Amazon founder/owner Jeff Bezos instructed executives to flood the giant ecommerce company’s search results with irrelevant ads to pump up its profits, The Federal Trade Commission charges in newly unredacted documents from its antitrust lawsuit against Amazon.
During a key meeting, Bezos directed executives to "accept 'more defects’ as a way to increase the total number of advertisements shown and drive up Amazon’s advertising profits,” the FTC document charges.
“Defect” ads are ones that are irrelevant or mostly irrelevant to the content of a search, according to the agency.
As previously reported in MediaDailyNews, the FTC and 17 states have sued Amazon, alleging that it engages in monopolistic practices, including preventing its marketplace sellers from discounting their products on other sites and requiring sellers to use its fulfillment system in order to participate in Amazon Prime, which offers expedited shipping.
The unredacted version of the lawsuit charges that the irrelevant ads crowded out relevant organic results, showing users products that were “plainly not what the customer searched for,” states the complaint.
But although they were aware that the practice undermined the shopping experience, Amazon executives continued to push out “defect” ads to maximize revenue from its ad auctions, the agency said. “With advertisements being so profitable to Amazon even at higher defect rates, senior Amazon executives agreed, ‘we’d be crazy not to’ increase the number of advertisements shown to shoppers," the FTC wrote.
The agency further alleges that the practice was used to direct consumers toward higher-priced sponsored products. In an undisclosed number of cases, the prices of sponsored products were at least twice as high as products produced by organic results, the complaint charges.
Amazon engineers allegedly determined that the decline in sales resulting from shoppers being shown sponsored ads instead of organic results was “vastly outweighed in the short term by ad revenue.”
The flood of defect ads also increased Amazon marketplace sellers’ costs for getting their products seen, which would likely result in higher prices for consumers, according to the FTC.
Amazon is the country’s third-largest platform by advertising revenue. The company reported generating $12 billion in advertising revenue in this year’s third quarter — up 26% year-over-year.
"Advertising continues to be a major bright spot for Amazon,” Insider Intelligence Analyst Zak Stambor wrote about the Q3 results. “Amazon dominates retail media thanks to its deep understanding of the channel and its ability to effectively deliver relevant ads to its massive customer base.”
Amazon will continue to grow advertising, including through use of generative AI tools, he said. Insider Intelligence estimates that Amazon’s U.S. ad business will reach $33.96 billion this year — up 234% from its ad revenue in the pre-pandemic year of 2019.
After the FTC filed its antitrust suit, Amazon General Counsel David Zapolsky declared it “wrong on the facts and the law,” and said that Amazon looks forward to making that case in court.
He asserted that the practices challenged in the complaint actually have helped “spur competition and innovation across the retail industry, and have produced greater selection, lower prices, and faster delivery speeds for Amazon customers and greater opportunity for the many businesses that sell in Amazon’s store.”