By Andrew Miller
According to a lawsuit from the Federal Trade Commission, Amazon has systematically overcharged advertisers more than $20 billion since 2019.
For years, Amazon’s ad auctions were supposed to work one way.
Whoever bid highest for a keyword won a sponsored spot in the search results, but only paid one cent more than the next highest bidder. Bid ten dollars, and if the runner-up bid six, you paid six and a penny.
Because of the low risk of overpaying, advertisers often bid higher. After all, they’d only be liable to pay the least bid amount needed to win under the auction’s rules.
Except, that’s not what happened.
Amazon secretly added a hidden feature that artificially propped auction prices higher.
Over a million businesses thought they were paying a little over the next bidder. In reality, they were paying close to their full bid. By 2024, Amazon was charging buyers their own bid amount roughly 80 percent of the time on Sponsored Product Ads.
The evidence comes from over a million internal Amazon documents and emails reviewed by the FTC. One referred to the scheme as an “invented auction participant.”
Revealing it, another warned, would cause “irrevocable damage to advertiser trust.”
Amazon disputes all of it, saying the FTC misunderstands how advertising works and that its pricing was described properly.
However, there’s another aspect of the FTC’s lawsuit: the focus on consumers.
FTC Chairman Andrew Ferguson said the higher costs were “largely passed on to American consumers.”
So, the businesses bidding for ads weren’t the only ones who paid.
Time will tell what the lawsuit costs Amazon.
P.S. Amazon buried the real price. When it comes to funding your business, we’ll never make you guess. Let’s talk.