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Amazon is blocking ads for products that lose money

Amazon is blocking ads for products that lose money
[Photo: freestocks.org/Unsplash]

Amazon is tidying up its bottom line, and wholesale vendors are feeling the squeeze. The Everything Store is telling its vendors that it won’t promote products that it takes a loss on as a result of storing and shipping fees, according to CNBC. In order to promote those products with paid advertising, vendors must cut the cost of the product for Amazon.

CNBC obtained an email from Amazon to one of its vendors:

“One or more of your products no longer qualifies for advertising because the sale of this product on Amazon.com currently results in a loss to Amazon.” The email goes on to say that the brand must “lower the product’s cost” to Amazon in order to become eligible for advertising again.

The change comes as some analysts are expecting a slowdown for Amazon’s e-commerce business. “This year, we expect Amazon will generate roughly $440.83 billion in worldwide retail ecommerce sales, a 19.8% increase over 2018. This represents a slowdown in growth from a 22.4% increase in 2018,” eMarketer wrote in February.

It also appears to be part of a broader shift  toward focusing on its marketplace for third-party sellers. Selling direct produces lower margins for Amazon than selling through third parties on its marketplace. In December the Wall Street Journal reported that Amazon was eliminating products that couldn’t turn a profit from its lineup. This refusal to advertise products that it takes a loss on is likely part of the same new strategy.

Amazon responded to CNBC with the following statement: “Like all retailers, Amazon decides which products to market and promote in our stores based on a variety of factors, such as relevancy, availability, profitability and other factors.”

But Amazon may need to be careful when it comes to restricting advertising. Because Amazon ads juice sales on its own site, artificially privileging some products over others could be seen as a conflict of interest. The European Union has been increasingly cracking down on big tech companies that wield too much power. This week, the European Union fined Google $1.7 billion for impeding competition in the market. Senator and presidential hopeful Elizabeth Warren is also keen to break up big tech companies, and Amazon is already on her list.

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