the jungle and the flow of packages, we turn to the dog of the savanna – the African wild dog – the unfortunate victim of the tradeoffs involved in ecosystem management.
The highlight of my Kenya trip in 2012 was visiting the Serengeti, home to a diverse group of animals most of us will only see in a zoo. Within minutes of venturing out onto the grassy plain, we encountered a majestic tower of giraffes. As I was busy capturing these graceful animals in their beautiful habitat, our tour guide shrieked with surprise.
With a dramatic pause, he whispered to us, “Put down your cameras. You will see hundreds of giraffes in the next few days. Today, you will see something very few see on safari. Over there are three African wild dogs.”
Dogs. Really? I shrugged, unimpressed and confused.
The African wild dog resembles a German Shepherd. Our tour guide, however, was trembling with excitement. He had not seen an African wild dog in five years and thought they were already extinct. African wild dogs, like lions, hunt cattle and the local Massaii people put out poisons to kill them.
While the Kenyan government institutes policies and incentives to save lions and other animals from being hunted, they do little to prevent the killing of wild dogs.
Is the Kenyan government unfeeling and cruel? How can they let a species disappear? The Kenyan government is actually thoughtful and compassionate, when you understand their situation. They could protect these wild dogs, but doing so entails real opportunity cost.
The capital, time, and energy required to save this species could be better spent on medicine, food, education, and housing for the Kenyan people. The existence of a species is threatened so that people might live, and live better. Their government has made a tradeoff by prioritizing its people.
Once again, stepping back and looking at the ecosystem of animal preservation in Kenya, it’s astonishing how the sad demise of these wild dogs echoed a similar dilemma we faced at eBay. Though these were vastly different players and choices, they shared a similar dynamic. At eBay, it revolved around seller feedback and the unanticipated growth of digital downloadable products.
Feedback is core to the eBay experience, and is core to any platform experience. Consumers quickly evaluate the quality of developers; buyers quickly choose sellers to trust. Reviews and feedback on a platform are a virtuous or vicious cycle: good ratings means more downloads and more sales (leading to better visibility); bad ratings mean less exposure and decreased transactions (leading to worse visibility).
eBay also uses seller rating data to understand which sellers are performing and which are not. In 2007, eBay took this measure another step by implementing detailed seller ratings (DSR’s). This new system added more detail to feedback and dramatically rewarded highly-rated sellers.
High performing merchants appeared more prominently in search, and even received fee discounts, up to 20%. Again, we see the power of incentives – if you were a “better” seller, at least according to your rankings, you enjoyed well-deserved benefits.
Strong incentives attract the best performers. However, they also attract dubious cheaters. And in our seemingly fair feedback system, we discovered a loophole: digital downloads.
How could a seller cheat our system? Selling cheap digital goods. I’m not talking about music, ebooks, or apps – I mean frivolous, made up stuff like your great grandmother’s secret chocolate chip recipes, for $0.01.
For example, let’s start with an “average rated” seller, one who normally sells computers, but shipped product slowly. This mediocre seller could post these “recipe type” listings, and deliver the recipe (in the form of a .pdf or .doc) quickly via email, leading to a high rating for fast response. After selling several of these dubious listings, the seller’s rating would rise to “excellent” despite not improving the customer experience – the seller still shipped computers slowly. But now, thanks to a misleading rating system, this scheming seller would enjoy better visibility in search and pay lower fees. Even worse, buyers expecting fast shipping would be disappointed.
Though this was a fairly small category, digital downloads represented huge market potential, as evidenced by the current market sizes of iTunes, Kindle, and other content marketplaces.
But the feedback and rating system was integral to all of eBay. If consumers could not trust seller ratings, they would not transact. Buyer confidence is tied to market liquidity. A breakdown of feedback could threaten the entire eBay platform. Any risk to feedback needed to be eliminated.
After much debate, we made a tough tradeoff and banned all digital goods. I believed there may have been alternative strategies but supported the decision completely. And we suffered the consequences – legitimate sellers attacked us as unfeeling and cruel as their sales were eliminated. Some sellers calmed down while others disappeared, shuttering their businesses completely or moving their traffic to competing marketplaces. These innocents ranged from old ladies in the Midwest selling stitching designs to musicians pursuing dreams of selling digital tracks directly to their fans. Like saving the African wild dog, managing these sellers of digital downloads was too low a priority. Instead, we chose a reliable feedback system, to maintain the strength of the platform.
Such drastic platform shifts are always hard. For those of us who build and sell on platforms, it is natural to resist and even hate change, particularly in the form of new policies and features. These changes feel inconvenient at best and threatening at worst.
But my experience is that platform managers design these changes to protect us, often against unseen and complex threats. Their actions may seem thoughtless but they are borne of a desire to do the most good for the most people. While deep consideration and analysis are part of any platform change, the strongest motivation for most platform managers is empathy. They too are fellow sellers, developers, and users, subject to the same changes and consequences as everyone else.
That does not mean such decisions are without consequences. Like the choice we made banning digital downloads, the Kenyan government will not protect African wild dogs. They are simply too low a priority. One day, I hope to return to Africa with my wife and children, and I fear will be no more wild dogs to see.
Todd Lutwak (@ttwak) is a partner at Andreessen Horowitz, where he helps portfolio companies design, build and implement go-to-market programs. Prior to Andreessen Horowitz, Todd was a 12-year executive veteran of eBay. Co-author Yujin Chung (@Enderdoon) is a partner at Andreessen Horowitz.