Advertising has become a lucrative and fast-growing business for Amazon, generating $68.6 billion in revenue last year, according to company filings. (Gabby Jones/Bloomberg)
key takeaways:
- Amazon is facing a potential FTC lawsuit or settlement over claims it misled advertisers about sponsored ads and related pricing.
- The target of the investigation is Amazon’s advertising business, which generated $68.6 billion in revenue last year, according to company filings.
- The FTC could resolve the investigation as soon as this summer, pending votes from Chairman Andrew Ferguson and Commissioner Mark Meador.
Amazon.com Inc. is facing a potential lawsuit from the Federal Trade Commission that could impose billions of dollars in civil fines over claims the e-commerce giant misled advertisers, according to people familiar with the matter.
The FTC, which enforces antitrust and consumer laws, has drafted a potential complaint against Amazon as part of an ongoing investigation by the regulator, said some of the people, who requested anonymity discussing a confidential matter. People said that Attorney Generals of many states are also involved in this.
The federal agency could end its investigation through a lawsuit or settlement as soon as this summer, according to the people. The FTC’s two Republican commissioners – Chairman Andrew Ferguson and Commissioner Mark Meador – will need to vote on any resolution or lawsuit before it becomes final.
Although there are limits on the FTC’s ability to seek monetary penalties, states’ participation can remove those restrictions. State consumer protection and unfair competition laws allow tens of thousands of dollars in daily fines. Along with the number of ads shown on Amazon’s website, those numbers grow exponentially.
Spokespeople for the FTC and Amazon declined to comment.
More: Amazon, Google investigated by FTC over search advertising practices
The investigation, which intensified last year and is being conducted by the agency’s consumer protection unit, focuses partly on whether Amazon properly disclosed the terms and pricing related to its ads, sometimes known as “sponsored listings” or “sponsored ads,” which appear as the top products when users search Amazon’s marketplace, Bloomberg previously reported.
The investigation targets a key area of growth for the Seattle-based tech giant. Advertising has become a lucrative and fast-growing area of the business, generating $68.6 billion in revenue last year, according to company filings. That number includes search ads — sponsored listings that appear in Amazon’s marketplace — as well as video ads and online display ads shown across the web.
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Digital advertising has gradually overtaken other forms as companies with vast troves of consumer data say they can better target people online who are interested in making a purchase. Alphabet Inc.’s Google remains the market leader, while Amazon is the third-largest online advertising company.
Bloomberg previously reported that as part of its investigation last year, the FTC sought details about Amazon’s auctions and whether it disclosed “reserve pricing” for some search ads — amounts advertisers must meet before they can buy ads. The FTC is also investigating Google over similar concerns.
The FTC has been looking into several aspects of Amazon’s business since at least 2019. Last fall, the company agreed to pay $2.5 billion to resolve a separate consumer protection investigation over its Prime subscription practices. A trial is scheduled for early next year over FTC antitrust claims that Amazon forced brands to raise prices at competing retailers or has limited or no visibility on its marketplace.
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