Amazon doesn’t distinguish well enough between paid ads and organic search results, something that could trick consumers, according to a new complaint filed with the Federal Trade Commission on Wednesday.
The complaint, shared exclusively with The Washington Post, is based on an analysis of more than 130,000 search results for popular products. (Amazon founder Jeff Bezos owns The Washington Post.)
Ad sales are one of Amazon’s fastest-growing businesses, and the complaint alleges that the lack of disclosures on these practices runs afoul of consumer protection law. The company delays labels indicating that a search result is sponsored by an advertiser for several seconds after a page loads, the group claims, a practice that “deliberately obfuscat[es]” ads. The coalition’s researchers determined that the company was “substantially or entirely out of compliance” with all of the federal guidelines to ensure ads can easily be distinguished from organic search results.
“Amazon customers should be very conscious and examine closely when they do a search on Amazon whether they’re getting an advertisement or an organic search result,” said Marka Peterson, the SOC’s legal director. “They should be very aware of the different methods that Amazon uses to obscure its advertising.”
Amazon spokeswoman Tina Pelkey said in a statement that the complaint “misstates FTC guidance” and that ads in the company’s store “always include a clear and prominent ‘sponsored’ label, implemented in accordance with FTC guidelines.”
“We design our store to help customers discover products we think may best meet their needs — sponsored ads is one of the ways to help them find products they may be interested in,” she added.
When shoppers on Amazon type in a search for an item such as batteries, a list of products comes back. Some are ads paid for by brands to have their keywords surface higher in results. Others are Amazon’s own brands. And still others are those that are rated highly, priced the lowest and are most popular with consumers — and are presented organically by the company’s algorithm.
The FTC has issued guidance since at least 2002 to ensure that large tech companies distinguish paid search results and other forms of ads from organic search results, which appear because they’re ostensibly relevant to a user’s search terms. The agency in 2013 updated those guidelines and directed companies to use prominent borders, shaded boxes and clear text labels to mark ads. “Any method may be used, so long as it is noticeable and understandable to consumers,” the agency wrote in a letter at the time.
The FTC has long held that ads are deceptive if they imply information is being shared by an independent or impartial source when it is actually originating from a business trying to sell a product, said Jessica Rich, a former director of the FTC’s Bureau of Consumer Protection. The concern is that such practices could lead consumers to make uninformed purchasing decisions.
“Often the FTC has advised, to prevent deception, there needs to be clear and conspicuous disclosure,” Rich said.
But the researchers found that none of the thousands of Amazon ads they analyzed complied with all these FTC guidelines and that none of the ads they surveyed used shading. In one search for “jewelry,” Amazon displayed multiple ads with gray boxes, appearing across the top of the page and within the results. But it also used the same shading in the organic results, rendering the two types of results indistinguishable from each other.
The company often uses the term “sponsored” to label ads. But in 22 percent of all the ads in the analysis, it buried these labels with a small and light font housed under sections with big, bold titles such as “Highly rated,” and “Today’s deals,” the complaint found. Sometimes, Amazon uses these titles for products that are not part of an ad, creating a confusing shopping experience.
The SOC is calling for the FTC to probe the e-commerce giant’s advertising practices and “take swift and forceful action” to prevent what it considers deceptive advertising practices.
Amazon is the largest online retailer, with roughly 40 percent of total sales, according to the research firm eMarketer. It has drawn consumers to shop on its site with promises of the lowest prices and best selection. But the company is also a marketplace and has opened up its site to third-party merchants, who can pay for ads or keywords to help boost their products in the search rankings. Experts agree that consumers rarely scroll past the first few offers, meaning that ads taking up premium real estate are more likely to catch a consumer’s eye.
And it’s not always clear who paid for what.
The complaint highlights an increasingly critical avenue of business for the company, as it faces a thicket of regulatory issues in Washington. Amazon doesn’t break out revenue from advertising, but in the last quarter, the “other” category in its earnings statement, which the company says consists primarily of its advertising business, grew 50 percent to $8.1 billion. That’s about the same amount as the company took in from its subscription services, including Amazon Prime memberships, in the same period.
Estimates from eMarketer indicate that Amazon’s digital ad business will hit $24.47 billion this year, up 55.5 percent from 2020, and will capture 11.6 percent of the digital ad market.
The FTC has not been very active in addressing instances of deception in online advertising beyond setting standards and guidelines, Peterson said. But the complaint argues that the approach resembles a 1960s case about an ad that was written and formatted to appear to be a newspaper column. The agency determined that it was misleading to run the promotion without clearly marking it as an advertisement.
Joan Moriarty, the SOC’s research director, who worked on the analysis, said the organization is “very hopeful” that the FTC will investigate a case like this under the leadership of Chair Lina Khan (D). The agency has been broadly scrutinizing Amazon’s business practices since the Trump era, but Khan is widely expected to take a more aggressive approach, given her past academic writing, in which she argued that a new antitrust standard needed to be applied to the company.
Experts say this complaint appears to represent a perfect conflux of the issues that Khan has promised to prioritize as chair, making it the kind of target for Khan that Amazon and other tech giants have long anticipated and feared.
“This has all the ingredients of the issues that the chair has said she’s interested in pursuing,” Rich said. She noted that the complaint looks at the power of a major tech platform and combines consumer protection and competition issues, as Khan has called for the agency to take a “holistic” approach to how dominant companies could be harming both consumers and businesses. The complaint was also brought by labor unions, which Khan has publicly committed to protecting.
This summer, leaders of the Teamsters, which is a member of the SOC, declared Amazon was a top priority for organizing activity.
The complaint goes beyond existing FTC guidelines, accusing the company of engaging in “lazy loading.” The “sponsored” label lagged in loading against top banner ads, sometimes by up to three seconds on average Internet speeds, according to the group’s analysis. On slower wireless and wired connections, it could take anywhere from seven to 15 seconds. The SOC says these slow load times may disproportionately affect low-income individuals and people of color, who are more likely to have slower Internet connections and, thus, experience an even more delayed label. Pelkey said that any slow loading of the labels was a defect that the company would fix quickly.
The company has also faced criticism for rolling out an advertising feature that pitched its own private-label brands right before customers add rival products to their shopping carts. When customers search for items such as Dr. Scholl’s gel insoles, Nicorette gum or Energizer batteries, Amazon offers a “Similar item to consider” featuring an alternative product from one of its in-house brands.
Critics argued that this placement demonstrates Amazon’s willingness to use its advertising platform to benefit other aspects of its business, while the company has compared the feature to the way other retailers promote their private-label goods.
The SOC claims that deceptive advertising is just one way Amazon has abused its control over its e-commerce platform to the detriment of consumers. The same coalition also provided data about the employee injury rate at Amazon warehouses earlier this year, information that informed a Washington Post analysis that found workers suffer serious injuries at higher rates than at other firms.
“Amazon is the dominant e-commerce retailer, which already gives it incredible power to consumers. Consumers are really beholden to the company in well-documented ways,” Peterson said.