Welcome to The Corner. In this issue, we explore new revelations about how Amazon’s internal ads business aims to deceive buyers and to hurt sellers on its marketplace. We also introduce our seminal report on how to save journalism from Google and Facebook’s destructive business models, which are designed to monopolize all advertising.

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 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.

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 of 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 own 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, they 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 recently 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.”

Open Markets and CJL Release Seminal Report on Funding Journalism in the 21st Century

The Center for Journalism and Liberty at the Open Markets Institute released a seminal report examining the breakdown of journalism's business model as Google and Facebook continue to starve new publishers of revenues and readers. Democracy, Journalism, and Monopoly: How to Fund Independent News Media in the 21st Century attributes the crisis in journalism to wide-ranging policy failures over the last 40 years, including the abandonment of antitrust law. The good news? Governments around the world are already moving to restore fair competition on several fronts. These include major U.S. Justice Department lawsuits charging Google with monopolizing the digital advertising technologies market as well as the search space. Download the paper here.

Meanwhile, a complementary paper from Open Markets senior legal analyst Daniel Hanley provides an expanded historical background by detailing how antimonopoly has long been a critical feature of U.S competition policy in the media, communications, and information industries. Read Hanley’s paper here.

Open Markets and AI Now Institute to Host Conference,
“AI and the Public Interest”
on Nov 15

The Open Markets Institute and the AI Now Institute will host a conference, “AI and the Public Interest,” on November 15 to discuss the promise, threats, and practical regulatory challenges we face in managing the advent of large scale AI. The event, to be held at the JW Marriott in Washington D.C., will examine AI in relation to the already existing powers, structures, and behaviors of the corporations that control these technologies and the computing systems on which they depend. The conference will also ask whether antitrust and other competition law and policy can play a role in protecting democracy, individual health and wellbeing, the properties of creators, and open and competitive innovation from AI-related threats. Speakers include Federal Trade Commissioner Alvaro Bedoya; Doha Mekki, Deputy Assistant General at the Department of Justice; Andreas Schwab, member of the European Parliament; Christy Hoffman, General Secretary of the UNI Global Union; antitrust scholar Tim Wu; and Rana Foroohar, Financial Times global business columnist. Check back for updates here.

Open Markets Submits Public Comment on Applying Copyright Law to Generative AI

The Open Markets Institute submitted a public comment to the U.S. Copyright Office to help provide clarity to the public concerning the application of copyright law to generative artificial intelligence (GAI). The comment considers the fundamental power disparities between journalists, artists, and other creators against Big Tech’s GAI applications and lays out a simple list of policy proposals to ensure copyright law is applied in the public interest. “Enforcing copyright laws and requiring companies to meet their legal obligations — whether that is compensating rights holders or ensuring transparency of training data — are critical in order to protect human creativity and reward the labor that goes into it,” the comment reads. Read the full comment here.

📝 WHAT WE'VE BEEN UP TO:

Open Market Institute’s chief economist Brian Callaci published a piece in Times Union calling on New York governor Kathy Hochul to sign legislation that would ban noncompete clauses in the state. Such a ban, he wrote, would help “cement our status as both a dynamic economy that fosters new business creation, and as a leader in the protection of worker rights.”
Center for Journalism & Liberty director Dr. Courtney Radsch spoke at the Summit for Information and Democracy as part of the Paris Peace Forum, alongside Nobel Laureate Maria Ressa and Christophe Deloire, secretary-general of Reporters Without Borders. The three discussed the challenge of disinformation during times of conflict. The third edition of the Summit for Information and Democracy brings together political decision-makers and civil society leaders to strengthen international cooperation in the fight against disinformation.
Washington Monthly quoted legal director Sandeep Vaheesan on the importance of increased antitrust enforcement, even when cases are lost. “When agencies are bringing cases, they’re also deterring a lot of bad conduct from being pursued in the first place, certain mergers aren’t proposed, and certain competitive practices aren’t being used,” he said.
Open Markets Institute executive director Barry Lynn lauded President Biden’s executive order on artificial intelligence as an important first step toward reigning in the platform monopolies already dominating the AI space. “To truly protect our society against the dangers of AI, we must enforce existing laws that require monopoly gatekeeper corporations to treat every individual and company that depends on their services the same,” Lynn said. His statement was covered by Technical.ly and the Fence Post.
Center for Journalism & Liberty director Dr. Courtney Radsch submitted a contribution to the Brookings Institution, which asked a group of experts to weigh in on whether President Biden’s executive order will deliver on its promise. Dr. Radsch noted that the order leaves out discussion of the monopolization by Big Tech of the emerging AI space, saying, “Left unsaid is the fact that many of the most pressing risks created by generative AI have been enabled by a handful of Big Tech firms.”
Dr. Radsch was also featured on a podcast from Center for Strategic International Studies on promoting a healthy digital ecosystem. She spoke about Canada’s Online News Act, the California Journalism Preservation Act, and the U.S. Journalism and Competition Preservation Act, as well as responses from Meta and Google.
Open Markets’ Europe director Max von Thun was quoted in Euractiv commenting on the partnerships AI companies strike with Big Tech giants without scrutiny from competition authorities. “Nobody can build a cutting-edge foundation model without having some kind of partnership with a Big Tech company,” von Thun said.
Inc. magazine quoted Barry Lynn on the devastating effects on small startups when Big Tech giants suddenly alter their service terms or business practices. "They're constantly tweaking their systems in ways that allow them to elbow out rivals in the sale of advertising, to lock people into their system, and then to tweak it in ways that work for them, without real consideration about whether it works for anybody else,” Lynn said.
OMI’s senior fellow Johnny Ryan was quoted by Wired on Meta’s plans to introduce a new ad-free subscription option in Europe. “It is useful to finally have some sort of a price tag on this stuff, It demonstrates the value of people’s data to someone else,” Ryan said.
Open Markets Institute’s strategic councilor on democracy and power Caroline Fredrickson was on the Lever Time podcast to discuss how the liberal legal movement’s focus on social issues like abortion rights ultimately stacked federal courts with judges who are lax on antitrust enforcement and corporate power.
A Washington Monthly article written by OMI board member Rana Foroohar cited executive director Barry Lynn’s work in challenging corporate concentration as well as his book, End of the Line: The Rise and Coming Fall of the Global Corporation.
Politico cited Lynn’s mentorship of FTC Chair Lina Khan in an article about the increasing popularity of antitrust law among incoming law students, stemming from reinvigorated antitrust enforcement.

🔊 ANTI-MONOPOLY RISING:

College athletes won class-action status in a closely watched case alleging that the National Collegiate Athletics Association violated the Sherman antitrust act by preventing the athletes from monetizing their image. (Bloomberg)
A federal judge in Chicago has allowed a lawsuit to proceed from AT&T and Verizon subscribers challenging the 2020 T-Mobile and Sprint merger. Plaintiffs alleged that the $26 billion deal harmed competition and raised prices across the industry. (Reuters)
The Attorneys General of Minnesota, California, North Carolina, and Tennessee joined a federal lawsuit against Agri Stats, accusing the data corporation of colluding with other large food corporations to maximize profits and suppress competition. (Star Tribune)
The Dutch Authority for Consumers & Markets ruled that Apple’s exorbitant commissions on app subscription service transactions are an abuse of its market power. (Bloomberg)

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📈 VITAL STAT:

$1.8 Billion

The amount the powerful National Association of Realtors was ordered to pay after a jury ruled that it conspired with large brokers to inflate commissions on home sales. The ruling, which will be likely be appealed, would upend the American real estate industry. (New York Times)

📚 WHAT WE'RE READING:

When McKinsey Comes to Town: Veteran investigative reporters Walt Bogdanich and Michael Forsythe pull back the curtain on powerhouse global consulting firm McKinsey & Company. In their harrowing account, Bogdanich and Forsythe explore how the firm’s cutthroat ideology and market-distorting tactics have shaped the practices of the world’s largest corporations and most powerful governments for decades — at the expense of workers and consumers everywhere.

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