Europe tries to solve the ranking puzzle

The Commission asks the platforms to disclose the parameters that the algorithms use for the positioning of the results and to help small businesses improve their online sales

enigma (MK Hamilton - Unsplash) In the hundred meters, the runner wins faster. A scale of 40 who closes first. In bowling who scores the most points by knocking down the most pins. But when a shopkeeper, restaurant owner or hotelier competes with others on an online platform to try to sell a product, a dinner or a hotel room, the parameters by which the algorithm decides who gets on the podium of the search results are much more complex. And often difficult to decrypt.

What is certain is that even being one step down in lists of hundreds or thousands of hits can make all the difference in an online sale. Nielsen Norman, a company specializing in user experience analysis, in 2018 calculated that in 57% of cases the user's gaze stops at the top of a site and in 74% it does not go down beyond the first two blocks. It is no coincidence that the offers of companies specialized in improving the fateful ranking flock on the net. Which is a bit like the Nutella recipe or the Coca-Cola formula: you know the ingredients, but not the combination that made Ferrero's spread cream or Doctor Pemberton's tonic famous all over the world.

However, for the platforms that work in Europe, from Google to Amazon, from Tripadvisor to Booking, from Airbnb to Glovo to Alibaba, for a total of ten thousand addresses that act as intermediaries, the obligation to disclose the main ingredients of their recipe. In July, a regulation dated 2019, 1150, called P2b (platform to business), entered into force, with which the European Commission imposed greater transparency on these large showcases on terms of service, engagement and profile obscuring. And a few days ago Brussels published guidelines to clarify its ranking mechanisms.

The ranking rules

Twenty-six pages, expected from this summer, list the parameters that Brussels advocates platforms (it is not mandatory) to communicate to registered sellers to understand which ones affect their positioning. The variables used as an example are 101: from page loading speed to https protocol, from hotel check-in conditions to loyalty programs, from user reviews and scores to payment for advertising space.

L '' The Commission's objective is to decrypt the functioning of the algorithm without violating the trade secrets of companies and to give more information to small businesses to compete on an equal footing with the platforms, in a market, that of electronic commerce, which the Community sector association Ecommerce Europe expects to reach a turnover of 717 billion euros in 2020 (+ 12.7% on 2019).

The strategy of the vice president of the Commission, Margrethe Vestager, who has the delegation to competition, consists of encircling the platforms. On the one hand, dismantling its dominant positions with investigations and hefty fines, such as the recent investigation against Amazon for the use of seller data. On the other hand, build a new system of rules of the game that reduces the distance between small businesses and global giants. The Digital service act and the Digital market act, the two packages arriving on December 15th, have been announced as the culmination of this operation.

“Transparency is the European way and we are putting the final touches on rules for all digital services to cooperate with regulators and for larger platforms to provide more information on how their algorithms work, "said Vestager.

The ingredients of the ranking

For sellers, the regulation states, each platform must provide a description to "clearly understand whether, how and to what extent the positioning mechanism takes into account the characteristics of goods and services", their relevance to research and, in the case of search engines, the role of the graphic aspect of a site. In this way, marketplaces are required to "improve predictability" of search results and "optimize presentation" of goods and services. In a survey by the Observatory on the economics of online platforms (a group of experts working with the Commission), only half of the respondents replied that they feel they are treated fairly by platforms when it comes to ranking and positioning. And only 33% feel little or no addiction to marketplaces. As if to say: it is they who dictate the law.

To decrypt the algorithm, Brussels asks to specify how much consumer behavior and their search history affect. For example, the platforms will have to specify whether, having previously searched for news on China, when asked about “restaurants in Milan”, the results give priority to those of oriental cuisine. Or if a seller can be rewarded by being present on multiple marketplaces, having received top marks from user report cards (such as the five stars you see on Google or the scores on Tripadvisor), the tone of the reviews or the assignment of quality marks.

Another variable to be clarified is the functioning of the filters. And the consequences they may have on other characteristics with which the algorithm decides who to give priority to. If I choose to view hotel rooms that cost between 5 and 50 euros, what weight do other factors acquire in determining the ranking of hotels?

We know that, in the case of Amazon, the speed of delivery is a reward factor in the ranking. In general, the Commission expects the portals to specify how important is the use of intermediary logistics, considered more efficient, or of analysis tools, perhaps for a fee. Finally, there is the role of machine learning. If the automatic learning of artificial intelligence systems changes the most influential parameters in the ranking or their relative weight, the platforms must specify it.

Paid visibility

Only in Italy Amazon declares that it is have 14 thousand small and medium-sized enterprises on board. Winning a place in the sun is not obvious, but there are still sponsorships. Advertising spaces, shopping tips, affiliate programs and loyalty plans are among the tools that platforms offer to earn the spotlight. The e-commerce giant alone increased its advertising revenue fivefold between 2016 and 2018. And in the first six months of 2020, it raised 8.1 billion dollars. The P2b regulation asks to make it clear how much the fees affect the ranking. Various transactions fall under the definition of "consideration", from a toll to scale positions on positioning to additional obligations (such as a security deposit).

The Commission does not just expect platforms to deliver from the guidelines lists of parameters to the sellers, but which specify the relative weight of each factor. One food delivery app, for example, might prefer the proximity of the restaurant to the user, another the presence in the menu of the most sought-after dishes. In short, the idea is that platforms are teachers of the use of their tools. Reward quality? Great. But what does quality mean for a marketplace? Europe expects it to be explained.

The transparency of parameters is one of the elements useful for rebalancing the digital market. As emerges from a research commissioned by the European Observatory on the platform economy, the sharing of data also weighs, which platforms have in large quantities but distribute with the dropper or in an aggregate manner to merchants. "Many companies complain that this information is not granular enough" to extract value.

A paradigm shift

"The platforms will only benefit from increasing transparency - observes Roberto Liscia, president of Netcomm, a consortium that brings together Italian e-commerce operators -. Today there is a new dimension of trustability (reliability, ed.) Of the value chain and the network, because we are in a platform economy ". “On the supplier side, this transparency has an economic value”, comments Liscia. But also for the consumer, who does not directly see the impact of this intervention, "greater control over the behavior of platforms restores reliability".

According to the president of Netcomm, this push will also have an impact "on skills of the little ones ". Knowing the parameters is not enough: you also need to know how to govern them, as it became clear during the pandemic, when online was the channel that saved the turnover of many small shops. Ebay and the Kantar study center have calculated that 21% of Italians will shop online for Christmas. For this reason, even small businesses must be able to play on equal terms with the platforms through which they sell. And understand which one is best suited to your offer. “The competition will be between platforms, in the b2b field alone we have surveyed 400 in the world - says Liscia -. Knowing the variables and their weight will restore the competitive format of each platform and the differentiating elements for positioning on the market ".