Unveiling the Veil: FTC Lawsuit Alleges Amazon's $1 Billion Gain Through the Clandestine Project Nessie Algorithm

Unveiling the Veil: FTC Lawsuit Alleges Amazon's $1 Billion Gain Through the Clandestine Project Nessie Algorithm

  • 03.11.2023 08:10

"Unveiling 'Project Nessie': FTC Alleges Amazon's Billion-Dollar Gains Through Covert Pricing Algorithm"

Amazon faces serious allegations as the Federal Trade Commission (FTC) reveals details of a lawsuit filed in September, accusing the tech giant of employing illicit strategies to enhance profits within its online retail empire. The lawsuit, unveiled with fewer redactions in a US District Court filing in Seattle on Thursday, exposes Amazon's alleged use of a secret algorithm, internally named 'Project Nessie,' to inflate prices on specific products.

The FTC contends that Project Nessie was crafted to identify products where Amazon predicted other online stores would follow its price increases. By implementing this algorithm, Amazon allegedly extracted over $1 billion directly from American consumers. The company's spokesperson, Tim Doyle, countered the allegations, stating that the FTC "grossly mischaracterizes" the pricing tool and clarified that Amazon ceased using Nessie several years ago. According to Doyle, Nessie aimed to prevent price matching from leading to unsustainable lows.

Amazon purportedly initiated testing of the pricing algorithm, designed to track competitor prices and raise those likely to be monitored, in 2010. After competitors matched or increased their prices, Amazon allegedly continued selling the product at an inflated rate, resulting in $1 billion in excess profit. The lawsuit claims that Amazon temporarily halted Nessie during high-profile events like Prime Day and the holiday season but resumed its use afterward to compensate for the pause.

According to the FTC, Amazon executive Doug Herrington suggested leveraging "old friend Nessie" in January 2022 to enhance profits for the company's retail arm. The complaint further accuses Amazon of attempting to conceal operational information from antitrust enforcers by using the Signal messaging app's disappearing message feature and alleges that the company destroyed communications between June 2019 and early 2022.

As the legal battle unfolds, the revelations about Project Nessie underscore the challenges posed by opaque algorithms and the increasing scrutiny faced by tech giants in the regulatory landscape. The lawsuit raises questions about pricing practices, transparency, and the broader impact on consumers within the e-commerce sector.

"Beyond Pricing: FTC Alleges Amazon's Anticompetitive Tactics in Fulfillment and Marketplace Strategies"

The Federal Trade Commission (FTC) has expanded its scrutiny of Amazon, alleging that the tech giant engaged in anticompetitive practices by coercing sellers to use its logistics and delivery services within the Prime feature. Despite sellers' preferences for more cost-effective or diversified services, the FTC claims that Amazon required them to exclusively utilize its services, limiting their choices and potentially raising costs.

According to the FTC, an unnamed Amazon executive overseeing global fulfillment had a pivotal realization labeled an "oh crap" moment. This executive reportedly recognized that allowing sellers on Prime without mandating the use of Fulfillment by Amazon weakened the company's competitive advantage by encouraging sellers to manage their own warehouses. The average fees for sellers using Amazon's fulfillment services allegedly surged from 27% in 2014 to 39.5% in 2018, reflecting a substantial increase over the four-year period.

The complaint also highlights Amazon's differential treatment of online stores, noting that it does not permit major platforms like Walmart.com to sell on its marketplace. Amazon founder Jeff Bezos, during testimony, justified this discrepancy by citing scale and competitive considerations.

In a redacted section of the lawsuit, Amazon is accused of obstructing Walmart's attempts to offer discounts to online shoppers who opted for in-store pickups in 2017. Walmart has yet to respond to these allegations.

The complaint sheds light on the pressure faced by Amazon sellers, with one cited example adopting a policy to ensure that their products were not priced lower on Walmart than on Amazon, allegedly due to Amazon's influence.

As the legal proceedings unfold, the FTC's allegations reveal a complex web of marketplace dynamics, antitrust concerns, and the power dynamics between major e-commerce players. The implications of these practices extend beyond pricing, delving into the intricate relationships between platforms, sellers, and the competitive landscape within the online retail sector.

In conclusion, the FTC's allegations against Amazon paint a comprehensive picture of anticompetitive practices, spotlighting the company's tactics in the fulfillment and marketplace spheres. The requirement for sellers under Prime to exclusively use Amazon's logistics and delivery services is a focal point, reflecting potential limitations on seller choices and cost considerations.

The revelation of an Amazon executive's realization that allowing sellers on Prime without mandating Fulfillment by Amazon weakened the company's competitive advantage adds a layer of insight into Amazon's internal strategies. The surge in average fees for sellers using Amazon's fulfillment services from 27% in 2014 to 39.5% in 2018 further underscores the financial implications for sellers within the Amazon ecosystem.

The differential treatment of major online stores like Walmart.com, Amazon's alleged obstruction of Walmart's discount initiatives, and the pressure faced by Amazon sellers amplify the intricate dynamics at play within the e-commerce landscape.

As the legal proceedings progress, the FTC's allegations shed light on broader implications, including the relationships between major e-commerce players, marketplace dynamics, and potential antitrust concerns. The outcome of this legal battle could have far-reaching consequences for the online retail sector, influencing future regulations and shaping the competitive landscape within the industry.