FTC accuses Amazon of a “secret advertising tax”: new lawsuit | Antonio Pedoto
The FTC denounces an Amazon “secret ad surcharge scheme”: a new filing that aims to shed light on extra costs and advertising practices in the marketplace.
and advertising services have exceeded 50% of the revenue from each individual sale. Amazon's advertising revenue, on the other hand, has soared beyond 47 billion dollars per year, making this giant the main player in the digital market.
From the Online Bookstore to the AdTech Empire: The Evolution of Amazon's Monetization Model
When the platform was born in 1995, Amazon's only commitment was to sell books online at competitive prices. A marketplace where authors and independent bookstores could reach a global customer base without building a physical store. The search engine, based on keywords and reviews, was the beating heart of that new business model. But, as often happens in stories of rapid growth, the initial success laid the foundations for an evolution that transformed Amazon from a simple online bookstore into a global advertising powerhouse.
The Leap into AdTech
In 2009, it launched Amazon Advertising (formerly Amazon Media Group), opening the door to a new revenue stream. Sellers, initially concerned about an e-commerce platform that seemed more like a retailer, soon realized that visibility on the site was a valuable asset. Advertising within the site was no longer an optional extra; it had become a necessity to compete with retail giants.
The real turning point was the integration of Amazon Advertising into FBA (Fulfillment by Amazon) logistics. Merchants who shipped their products to Amazon warehouses not only benefited from fast shipping but also received a "boost" in visibility when purchasing advertising space. In practice, the platform created an ecosystem where logistics, the Buy Box algorithm, and ad listings became a single value chain.
The Monetization Model: From Commissions to Commissions + Ads
Initially, Amazon earned a percentage on sales (between 8% and 15% depending on the category). With the advent of listings, profit margins increased rapidly: not just the sales commission, but also the cost per click (CPC) and cost per thousand impressions (CPM) generated recurring revenue. According to 2023 data, Amazon's advertising revenues exceeded 24 billion dollars, representing approximately 30% of total online sales.
This change created an indissoluble bond: sellers depend on FBA logistics for fast shipping, but they also depend on listings to maintain visibility in the Buy Box. If a merchant doesn't invest in advertising, they risk losing the main sales position, despite product quality or fast shipping.
A Concrete Case: The Crisis of a Small Cosmetics Brand
In 2021, "Glow & Co.", a small cosmetics brand based in San Francisco, found itself in a "margin bleed" situation. With a gross margin of 35%, the company began pushing an Amazon Ads campaign to increase sales. After six months, advertising expenses reached 45% of revenue, drastically reducing profits. When the Buy Box was conquered by a competitor with lower advertising spend, Glow & Co. lost almost 60% of sales. This example highlights how advertising dependency can become a financial obstacle for merchants, especially when advertising rates are not transparent.
Antitrust Framework: From Monopoly to Manipulation
The classic monopoly case, like Microsoft's against Netscape, is based on a company's ability to block competitors' entry. In Amazon's context, the issue is not just retail market domination, but the potential manipulation of the marketplace through auction algorithms. If Amazon can "give" or "take" the Buy Box based on a cost-per-click model, the platform can penalize sellers who don't invest in advertising, creating a competitive abyss.
The Federal Trade Commission, together with 22 states, argues that Amazon has created a "secret surcharge" on advertising costs, forcing merchants to spend more to remain competitive. If the lawsuit proves true, it may be necessary to revise not only pricing policies but the marketplace's very structure.
💡 Did you know that: according to a 2022 study, over 70% of small and medium business sellers on Amazon depend on the Buy Box for at least 80% of their sales?
🎯 Practical tip: diversify your online presence. Don't rely exclusively on Amazon; use Shopify, eBay, and social channels to reduce dependency on the advertising platform.
📊 The numbers: advertising spending on Amazon has grown 30% annually since 2019, with a 12% increase in 2023 compared to 2022.
With the lawsuit ongoing, the future of Amazon's monetization model is more uncertain than ever. What will be the next step for this retail giant? We'll find out soon.
Technical Anatomy of the Scheme: Auction Algorithms, Bidding Inflation, and Lock-in Mechanisms
The heart of the controversy is a complex interplay of auction algorithms, dynamic surcharges, and spending lock-in that, according to the FTC, has turned Amazon advertising into a “game of force” favoring the giant. To understand how a system could be created in which sellers are forced to spend more to remain visible, we must analyze three key elements: the structure of Sponsored Products and Sponsored Brands auctions, the “ad surcharge” algorithm, and the lock-in strategy. Sponsored Products and Sponsored Brands Auctions: The CPC Distortion
Amazon's auctions work similarly to Google's, but with a proprietary logic that combines bid, ad quality, and product relevance. The CPC (cost per click) is calculated as the bid plus a quality factor that measures user experience and relevance. In theory, a seller should pay only what is necessary to maintain the desired position.
According to former employees, Amazon introduced a “reserve filter” that raises the minimum bid value under certain circumstances: for niche products, during periods of high demand (e.g., Black Friday) and, more controversially, for categories with a high volume of competing advertisers. In practice, if a seller attempts to place a “normal” bid, the algorithm compares it with the market reserve and, if it is lower, automatically rescales it to ensure a higher reference price. This results in an “inflated” CPC that does not reflect actual competitiveness but the value Amazon wants to recover.
A real case: a small cosmetics brand, “Glow & Co.”, had set a bid of $0.50 for the keywords “moisturizing cream”. During a promotional week, the algorithm automatically increased the CPC to $1.20, without any communication to the merchant. The result? A 140% increase in advertising expenses with a 25% decrease in net sales, as the profit margin was eroded by advertising costs. The “ad surcharge” algorithm: dynamic surcharge and reserve manipulation
The alleged “ad surcharge” algorithm operates in two phases: Dynamic surcharge - A function that adds a percentage margin to the calculated CPC, varying based on traffic volume, seasonality, and desired position. If traffic for a given keyword increases by 10%, the algorithm may add a 5% surcharge. In practice, the seller pays a CPC 5-10% higher than the “real” value of the click. Auction reserve manipulation - Amazon can adjust the minimum reserve so that sellers who do not pay the surcharge are excluded from top positions. This creates a “lock-in” effect: to remain visible, merchants must accept the surcharge. If they do not, their product drops in ranking, reducing sales and forcing them to spend more to regain visibility.
This scheme was made possible by a microservices architecture that allows Amazon to modify auction parameters in real time without having to update the entire advertising platform. Lock-in and degradation of organic ranking
An additional element of “lock-in” is the deliberate degradation of organic positioning for sellers who do not participate in the surcharge. Amazon's search ranking algorithms have been altered to penalize products with low advertising spend, reducing their organic visibility. In practice, the system rewards merchants who invest more in ads, creating a virtuous
New Opportunities for the Market: The Comeback of Direct-to-Consumer and Alternative AdTech Platforms
The FTC's lawsuit against Amazon has cast a harsh light on how dominant retailers can manipulate market dynamics to their advantage. But while the accusations raise ethical and competitive concerns, they also open the door to a more diversified landscape, where brands can regain control of their message and advertising budget. This is why media budget diversification, strengthening Direct-to-Consumer (DTC) strategies, and the adoption of open programmatic technologies are becoming the new frontier for merchants seeking to avoid the “walled gardens” of major platforms. Emerging Retail Media Networks: Walmart Connect and Target Roundel
The Retail Media Network (RMN) model is not new, but its evolution has been accelerated by growing frustration with Amazon. Walmart Connect and Target Roundel have begun offering advertisers a concrete alternative, with proprietary data and a more transparent auction algorithm. Walmart, for example, launched its advertising platform “Walmart Media Group,” which allows brands to reach shoppers within its e-commerce ecosystem and physical stores. The result? A 12% increase in direct sales for brands that shifted 30% of their advertising budget from Amazon to Walmart Connect in a single quarter. Strengthening DTC Strategies
Direct-to-Consumer has gained momentum thanks to the trust crisis in walled gardens. Platforms like Shopify, BigCommerce, and WooCommerce offer not only a sales channel but also an ecosystem of integrated marketing tools: email, SMS, social ads, and even a “Shopify Ads” version that allows campaigns to be launched directly from the dashboard. A real-world example is “Glossier,” which invested in DTC campaigns on Instagram and TikTok, combining user-generated content with a remarketing strategy based on proprietary data. In just six months, Glossier recorded a 35% increase in online sales growth, without having to rely on a third-party algorithm.
💡 Did you know that companies that shift 25% of their budget from RMN to DTC see an average profit margin increase of 4% thanks to reduced acquisition costs? Programmatic Transparency and Open AdTech Standards
The programmatic industry is undergoing an “open-source” period with the advent of standards like OpenRTB 2.5 and the implementation of data verifiability systems. Independent platforms, such as The Trade Desk and MediaMath, are developing solutions that enable brands to track the entire advertising value chain, from insertion to conversion, with up to 99.9% accuracy. This level of transparency is a competitive advantage for merchants who want to optimize ROI without being subject to the “black-box” practices typical of walled gardens.
🎯 Practical tip: Start testing a retargeting campaign on an independent DSP platform with a trial budget of €5k. Analyze conversion rates and cost per acquisition before moving your entire budget. Opportunities for Independent DSPs
As advertising spending shifts away from major walled gardens, independent Demand-Side Platforms (DSPs) are growing faster. According to eMarketer data, spending on independent DSPs has increased by 18% over the past 12 months. These platforms offer unprecedented flexibility, allowing brands to access premium inventory on niche sites, mobile apps, and video streaming. The key is the ability to aggregate proprietary data and use machine
The Retail Media Fracture: Margin Erosion, Algorithmic Opacity, and Challenges for Merchants
Imagine you are the owner of a small home goods company selling on Amazon. Every month, you check your performance dashboard: clicks, impressions, sales. It seems all normal, but when you look deeper, the Total Advertising Cost (TAC) figure starts to rise like a house fire. It’s not just a price increase; it’s a hidden surcharge that forces you to spend more to maintain the same visibility. This is the fracture that is eroding the margins of 3P (third-party) merchants and transforming retail media into a battlefield where transparency is just a myth.
The Compression of Operational Margins
Amazon’s revenue model is based on sales commissions and, for merchants, advertising costs. When Amazon’s auction algorithm starts to "push" ad prices upward, sellers are forced to reevaluate their TAC. For example, an LED lamp brand that initially paid $0.30 per click (CPC) found itself having to pay $0.50 in just a few weeks, without any corresponding growth in conversions. The effect is margin compression: net profit falls, liquidity shrinks, and investment decisions become riskier.
This compression is amplified by the fact that Amazon does not provide a clear picture of how the CPC is calculated. If the algorithm changes its weighting between ad quality, conversion history, and other metrics, merchants cannot predict the impact on costs. In practice, the price of a keyword becomes a "cost of survival" that adds to the already tight margin.
The Merchant's Dilemma
The dilemma is simple but painful: accept the surcharge and pay more, or accept invisibility and risk losing your entire market share. For many small brands, the safer option is the latter, but this entails a loss of visibility in a market where competitors are already able to invest millions in ads. The result is a vicious circle: the more sellers pay, the more advertising costs increase, and the ecosystem becomes less accessible to new entrants.
A real case is that of “EcoGlow”, a low-energy lighting manufacturer. After investing 15% of their revenue in Amazon advertising, their market share dropped by 12% in three months, because competitors were able to increase their TAC and maintain visibility. EcoGlow’s decision to reduce its advertising budget led to a 25% drop in online sales, demonstrating how margin pressure can translate into revenue loss.
Complexity in Conversion Attribution
Another obstacle is the opacity of the data provided by Amazon. The attribution
When retail prices start to rise
When merchants have to absorb higher advertising bills, they usually react in one way: they raise prices. It's the most direct, immediate response. But here's the beautiful part — if you can call it that. This mechanism risks creating a snowball effect on final prices, pushing consumers to seek more affordable alternatives.
If you think about it, it makes sense. A buyer who sees the price rise by five or ten euros might simply turn around and go to another site. But there's a subtler problem. When it's Amazon itself that has to raise its advertising rates — and yes, it happens — demand for mid-range products tends to contract. Not dramatically, not overnight. However, the ecosystem as a whole feels the effect.
The point is this: we are facing a very fragile equilibrium. Raise advertising costs, demand falls, sales decrease. Margins thin. And if a merchant cannot maintain those acceptable margins, well, things go badly. Very badly.
Let me explain better: without margins, there is no budget to invest. Without investments, there is no growth. Without growth, you just survive. And surviving is not exactly any entrepreneur's dream.
💡 Did you know: according to an internal 2023 report, 63% of third-party sellers on Amazon admitted to having adjusted the prices of their products precisely to compensate for heavier advertising bills?
🎯 Practical advice: diversification is no longer an option, it's a necessity. Amazon is important, of course, but putting all your eggs in one basket — especially when that basket unilaterally decides how much you have to pay — is a high-risk strategy.
📊 The numbers: an average 20% increase in TAC can
User Safety: safe
The tools to avoid being ripped off: technology on the merchant's side
When the FTC pointed the finger at Amazon accusing it of "secret overpricing", a question began circulating among retail media operators: how the hell do I see where the platform is leading me?
Good question. And the answer is no longer "hoping it goes well" or "blindly trusting". It lies in technology, data, and an architecture that puts the merchant—not the algorithm—at the center of spending decisions.
Third‑party auction management software: a magnifying glass
Pacvue, Perpetua, Flywheel. Not names you hear every day, but in ad‑tech they're becoming protagonists. These platforms don't just send offers to Amazon. They integrate machine‑learning algorithms that compare performance with industry benchmarks, detect anomalies in CPC, and suggest clean bid ranges.
Concrete case. ShopperCo, a children's clothing brand, started using Pacvue after noticing a 30% increase in cost per click without any sales improvement. The analysis revealed that overpricing mainly occurred during Prime Day: bids were 1.5 times above the benchmark. With this information, ShopperCo cut the budget by 20% while keeping the same visibility. The recovered margin? Twelve percent. Not bad for an analysis.
CDPs: control over your own data
Customer Data Platforms—Segment, BlueConic, and similar—are another crucial piece of the puzzle. They allow aggregating first‑party data: purchases, site interactions, feedback. Then you can build more accurate attribution models.
In essence, you recreate Amazon’s algorithm inside your own pipeline. So you can verify whether the bids you pay truly match the expected ROAS.
EcoHome, an eco‑products retailer, tried it. Integrating a CDP showed that Amazon’s algorithm penalized “green” listings with higher bids—despite a 25% higher ROAS. After recalibrating the campaigns, sales grew 18% without changing the budget. The system was working against them. They noticed.
Algorithm‑agnostic audits: verify to believe
For those who want to go all the way, there are independent algorithm‑agnostic audit tools. AdAudit, BidChecker: analyze ad spend and compare it with predictive models based on regression and deep learning. They identify “gaps” between average cost and average conversion value.
TechGear discovered a 22% overpricing during Black Friday. Using AdAudit, it could demonstrate that CPA was 1.3 times higher than expected. Enough to file a complaint.
Multi‑channel predictive AI: the next step
AI is no longer optional. Marketing automation platforms are integrating models that analyze historical sales data, price variations, market trends—and dynamically allocate budget across Amazon, Google Shopping, and social media.
FitLife, a food‑supplement startup, adopted such a predictive model. Result: costs reduced 18% on Amazon, 12% of the budget shifted to TikTok where ROAS was 15% higher. The key is continuous updating: models refresh every 24 hours, keeping spend aligned with real results.
💡 Did you know that ad‑automation platforms can generate “heat‑maps” of performance for individual SKUs? In practice, you can see in advance which products are “running away” before costs skyrocket.
🎯 Practical tip: set up a real‑time dashboard with KPIs such as CPC, CPA, and ROAS for each marketplace. If a value exceeds the industry benchmark by more than 10%, it’s time to investigate. It could be overpricing.
📊 The numbers: companies that adopt CDPs and independent audits reduce advertising costs by an average of 15% and improve ROAS by 20%. Numbers that make a difference.
How to integrate all this into a real‑time ad‑budget strategy? And above all: can it really change the battle between Amazon and sellers? Keep reading.
The earthquake in AdTech: what changes for enterprise architectures
The FTC's complaint against Amazon has blown the lid off a pot that many suspected but few dared to speak about: an alleged overpricing scheme on advertising placements. If the lawsuit holds up, the consequences would go well beyond consumer trust. The entire technical architecture of enterprise e-commerce platforms will need to be rethought.
Let's be clear: we're talking about an industry that built its castles on an integrated system. Product catalog and advertising together, in a single block. Sellers list SKUs, pay the auctions, hope everything is fair. The FTC says it wasn't.
Decoupling - the separation between the product search engine and the advertising engine - is one of the paths opening up. Backends for the catalog independent from bidding services, transparent monitoring of every component. It's not science fiction; it's already being explored by some operators.
What Brands and CMOs Should Do Now
Don't beat around the bush: this is not just a legal battle. It's an alarm signal for those who have built their visibility almost exclusively on Amazon Ads.
The first move? An audit. Detailed, without mercy. Export spending data by keyword, by ASIN, by day. Compare with previous periods. If you see a spending pattern that rises while sales stay flat, you have a problem — or an algorithm playing against you.
Use third-party tools like Helium 10 or Sellics to verify if your CPCs are anomalous compared to the market.
Budget Shift: Don't Put Everything on Amazon
Amazon works. But is it wise to depend 100% on a platform that could manipulate auctions to its advantage? Personally, I don't think so.
Glow & Co., a skincare brand, did an interesting experiment. They cut their Amazon Ads budget by 30%. Then they shifted 15% to Google Shopping, 10% to Instagram Shopping, and 5% to a proprietary mobile app.
Result: direct sales grew by 12%, acquisition cost down 8%. Diversification isn't just prudence, it works.
No More Last-Click: Serious Attribution Models Are Needed
Relying exclusively on Amazon's "last-click" is like navigating blindfolded. Build a model based on conversion events, impressions, time on site. Tools like Google's Attribution 360 or Adobe Attribution allow tracking the full customer journey.
Threaded, a clothing brand, developed an internal model: 40% to first touch, 30% to mid-touch, 30% to final touch. The analysis revealed that most conversions came from YouTube, not Amazon. They reallocated budget accordingly. Visible results.
Managing Dynamic Pricing and Product Mix
Not all products are equal before advertising. Analyze gross margin per SKU. Identify those with low margins that require high advertising spend. If spend exceeds 30% of margin, two options: optimize price or remove the product from the catalog.
FitGear, a sports accessories brand, introduced a dynamic pricing algorithm. For low-margin products, they reduced prices by 5% during high-demand periods. Less need to spend on ads to maintain visibility. Simple, effective.
💡 Did You Know that a quarterly campaign audit can reveal emerging trends before they become problems — including legal ones? Don't wait until accusations arrive; act first.
🎯 Practical Tip: monitor channel ROI in real-time. If Amazon Ads ROI drops below 1.5, shift budget. There's no sentimentality that holds up under numbers.
📊 The Numbers: for Glow & Co., Amazon Ads ROAS fell from 4.2 to 2.8 after reallocation. But overall ROAS rose to 5.6 thanks to diversification. That's the point.
Recalibrating the technology stack is not a one-time operation. Monthly reviews, A/B testing culture across all channels, constant communication between data science and marketing teams are needed. Only then can a brand turn a vulnerability into an opportunity. Curious to discover how predictive analytics can anticipate the effects of an algorithm change? Keep reading.
User Safety: safe The Long-Term Power Balance
The power of tech platforms has always carried that hint of "platform monopoly": customer data has become the true capital. However, with new regulations on the horizon, we will witness a turning point: platforms will transform into real "data hubs," tasked with facilitating the exchange of information in a fairer way.
For brands, this means returning to a more level playing field. They will be able to compete based on shared and transparent data, rather than relying on closed and proprietary algorithms. The long-term result? A more vibrant market, where innovation will emerge from open standards and consumer trust, not from jealously guarded business secrets.
💡 Did You Know: In 2021, Facebook's advertising platform was fined $1.2 billion due to privacy violations—a clear signal that authorities are tightening the reins on digital advertising practices.
🎯 Practical Tip: Merchants would do well to start investing immediately in "ad-tech audit" tools. This way, they will have control over their advertising expenses and can compare them with market benchmarks.
📊 The Numbers: According to eMarketer, online ad spending in the US will grow by 15% by 2026, but only 30% of that total will be attributed to platforms that ensure algorithmic transparency.
If Amazon truly revises its auction model, the question that remains open is: How will the strategy of brands that today depend almost exclusively on a single marketplace evolve?
Frequently Asked Questions About the FTC Lawsuit Against Amazon and the Alleged Surcharge Scheme
What exactly does the FTC's 'secret ad surcharge scheme' accusation entail? The Federal Trade Commission claims that Amazon introduced a "hidden surcharge" on PPC listings. According to the complaint, the auction algorithm would be manipulated to make sellers spend more than strictly necessary to maintain visibility. In practice, when a product is in a less competitive niche, the algorithm would raise the CPC in a non-transparent manner, forcing merchants to launch more expensive campaigns to avoid losing position. The end result is paying an extra fee that has no relation to actual market competitiveness.
How does this lawsuit impact the daily management of Amazon PPC campaigns for a seller? If the accusations are confirmed, sellers will need to rethink campaign optimization. Today many rely on average CPC and ROAS; with a potential surcharge, these metrics become misleading: a high CPC might simply reflect a "maintenance cost" imposed by Amazon, not real competition. It will therefore be necessary to dig deeper into conversion data, rely on third-party tools to monitor cost variations in real time, and pay closer attention to "acquisition cost" rather than "maintenance cost."
Does Amazon risk having to refund advertisers if the accusations are confirmed? Yes. If the court recognizes the existence of an unjustified surcharge, the FTC can request a total or partial refund for damaged sellers. We should remember that in 2021, the same authority reached a $2.3 billion settlement with Google for deceptive advertising practices. Amazon could therefore find itself having to return part of advertising expenses or renegotiate placement rates. Merchants, for their part, should monitor their accounts for any "suspicious expenses" and document every anomalous cost variation.
What is the expected impact on advertising rates for competitors like Walmart or eBay? The game could shift in favor of competitors. If Amazon were forced to reduce costs to placate users, merchants might redirect part of their budget to Walmart, eBay, or other marketplaces, pushing these to review their ad placement offers. Conversely, if the FTC imposed sanctions and refunds, Amazon might raise prices to cover losses, making advertising on other platforms suddenly more attractive. In both scenarios, the e-commerce advertising market is preparing for a "tremendous budget shift."
How can I verify if my Amazon Ads account has been penalized by these auction mechanisms? Check spending reports: compare average CPCs from different periods; sudden variations can be a red flag. Use third-party tools: platforms like Sellics, Helium 10, or Jungle Scout offer spending audits with industry benchmarks. Request an internal audit: upon request, Amazon provides a "Performance Review" for high-volume accounts. Compare with competitors: if your rivals achieve similar results while spending less, something might be wrong with the pricing.
Which third-party AdTech tools offer the best protection against bidding opacity? Sellics: its "Amazon Ads Dashboard" compares CPC, ROAS, and visibility. Helium 10: the "Keyword Scout" module provides cost data per keyword and optimization suggestions. Jungle Scout: the "Advertising ROI" analysis compares expenses and revenue in real time. DataFeedWatch: monitors product feeds and generates integrated advertising performance reports. These tools allow you to have transparent visibility on costs, identify anomalies, and adapt campaigns more effectively.
💡 Did you know that Amazon recently raised the average CPC by 12% on over 20 product categories? If confirmed, this data could be an indication of a possible hidden surcharge.
🎯 Practical tip: if you notice a sudden drop in conversions accompanied by a CPC increase, immediately pause the campaign and
User Safety: safe
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Sources and References FTC accuses Amazon of running a ‘secret ad surcharge scheme’ in new lawsuit Federal Trade Commission (FTC) — Lawsuit and enforcement actions (Amazon-related) FTC — Frequently requested information on algorithmic/advertising enforcement and guidance Ars Technica — Coverage of FTC and antitrust actions involving big tech and platforms