On November 2nd, 2023, Amazon.com was accused by the U.S. Federal Trade Commission (FTC) of employing questionable strategies to boost its online retail profits. Among these strategies was a clandestine algorithm – coined as 'Project Nessie' – which allegedly inflated U.S. household prices by a staggering sum exceeding a billion dollars.
The initial accusations were made in a lawsuit filed in September, but details were not released until recently in the U.S. District Court, Seattle.
Allegedly, Amazon used 'Project Nessie' to specifically target products that it anticipated other online stores would also inflate in price. According to the FTC, this led to over a billion dollars being extracted from American consumers.
Amazon's 'Project Nessie' Vs. FTC
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2010
The algorithm was initially tested in 2010 by Amazon. It aims to identify if other online retailers kept tabs on Amazon's prices and to inflate prices for products that competitors were likely to track.
The FTC purports that Amazon maintained these inflated prices even after other retailers matched or raised their prices, subsequently generating an additional $1 billion in profit, and Amazon chose to suspend 'Nessie' during high-profile sales events such as Prime Day, and the holiday shopping season.
Once public attention waned, they reactivated the algorithm, allowing it to run wider to compensate for its previous pause.
2018
By April 2018, Amazon had employed 'Nessie' to dictate the prices of over 8 million items, causing customers a nearly $194 million expense. It was temporarily halted in 2019, but even then, Amazon retail executive, Doug Herrington, contemplated using 'Nessie' with a new targeting logic in an attempt to further boost Amazon's retail profits.
The FTC denounced the algorithm as an unethical competitive method, accusing Amazon of manipulating online store prices and obscuring its operations from antitrust enforcers. The commission also alleged that Amazon forced sellers to use its logistics and delivery services under its Prime feature, despite their inclination towards more cost-effective services.
More Numbers
According to the FTC, Amazon's average fees for sellers availing its fulfillment services escalated from 27% in 2014 to 39.5% in 2018. Amazon was also accused of discouraging large online stores like Walmart.com from selling on its platform and pressuring sellers to not price their products lower on other platforms.
Amazon's spokesperson, Tim Doyle, contested the FTC's depiction of their pricing tool, claiming that the tool was deactivated several years ago. Doyle further elaborated that the original intent of 'Project Nessie' was to mitigate any unsustainable prices caused by price matching.
It is known that the controversy surrounding 'Project Nessie' has cast a long shadow over Amazon's retail practice.
What Next?
If the allegations prove true, the billion-dollar pricing manipulation represents a significant breach of trust between Amazon and its consumers, but, for now, this case serves as a stark reminder of the importance of transparency in online retail.
