Amazon's fight with the FTC contains an uncomfortable lesson for advertisers

Amazon's fight with the FTC contains an uncomfortable lesson for advertisers Amazon is facing a lawsuit from the FTC over its ad auctions. Richard Baker / In Pictures via Getty Images CMOs are digesting an explosive lawsuit filed by the Federal Trade Commission against Amazon this week.The advice from marketing insiders on the next steps: Check your exposure and double down on independent measurement.The FTC's lawsuit accuses the retail giant of manipulating ad auctions to artificially inflate ad prices.Nick Manning, founder of the media consultancy Encyclomedia, said the suit's allegations present another sign to CMOs that "walled gardens and black boxes hold all the cards."The suit centers on "second-price auctions," which are common across the digital ad landscape. At their most simple: an advertiser sets the maximum price it's willing to pay — say, $1 — but if the next-highest bid is only $0.50, the advertiser would end up paying around $0.51. These auctions grew in popularity because advertisers could bid high to boost their chances of winning an auction without necessarily forking out the entire sum.The FTC, which was joined in its suit by 22 states, alleges that Amazon sometimes secretly used a "soft reserve" — effectively inserting its own synthetic bid into the mix — to raise the final auction price without advertisers knowing. The complaint alleges that this scheme likely extracted more than $20 billion from advertisers since 2019.On Monday, Amazon posted a lengthy response to the suit, which it described as "misguided." It said the FTC's argument leans "on a handful of simplified communications to allege a companywide effort to deceive," which it said was "patently false." The company said its ranking formula gives more weight to ad relevancy over bid amount, and that it properly explains its pricing and auctions to advertisers, such as on its Amazon Ads help pages.So what action, if any, should CMOs take?Ruben Schreurs, CEO of marketing consultancy Ebiquity, said he's guiding clients to "remain calm and pragmatic" over what are, at present, just allegations. Ebiquity recommends that CMOs, through their media teams or agencies, investigate how much they spent on the ad products detailed in the suit over the period it references.Schreurs advised CMOs to obtain a statement directly from Amazon that unequivocally confirms that none of their spending was exposed to the alleged issues. That can be useful if they want to pursue a claim later down the line.Alan Chapell, a privacy attorney and regulatory analyst, said advertisers should already be investing in alternative ways to check the efficacy of their ad spending on big platforms like Amazon."This demonstrates that, if anything, they need to double down on that component," Chapell told me.We've been here beforeBig Tech giants have faced several high-profile lawsuits over alleged manipulations of their ad systems in recent years. However, repeated transparency scandals haven't dented ad spending, as CMOs grow ever more reliant on the largest platforms that provide vast audiences, targeting, and measurement tools.That's no excuse for CMOs to take their eyes off the ball, though."Price setting" is key, Encyclomedia's Manning said."You have to decide whether the price you're paying on something like Amazon, Google, or Meta meets your requirements, even if there's an uncontrollable and untransparent margin for the platform in there," Manning told me. "You just have to use your own metrics and your own systems."Amazon, in its statement, said the FTC's claim "fundamentally misunderstands how advertisers operate," arguing that marketers adjust their bids based on performance rather than auction mechanics. The company estimated that advertisers saved more than $8 billion between 2021 and 2025 because it prioritizes "ad relevancy" over selecting ads on bid price alone. It said that with this approach, approximately "92% of selected Sponsored Products ads" in 2024 were not the highest bid, "often by a wide margin."The point about performance is why Luke Stillman, of the consulting firm Madison and Wall, doesn't think Amazon's ad business will take a major hit as a result of this suit.Advertisers decide where to spend "based on whether the advertising works and the return they're getting from their campaigns," Stillman wrote. "That is more true in commerce media than in any other channel."Stillman added that if Amazon were forced to change its auction dynamics, it could cause ad prices to fall in the short term, benefiting advertisers. That could also help Amazon in the long term: If marketers find it more efficient, they'll allocate more budget to the platform.The lawsuit's allegations will likely reignite existing tensions in the advertiser-Amazon relationship. In April, Million Dollar Sellers, a community of more than 700 Amazon sellers, arranged a 24-hour boycott of Amazon's ad platform to protest several policy changes that the group's cofounder called "cash extraction.""These allegations, if established as true and systematic, would add to the grievances," Jamie MacEwan, an analyst at Enders Analysis, told me. Read next Lara O'Reilly is the anchor of the CMO Insider newsletter.She is a chief correspondent who has covered the digital advertising, marketing, and media industries since 2010. Her current beat includes big tech companies like Alphabet and Meta, adtech firms, agencies, publishers, the creator economy, and CMOs.Lara has previously worked as a reporter and executive producer at titles including The Wall Street Journal, Digiday, Yahoo Finance, and Marketing Week. She was previously Business Insider's senior global advertising editor from 2014 to 2017.Lara is a regular guest on TV and radio and has appeared on outlets such as the BBC, NPR, SiriusXM's Wharton Business Daily, and CTV Television Network. She also frequently speaks on stage at major events such as Web Summit, IFA, VivaTech, Advertising Week, and Cannes Lions.To get in touch with Lara O'Reilly, email loreilly@businessinsider.com or contact her on Signal at @loreilly.71 Amazon