The Bid Shading Threat to Amazon Advertising

Almost six years ago, NYT published a critical piece on Amazon’s business practices with 3P sellers. The reason I still remember that piece after all these years is that the article had an interesting background on how Amazon made its foray into advertising. From the piece:

“For years, the question of whether Amazon should push ads on its site generated fierce debate among senior managers and executives inside the company, according to eight current and former Amazon employees. In memos and fiery meetings, they disagreed on what was best for a company that preached obsession with serving customers. One camp believed that ads would erode customer trust, because shoppers expected Amazon to show them popular products with strong reviews and a good price. The other camp saw ads as a cash machine Amazon could tap to drive down prices and fund new innovations for customers.

…Workers eventually got word that Mr. Bezos had settled the debate, according to two senior employees. Mr. Bezos said that Amazon had two options: Sell ads, and use the cash for investments. Or shun ads, and get beaten by competitors.”

Mr. Bezos took the right decision. Indeed, advertising has almost certainly been Amazon’s largest money printer over the last few years and the company would likely be worth lot less if Amazon had to generate attractive return in its retail operations without relying on advertising. Since 2019, Amazon’s advertising revenue became almost ~6x to reach ~$69 Billion in 2025. Just to put things in perspective, even AWS grew at ~24% CAGR during this period while advertising revenue grew at ~33% CAGR.

Given the importance of advertising revenue for Amazon’s business ex AWS, yesterday’s FTC lawsuit against Amazon’s advertising practices deserve a closer look which I will cover behind the paywall.

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