Amazon's fight with the FTC contains an uncomfortable lesson for advertisers

Amazon is facing a lawsuit from the FTC over its ad auctions.

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CMOs are digesting an explosive lawsuit filed by the Federal Trade Commission against Amazon this week.

The advice from marketing insiders on the next steps: Check your exposure and double down on independent measurement .

The FTC's lawsuit accuses the retail giant of manipulating ad auctions to artificially inflate ad prices.

Nick Manning, founder of the media consultancy Encyclomedia, said the suit's allegations present another sign to CMOs that " walled gardens and black boxes hold all the cards." The suit centers on " second-price auctions ," which are common across the digital ad landscape.

At their most simple: an advertiser sets the maximum price it's willing to pay — say, $1 — but if the next-highest bid is only $0.50, the advertiser would end up paying around $0.51.

These auctions grew in popularity because advertisers could bid high to boost their chances of winning an auction without necessarily forking out the entire sum.

The FTC, which was joined in its suit by 22 states, alleges that Amazon sometimes secretly used a "soft reserve" — effectively inserting its own synthetic bid into the mix — to raise the final auction price without advertisers knowing.

The complaint alleges that this scheme likely extracted more than $20 billion from advertisers since it began in late 2018.

On Monday, Amazon posted a lengthy response to the suit, which it described as "misguided." It said the FTC's argument leans "on a handful of simplified communications to allege a companywide effort to deceive," which it said was "patently false." The company said its ranking formula gives more weight to ad relevancy over bid amount, and that it properly explains its pricing and auctions to advertisers, such as on its Amazon Ads help pages .

So what action, if any, should CMOs take? Ruben Schreurs, CEO of marketing consultancy Ebiquity, said he's guiding clients to "remain calm and pragmatic" over what are, at present, just allegations.

Ebiquity recommends that CMOs, through their media teams or agencies, investigate how much they spent on the ad products detailed in the suit over the period it references.