Est. 1995

Tag: Amazon

Sponsored listings are a ripoff…for sellers

Sponsored listings are a ripoff…for sellers

Cory Doctorow

Not all ads are created equally sleazy. The privacy harms from surveillance ads, though real, are often hard to pin down. But there’s another kind of ad – or “ad” that picks your pocket every time you use an e-commerce site.

This is the “sponsored listing” ad, which allows merchants to bid to be among the top-ranked items in response to your searches – whether or not their products are a good match for your query. These aren’t “ads” in the way that, say, a Facebook ad is an ad. These are more #payola, a form of bribery that’s a crime (but not when Amazon does it):

Amazon is the global champion of payola. It boasts of $31 billion in annual “ad” revenue. That’s $31 billion that Amazon sellers have to recoup from you. But Amazon’s use of “most favored nation” deals (which requires sellers to offer their lowest prices on Amazon) means that you don’t see those price-hikes because sellers raise their prices everywhere:

Forget Twitter: Amazon search is the poster child for enshittification, in which Amazon locks you in (for example, with a year’s shipping prepaid through Prime) and then you get recommended worse products while sellers make less money and Amazon pockets the difference.

Sellers who don’t sell on Amazon are dead in the water because most US households have Amazon Prime, and overwhelmingly, Prime users start their search on Amazon, and if they find the goods they’re seeking. After all, they’ve prepaid for shipping.

So sellers suck it up and pay a 45-51% Amazon tax and pass it on to us – no matter where we shop. A lot of the junk fees sellers pay are related to Prime and other fulfillment services, but an increasing share of the Amazon tax comes from the need to pay to “advertise,” because if they don’t buy the top result for searches for their products, their competitors’ ads will push them right off the first page (those competitors spend money on advertising, rather than manufacturing quality).

There’s a lot of YOLO/ROFLMAO in those ads: search for “cat beds” and 50% of the first five screens are ads – including ads for dog products, apparently bought by companies adopting a spray-and-pray approach to advertising. Someone selling a quality product still has to outbid all of those garbage sellers:

This is at the root of Amazon’s Pricing Paradox: while Amazon can defend itself against regulators by citing sellers whose prices are lower and/or whose quality is higher, it’s nearly impossible for shoppers to get those deals. If you click the top result for your search, you will, on average, pay 29% more than you would if you found the best bargain on the site:

What’s more, you can’t fix this by simply sorting by price, by reviews, or some mix of the two. The sleaziest sellers have mastered tricks like changing the number of units they sell so the total price is lower. For example, if batteries are normally sold at $10 for a four-pack, a sleazy seller can offer batteries at $9 for three units. The lowest-to-highest price sort will put this item ahead of a cheaper rival.

Researchers found that getting a good deal at Amazon requires that you make a multifactorial spreadsheet by laboriously copying/pasting multiple details from individual listing pages and then doing sorts that Amazon itself doesn’t permit:

There’s an exception to this: Amazon and Apple have a cozy, secret arrangement to exclude these “ads” from searches for Apple products. But if you’re shopping for anything else, you’re SOL:

These payola markets are bad for buyers, and they cost sellers a lot of money, but are they at least good for sellers? A new study from three business school researchers – Vibhanshu Abhishek, Jiaqi Shi, and Mingyu Joo – shows that payola is a very bad deal for good sellers, too:

After doing a lot of impressive quantitative work, the authors conclude that for good sellers, showing up as a sponsored listing makes buyers trust their products less than if they floated to the top of the results “organically.” This means that buying an ad makes your product less attractive than not buying an ad.

The exception is sellers who have bad products – products that wouldn’t rise to the top of the results on their own merits. The study finds that if you buy your mediocre product’s way to the top of the results, buyers trust it more than they would if they found it buried deep on page eleventy-million, to which its poor reviews, quality, or price would normally banish it.

But of course, if you’re one of those good sellers, you can’t simply opt not to buy an ad, even though seeing it with the little “AD” marker in the thumbnail makes your product less attractive to shoppers. If you don’t pay the Danegeld, your product will be pushed down by the inferior products whose sellers are only too happy to pay ransom.

It’s a system where everybody loses – except monopoly e-commerce platforms, who enshittify everything and rake it in.

FTC Details How Amazon Aims to Deceive Customers and Harm Sellers

Karina Montoya

The Federal Trade Commission last week released information that was previously redacted in the antitrust lawsuit it filed in September against Amazon. Perhaps the most explosive new revelation is that Amazon’s exponential growth in advertising – which brought the company $38 billion in revenues last year – was based in large part on intentionally deceptive business practices designed to harm both consumers and third-party sellers.

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The allegations throw into doubt Amazon’s ability to continue to grow its advertising business, which has evolved from selling ads on its proprietary marketplace to other web publishers and smart TV providers. Indeed, if the FTC prevails in its case, Amazon will be prohibited from engaging in this conduct and may be forced to shut down or spin off large parts of this operation.

The newly publicized portions of the lawsuit mainly recount Amazon’s advertising practices since 2014. In essence, the complaint shows that the core goal of this operation was to extract additional profits from its marketplace sellers, who were often all but required to buy advertising to at least break even. The extortionary nature of this model was first detailed by Open Markets’ executive director Barry Lynn in 2020.

Amazon has been quietly but steadily growing its ads business since 2008. It started selling ads known as “sponsored products,” which appear within the search results of its marketplace. Around 2014, Amazon launched more ad formats, including “sponsored brands,” which are more flashy ads placed on top of supposedly “relevant Amazon shopping results.”


According to the FTC lawsuit, it was in 2016 that Jeff Bezos ordered executives to increase the number of irrelevant ads on the corporation’s marketplace purely to drive up profits. Such ads were known inside Amazon as “defects,” and one result of their use was to degrade the user experience of Amazon customers. At the time Bezos was Amazon’s CEO. He’s been the executive chair of the e-commerce giant since the summer of 2021.

The change proved lucrative. Between 2016 and 2018, Amazon’s advertising revenue surged from $1.4 billion to an estimated $10 billion, according to Barclays and company records. This model soon attracted many copycats among other big retailers, who have followed the Amazon move to build its digital advertising agency, in what marketers now call “retail media networks.” Under this business model, retailers not only sell ads related to search queries on their websites, but they also promise targeting capabilities to reach specific shoppers across the web and connected devices.

 As reported in the Washington Monthly in July, it is this business model, founded on “sponsored product” ads, that catapulted Amazon into third place behind Google and Facebook in the market of “ad tech” tools. These services are commonly used by other web publishers, including news organizations, to connect with advertisers through a series of bids that auction ad spaces. Amazon, unlike any other retailer, directly operates an ad exchange that connects brands with web publishers. In this retail media network, advertisers seek to target Amazon users on the marketplace and the web.

 Some marketers have portrayed such a model as a better way to spend money on digital ads compared to Google or social media since the targeting is supposedly based on highly precise data about the shopping behavior of individual people. But a growing number of small businesses have started to report that investment in Amazon Ads — the commercial name of Amazon’s ad business — can be just as misleading.

 “Amazon Ads takes credit for sales that would have happened organically, like 40% [of organic sales], dramatically inflating performance [of ads],” wrote Bryan Porter, chief of e-commerce officer at drinkware company SimpleModern. “Lifetime, we’ve spent $14 million on Amazon ads. Our learning? Millions were a waste.”

FTC Sues Amazon for Illegally Maintaining Monopoly Power

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