FTC, 22 States Say Amazon Ran a Very Successful Ad Auction — for Itself

WASHINGTON — The Federal Trade Commission, joined by 22 states, has filed suit against Amazon, alleging that the e-commerce giant “likely illegally extracted over 20 billion dollars” from 1.2 million advertisers through a combination of a hidden surcharge and artificial bids in its own ad auctions, per the complaint. That is roughly the annual revenue of a mid-cap airline, extracted from people who, in many cases, were not running an airline.

The structure of the allegation is the interesting part. An ad auction, in the version Amazon has marketed, is a marketplace: advertisers bid, the highest bidder wins, everyone pays a fair price, and the process is, in the company’s own materials, a thing that happens to the customer rather than something done to them. The FTC’s theory is that the marketplace had one seller — the house — and the house had a second identity, which was also a bidder, and that the surcharge was real but not on the invoice. It is the economic equivalent of a bartender who also works the poker table and keeps the rake.

The customer base in question is the part the coverage tends to undersell. Almost half of the 1.2 million affected accounts were small or medium-sized businesses, which is a way of saying that the $20 billion was not, in the aggregate, a rounding error at the top. It was a rounding error at the bottom — the difference, for a lot of small shops, between a quarter that broke even and a quarter that did not. The complaint describes over 500,000 small businesses among the affected advertisers, which is more small businesses than many counties have residents.

Amazon’s position, as it has framed the relationship in years of marketing to exactly these advertisers, is that the platform is a level playing field on which any business with a product and a budget can compete for customers. The suit’s response, in effect, is that the field was level, and the company owned it, and the level part was the floor of a building the company also owned. The two statements are not as contradictory as they look, which is the point at which most people stop finding it funny.

The 22-state coalition is worth a line of its own. This is not a single aggressive regulator testing a theory in a federal courthouse. This is a majority of the states, in a coalition that spans both parties, reading the same auction logs and reaching the same conclusion. When 22 states agree on a number, the number stops being a number and becomes a consensus, which is a rarer thing in American politics than a fair price.

The remedy is the part that will take longer than the outrage. A $20 billion figure does not get refunded the way a mischarged credit card does; it gets litigated, appealed, and eventually either paid, settled, or reclassified, depending on which court is listening and what the company’s lawyers are wearing that day. The small businesses, meanwhile, do not get the auction back. They get a share of a number, years from now, administered by people whose names are on a different filing.

At press time, Amazon said it “strongly disagrees” with the suit and that its advertising marketplace operates “fairly and transparently,” and declined to explain, in the same statement, how a surcharge that was not on the invoice qualifies as transparency. The answer, per the company, is that the invoice was a document of convenience, and the surcharge was a document of principle.