The Federal Government Says Amazon ‘Duped Millions of Consumers’
Reading Time: 7 minutesAmazon ‘Duped Millions of Consumers,’ According to the Government. That’s Just the Beginning., That’s just the beginning., Amazon Prime: Why the FTC says Amazon has ‘tricked and trapped’ people into hard-to-cancel subscriptions.
Last week, the Federal Trade Commission sued Amazon, saying the company tricked people into signing up for its premium service, Prime, and then deliberately made that service hard to cancel. Over the past few years, the FTC, led by Lina Khan, has been slowly turning up the temperature on Amazon. In the agency’s view, the company has too much power and it’s abusing it.
The lawsuit targeting Prime is a big one, but the FTC has an even bigger case against Amazon waiting in the wings, expected for later this summer. On Friday’s episode of What Next: TBD, I spoke with Leah Nylen, an antitrust reporter at Bloomberg, about what’s behind the latest case—and what comes next. Our conversation has been edited and condensed for clarity.
The latest FTC lawsuit against Amazon, filed last Wednesday, goes after Prime. What’s the FTC arguing?
Prime is the $139 service that gets you access to all of [Amazon’s] streaming and music and the fast shipping—but the suit alleges that Amazon makes it super difficult to cancel. It takes somewhere between six or seven clicks. You have to find where on the website. My favorite detail, actually, is that internally at Amazon, they refer to it as the ‘Iliad process.’
As in Homer’s Iliad?
Homer’s Iliad, this epic poem about the Trojan War—because apparently it is just as epic to try and cancel Prime.
In the suit, the FTC talked about ‘dark patterns.’ What are dark patterns, and why do they matter for this suit?
Dark patterns are the ways that companies design their interfaces to nudge you in the way that they want. When you are going through and clicking on something, they’re like, Are you really sure you don’t want to add this other thing to your cart? or Maybe you’d like this upgrade to faster shipping? The suit said that Amazon is constantly nudging people into Prime because it knows that once you’re in Prime, you’re not very likely to cancel. They have statistics that something like 90 percent of people who sign up for a free trial stay with Prime. So, Amazon knows that once it gets you, it gets to keep you. They also know that Prime users are much more likely to do a lot of their spending on Amazon. Amazon says that Prime users buy about double the amount of stuff that non–Prime users do.
On the one hand, it might seem strange to bring a lawsuit if, as Amazon says, the vast majority of people who get Prime like it and keep it. But on the other hand, the FTC is taking close aim at businesses offering subscriptions that are easy to get into and tough to get out of. What other steps has the agency taken in this direction?
The difficult-to-cancel thing has been a main focus of the FTC under Lina Khan. They have brought a bunch of cases against other companies that make it really hard to cancel as well. They proposed a rule earlier this year that they want companies to make it as easy for consumers to cancel a subscription as it is for them to sign up. If it takes you one click to sign up for something, it should only take you one click to cancel it. So, with Prime, even though about 90 percent of people stay, the FTC is looking out for those 10 percent of people who do want to cancel.
What does Amazon have to say in response?
Amazon says they don’t believe the FTC’s allegations. They think it is not that difficult to cancel their service. They said last year, in response to some other complaints, they tried to make it a little bit easier. Now if you Google, you can find this button that allows you to cancel Prime with two clicks. You have to Google it, though. So it’s obviously not that easy to find.
How important is Prime to Amazon’s bottom line?
As of March, there are 167 million Americans who have Prime. It is approximately 64 percent of all individuals in America over the age of 18. In about 70 percent of households in the U.S., someone has a Prime account. So, Prime is a really big driver of Amazon’s business, since most of the money it makes is from the marketplace—selling things online is what it’s known for.
Is Prime membership growing? Or is Prime the kind of thing that people cut when money’s a little tighter?
Prime had been growing for a significant amount of time. In 2020, for example, it was only something like 50 percent of 18-plus individuals in the U.S. had Prime. So they’ve made some significant headway over the past couple years—particularly because of the pandemic, everybody wanted things at home. But then they boosted the price. It used to be $119. They added 20 more dollars, so now it’s $139, and they haven’t been getting as many new sign-ups, which people think might be because of inflation.
I want to look at this in the context of the various actions the FTC has brought against Amazon. There have been a number of lawsuits and a lot of scrutiny, but the agency has a mixed record. Can you walk me through it?
The FTC has been looking at Amazon for a long time. They first started looking at Amazon in summer 2019. And in the past month, that has resulted in three different lawsuits against Amazon. The first one was over the Alexa speakers. The FTC said that Alexa speakers sometimes pick up kids’ voices, but children are subject to certain rules under U.S. law; you need parental consent to keep any information about kids. The FTC alleged that Amazon was not deleting voiceprints of children, even sometimes when parents asked. Amazon agreed to settle that probe and pay $25 million.
The same day that the FTC brought that [suit], they also brought another one about the Ring doorbell. Ring is a company that Amazon bought, and a lot of the bad behavior that the FTC alleged happened before Amazon bought Ring. But they said that Ring didn’t really have great privacy practices, so much so that it was pretty easy for hackers to hack those doorbells and then spy on users. Amazon says that it fired some employees who were misusing the information that was collected from its videos and has since put in much more stringent privacy practices, but they did also agree to pay a fine.
In total, they ended up paying the FTC $30 million just last month to settle these two problems with some of their devices. And then came this big lawsuit over Prime.
Are these medium-sized cases where the FTC thinks it can get a win, or is this all part of the much larger probe at Amazon?
You could see this as the FTC steadily building up to its big antitrust case. It’s found a bunch of bad practices in different divisions within Amazon, but it’s building up to this big monopolization case against the company.
Other people who are more pro-Amazon say that the FTC is harassing them by just nipping at their heels with all these little lawsuits. Amazon did agree to settle the other two—it says it didn’t think it did anything wrong but it wanted to get rid of them. The Prime lawsuit it intends to fight.
So that’s going to court?
Yeah, that one’s probably going to go to trial.
Lina Khan, the chair of the FTC, wrote a famous Yale law review article about Amazon. It was called ‘Amazon’s Antitrust Paradox,’ and it went about as close to viral as law review articles can. It imagined a way of thinking about antitrust that broke with decades of tradition. The article made Khan a legal star, and it made Big Tech nervous. What did it say?
Lina Khan’s article focuses on Amazon and the failure of antitrust to imagine Amazon’s situation. There’s a potential claim within antitrust law called predatory pricing. The idea is that a company cuts its prices really low in order to get people to buy their product and then put other people out of business. So it’s cutting prices below how much it actually costs to make something in order to gain market share. A lot of courts said, That doesn’t make any sense; nobody can sustain that for a really long period of time. So, they really limited the ability of plaintiffs to bring those cases.
But Lina Khan says that didn’t really take into account a company like Amazon, because Amazon’s playing a really long game. It is trying to get people hooked, and so, yeah, maybe it’s going to give them something below cost. You have these really cheap Alexa speakers, but in return, you’re helping train its A.I., Alexa. It is becoming ingrained in your habits, and it is pushing you to buy more things from Amazon in their marketplace. So, really, predatory pricing can be more long-term with Amazon. It might be losing money on one part of its business, but that’s in order to make money in another part of its business. Khan argued that antitrust law really hasn’t contemplated this enough.
How is Amazon preparing for the major antitrust case on the horizon?
The FTC does like to point out that it is vastly outgunned: The FTC has about 1,000 employees, and it is in charge of making sure there is not anticompetitive behavior or deceptive business practices across the entire economy. So, they have very limited resources, particularly in comparison to a company like Amazon.
Amazon knows that this is coming, and so it has had an opportunity to try and position itself in the best way possible. They did make some changes to how easy or hard it is to cancel Prime last year after the FTC opened the probe into this. They also, earlier this year, announced that they were restarting this program called Seller Fulfilled Prime, which means you can get the Prime label if you promise that you are able to send people their products within two days. So it’s starting to make moves that, it’s going to argue in the FTC’s eventual case, show that the FTC is wrong.
When do you think the big antitrust suit is coming, and what’s it going to say?
It’s expected to come this summer, and it’s expected to focus on Amazon’s moneymaker, the marketplace. But there are still a couple questions: Is it going to be focused on the preferential treatment that Amazon gives to people who use its services? Is it going to be on the allegations that Amazon takes the data from its third-party sellers about what is selling and then makes its own products for those same things? Or is it going to be this sort of novel predatory-pricing argument that Lina Khan made in her paper years ago?
Reference: https://slate.com/technology/2023/06/amazon-prime-lawsuit-ftc-lina-khan-antitrust.html
Ref: slate
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