FTC v Amazon: Nothing Changes
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[00:00:00] Kiri Masters: By now you've probably already read a week of coverage and analysis on the FTC's case against Amazon's ad auction, and you've got the gist already. I wrote my own analysis last week when the case first [00:00:15] came out in my column at The Drum,

[00:00:16] including why advertisers should be offended by Amazon's defense, not just the conduct at the time. But as usual, the more interesting conversation happened after I shared that piece in the [00:00:30] comments on LinkedIn

[00:00:31] So let's get straight to the question that actually matters to anyone who is managing a budget or running a retail media network. Does any of this change where the money [00:00:45] goes? My prediction, sadly, I don't think so, though I would be thrilled to be proven wrong. Let's get into it

[00:00:53] 

[00:00:55] Kiri Masters: So I think there's only two directions that this goes. If [00:01:00] CPCs or advertising costs in general on Amazon come down as a result of this, advertisers will get cheaper clicks. And what does that mean for a performance marketer? They will probably buy more of them. Efficiency [00:01:15] gains get reinvested, not saved for later.

[00:01:19] And so Amazon will make up in volume whatever they lose in cost that they are billing advertisers. Secondly, the more likely scenario, CPCs [00:01:30] don't come down. Budgets are gonna stay exactly where they are. They're allocated months, quarters, even a year in advance at the largest advertisers, the big multinational brands [00:01:45] and holding company agencies.

[00:01:46] They've already allocated specific budgets to Amazon And they're not gonna be clawed back. Advertiser confidence might take a hit. Some spend shifts might be [00:02:00] retaliatory, but that will be so marginal, and it won't survive the next quarterly review So neither outcome has money leaving the Amazon orbit anytime soon

[00:02:12] There is a silver lining here for two groups. [00:02:15] First of all, every other retail media network now has a window to play the transparency card, the trust card, to show their cards on auction mechanics before anyone forces them to, or just take advantage of this moment to [00:02:30] demonstrate how they are different.

[00:02:32] Walmart Connect made a lot of noise when it moved to second price ad auction format in 2022, and advertisers genuinely cared. I remember this moment. We were all very excited, and there is a version [00:02:45] of that moment available once again to whoever moves fast, but this moment expires quickly. Advertisers also have an opportunity here, a narrow stretch of time in which asking [00:03:00] hard questions is very reasonable rather than faintly rude.

[00:03:05] So you can use this to learn more about how things work at various retail media networks. Do they use reserve prices? [00:03:15] What have they changed about their pricing mechanics recently? what kind of commitment do you have to telling us when your auction format changes? And so this is a ripe moment to [00:03:30] request a candid conversation and understanding about how things work and get some commitments around communication and transparency.

[00:03:40] Now, jumping into the comments when I first shared this post out on LinkedIn, [00:03:45] of course, very insightful comments a few that got my attention that I'm gonna recap here. First of all, retail industry commentator Brian Gildenberg, shares a sentiment that I think a lot of people have here, which is tying [00:04:00] this case back to a similar case with Google and the Department of Justice.

[00:04:05] Here's what he said: "The Google case required a really deep understanding of how ad tech works to nail the legal standard of [00:04:15] monopoly versus 'I put in a fake bid to make you pay more' is a little more Tony Soprano than astrophysics. It's a much conceptually simpler case." And I followed up with Brian to [00:04:30] see what he thought it meant to have a simpler case, and he said, "If I were their chief counsel," as in Amazon's chief counsel, "I would say that any case that sounds like wrongdoing to a judge and jury should be settled before it ever gets anywhere near one.[00:04:45] 

[00:04:45] I also really don't think that Amazon want a ton of discovery from 22 attorneys general on the ins and outs of their advertising business. They'll probably settle and not admit wrongdoing, but this settlement may be less expensive than [00:05:00] people think." He also pointed out that the FTC's easiest path to win runs through consumers, proving that higher ad costs equal higher prices.

[00:05:13] That algebra might not [00:05:15] be provable, but it is easy enough for a jury to follow and grok

[00:05:20] Which notably is the door that Amazon is trying to close. In its public response, it leads the first, like, three bullet points at the top of the [00:05:30] response center around this argument: no harm was done to consumers. And the FTC, for its part in the case, stopped short of claiming that advertisers actually did raise their [00:05:45] prices, and instead just kind of implied that CPG companies don't have a lot of margin to absorb and are the most likely to pass it on.

[00:05:55] So they never concluded that cost increases had [00:06:00] happened, and really, over that time period from, you know, 2021 through till recently, there has been pretty extreme economic events that have led to inflation. So it would be very [00:06:15] difficult to tie back price increases to this specific event when we had Pretty major supply chain and economic events happening that were entirely unforeseen. [00:06:30] your advertisers can't wait weeks for audiences. GrowthLoop's Composable Commerce Media solution helps media teams turn [00:06:45] first-party data into high-value audiences, launch campaigns faster, and prove what's working across every channel. Learn how retail media leaders at Costco, Fanatics, and Gopuff [00:07:00] use GrowthLoop to create highly segmented audiences and deliver stronger results for their brand partners.

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[00:07:20] Finally, e-commerce consultant Katie McKee, jumped in to make a point about contamination. She points [00:07:30] out that if previously most buyers bid $2 on an 80 cent keyword, that does drive the lifetime value up, even if the next round, the winning bid had a delta. If a data company is [00:07:45] looking at the spread, then the second auction is materially bad and or incredibly easily manipulated.

[00:07:53] So this is an interesting argument actually, that if inflated clearing prices got [00:08:00] averaged into what everyone understood a keyword bid to be worth, then the distortion isn't just a specific delta between what an advertiser paid and what they should have paid. It's actually [00:08:15] also baked into years of benchmarks, bid recommendations, and all of these third-party tools that advertisers and agencies use to plan, bid, [00:08:30] manage, and report on, their ad campaigns.

[00:08:32] And that means that the entire retail media market that has been benchmarking in some shape or form off of what Amazon has led with, is potentially working [00:08:45] off of

[00:08:45] Inflated bid values. So that is, um, a, a little bit more speculative and would be harder to prove. but an interesting thought that, this goes beyond not just what [00:09:00] individual advertisers might have overpaid over time, but might have also contaminated the rest of the industry's pricing.

[00:09:08] And then finally, friend of the pod and host of the Middlemen podcast, Tom Limongello, talked about [00:09:15] whether this outrage translates into anything. He says, "I hold out a hope that advertisers might consider moving some budget based on the perceived savings on Amazon rather than plow more money in. But if budgets are locked up for a year, the [00:09:30] outrage will have settled long before there's an opportunity to make the change."

[00:09:35] And this is where I ultimately come back to two things can be true. An ad platform can mislead [00:09:45] advertisers and still be the best place to spend a performance dollar

[00:09:50] The money isn't being spent on Amazon simply because its auction is trusted. It's there because that's where the shoppers are, which is the uncomfortable version of something I [00:10:00] said to Tom in the comments and I should probably have written into my original piece, which is moral disappointment is a much weaker motive to change than poor performance.

[00:10:12] Thanks for listening, and I'll catch you tomorrow 

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