What the FTC’s antitrust lawsuit says about Amazon’s advertising business
With its new antitrust lawsuit against Amazon, the Federal Trade Commission has officially begun its new legal battle against the everything store.
The 172-page complaint — filed yesterday by the FTC and 17 state attorneys general — accused Amazon of “monopolistic practices” and makes a range of allegations against the e-commerce giant while providing details about its advertising operations, interactions with sellers and alleged attempts to block competition. The regulatory agency also accused Amazon of hiking fees and being careless about data privacy, claiming it “hiked its fees even as it failed to adequately protect sellers’ commercial sensitive data” and “exposed this data to theft and appropriation.” However, it also includes plenty of redactions that leave a lot of mystery as to what intel the FTC might use against Amazon in the case.
In its lawsuit, the FTC accused Amazon of conducting anticompetitive behavior in both the online superstore market for shoppers and the online service marketplace bought by sellers. The agency also alleged Amazon’s advertising operation has been “degrading” the platform by replacing relevant organic search with paid ads and “deliberately increasing junk ads that worsen search quality” and “frustrate” both shoppers and sellers. It also accused the e-commerce giant of tactics such as anti-discounting measures, coercing sellers in ways that make business on the platform more expensive.
“The complaint sets forth detailed allegations noting how Amazon is now exploiting its monopoly power to enrich itself while raising prices and degrading service for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them,” FTC Chair Lina Kahn said in a statement. “Today’s lawsuit seeks to hold Amazon to account for these monopolistic practices and restore the lost promise of free and fair competition.”
The FTC’s lawsuit also cites the same law the U.S. Dept. of Justice is using in its antitrust case against Google, Section 2 of the Sherman Act, a Gilded Age law that sought to rein in so-called Robber Barons from monopolizing booming industries. According to Kahn, the complaint “lays out how Amazon has used a set of punitive and coercive tactics to unlawfully maintain its monopolies.”
Amazon did not respond to a request for comment about the lawsuit. However, in a statement published by Amazon — written by David Zapolsky, Amazon’s senior vp of global public policy & general counsel — the company said the FTC has “radically departed from its mission of protecting consumers and competition.”
“If the FTC gets its way, the result would be fewer products to choose from, higher prices, slower deliveries for consumers and reduced options for small businesses — the opposite of what antitrust law is designed to do,” Zapolsky wrote. “The lawsuit filed by the FTC today is wrong on the facts and the law, and we look forward to making that case in court.”
In the past decade, Amazon’s advertising business has skyrocketed, rising from $31 billion in 2021 to $37.2 billion last year — up from around $1 billion in 2015. (This month, Amazon also announced it’ll introduce ads to Prime Video next year unless viewers pay an extra $2.99 per month.) It’s also continuing to grow massive businesses for cloud computing and artificial intelligence and just last week introduced more connected devices that analysts say might also help with ads.
Here’s a look at some of the ways advertising is mentioned in the FTC’s complaint:
- Amazon now takes “close to half of every dollar” from typical sellers that use the company’s fulfillment services, according to the FTC, which quoted one seller saying “we have nowhere else to go and Amazon knows it.”
- The FTC then mentioned something codenamed “Project Nessie,” which is allegedly a project related to an Amazon pricing algorithm the FTC says has “already extracted [redacted] from American households.”
- The FTC also said Amazon Marketplace sellers have more influence over brand prices and selection across channels than resellers.
- The FTC alleges Amazon’s search results are “cluttered” with ads that now “litter” the online storefront despite previously prioritizing relevant organic results. The agency said “Sponsored Brand” and “Sponsored Product” ads appear in the most desirable space in search results.
- Amazon “typically buries” organic results beneath ads, according to the FTC, making them harder to find and less likely to be clicked. In one example, the FTC’s filing shows a screenshot for a desktop device where no organic search results appear in the first row, but there are four sponsored ads in the first four slots along with a fifth non-organic “recommendation widget.” An example from a mobile device shows two sponsored results at the top along with another recommendation widget.
- The FTC also includes this line in between several redacted paragraphs: “Another senior Amazon executive reportedly compared Amazon’s advertising and search divisions to the parable of the scorpion and the frog: it was in the advertising division’s nature as the proverbial ‘scorpion’ to poison organic search results.”
- The FTC also claimed Amazon is able to show more ads and earn billions in revenue while also worsening its services for customers: “In a competitive world, Amazon’s decision to raise prices and degrade services would create an opening for rivals and potential rivals to attract business, gain momentum, and grow. But Amazon has engaged in an unlawful monopolistic strategy to close off that possibility.”
- When sponsored ads were prominently displayed, the FTC said Amazon engineers found evidence of a “small, statistically detectable short-term decline” in total customers that bought an item: “While fewer shoppers were finding what they wanted, advertisers were making more money — ‘[a] lot of it.’”
- In another part of the complaint, the FTC claims advertised products are 46 times more likely to be clicked than products not advertised: “Advertisements are now no longer a discretionary purchase but instead a necessary cost of doing business. Therefore, sellers must not only pay Amazon’s referral fee but must also now pay for advertising in order to reach shoppers.”
- According to the FTC, Amazon “degrades search quality by stacking the deck” so its private label products can beat third-party competitors.
- Other parts of the complaint mention that sellers “have no choice but to submit to Amazon’s growing demands” because they depend on Amazon. The FTC mentioned a third-party seller talking about Amazon’s ad pricing, but redacted the details. The agency also quoted another seller — “we realized that we need to pay for ads but we’ll never profit at our current prices” — and noted the seller ended up raising product prices to pay for Amazon’s ads. (Although the second seller wasn’t mentioned, the quote matches one from the co-founder of a baby product brand in a 2022 Recode article about everything on Amazon becoming an ad.)
- Amazon’s ads reach 96% of Americans between the ages of 25 and 54, according to the FTC. The agency also provided a range of details about how Amazon’s ads and other operations has evolved over the past decade.
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