Lawsuit: Amazon Allegedly Allowed “Defect” Ads

According to the Federal Trade Commission’s (FTC) antitrust lawsuit filed against Amazon in September, Amazon founder Jeff Bezos instructed executives to welcome more junk ads to increase ad revenue.

This practice has also made it hard for shoppers to find what they’re looking for and pushed them toward more expensive products, the FTC claims.

Portions of the FTC lawsuit made public state that “Amazon has increased not only the number of advertisements it shows, but also the number of irrelevant junk ads, internally called ‘defects.’ Mr. Bezos instructed his executives to accept more defects because Amazon can extract billions of dollars through increased advertising despite worsening its services for customers.”

The case against Amazon also covers other allegedly problematic practices that have helped the e-commerce giant gain profits or an advantage over the competition, with its price-matching algorithms being the main point of contention. FTC claims that Amazon’s algorithms, like “Project Nessie,” brought the e-commerce giant “$1 billion in excess profit” and helped it acquire market dominance unfairly.

Other portions of the suit accuse Amazon of imposing strict standards on its sellers, making it difficult for them to sell on other platforms. Furthermore, regulators say Amazon discourages sellers from taking care of their own shipping and logistics even when they can match Amazon’s Prime speed. This is because “Amazon executives worried” that sellers would drive business to competitors, which will ultimately have a negative effect on Amazon’s shipping revenue.

Lately, Amazon’s business practices have been under heavy scrutiny. The UK’s Competition and Marketing Authority (CMA) has opened an investigation into the UK cloud computing industry to determine whether competition in this market is fair. The investigation targets Amazon Web Services (AWS) due to its large market share in the UK.

A study from Marketplace Pulse earlier this year revealed that the cost of selling on Amazon is at an all-time high, going from a 35% final cut in 2016 to 50% in 2022. The costs are rising because Amazon has “increased fulfillment fees,” and “spending on advertising [is becoming] unavoidable.”

Amazon described the FTC’s claims as “grossly misleading and taken out of context,” adding that they don’t reflect “Amazon’s long-standing dedication to continually improving the customer experience.”