The Algorithm Economy: Inside the Formulas of Facebook and Amazon

Today we rely on digital monopolies to organize and personalize our reading and shopping experiences. Is that so bad?

It used to be simpler. You woke up, and there was one newspaper you could read. It printed on pulp and delivered to your driveway. You got in your car, and there was a Sears strategically located within reasonable distance from your home on the highway. It had just about anything you needed, from baby clothes to car insurance—if you knew which part of the store to find it. The life of a American consumer for so much of the 20th century was defined by this comforting narrowness of choice, and the city paper and the area department store were two hallmarks of this localized scarcity .

But one of the byproducts of the Internet has been the shift from scarcity to abundance for the consumer. Google News, Twitter, and Facebook aren't local newspapers: They're global portals to the local newspapers of every city in the world. Amazon, the everything store, is so vast, it makes mid-twentieth-century Sears look like a late-19th century corner grocery. This revolution introduces a new challenge for both people and the companies serving them: What do you offer the customer who has access to everything?

Two of the major consumer portals for news (Facebook) and stuff (Amazon) responded to the problem of abundance with algorithms.

An algorithm is just a piece of code that solves a problem. Facebook's problem, with the News Feed, is that each day, there are 1,500 pieces of content—news articles, baby photos, engagement updates—and much of it is boring, dumb, or both. Amazon's problem is that it wants you to keep shopping after you buy what you came for, even though you don't need the vast majority of what Amazon's got to sell.

Both organizations narrow the aperture of discovery by using their best, fastest, most scalable formulas to bring to the fore the few things they think you'll want, all with the understanding that, online, you are always half a second away from closing the tab.

Take the News Feed, perhaps the most famous and sophisticated media algorithm ever built. The full recipe of the News Feed is ultimately mysterious, but we have a sense of some of the portions. The most important ingredient is you. When you like something, hide something, click on something, or do nothing, Facebook's machine-learning algorithms considers your activity and bakes it into your next News Feed so that you see more of the stuff you've indicated you like. At the same time, Facebook also allows companies and individuals to pay for promotions to appear toward the top of the feed. Finally, the company routinely adjusts its dials, for example to show more news stories from respectable organizations with large digital followings. The News Feed is a little bit of behavioral psychology, a little bit of capitalism, and little bit of secret sauce.

Amazon's storefront also radically changes for each consumer, showing different pages to a gadget nerd, a romance novel reader, or a new parent. Building a recommendation engine from, not 1500 new stories, but millions of products means processing even more data within the half-a-second of a page load. This leaves little time to draw a personalized data map for each customer.

Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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