Amazon blocks ads for products that lose money

CNBC has reported that Amazon is aggressively blocking ads for products that lose money. As Amazon works on proving to Wall Street that they can turn a serious profit, they are taking efforts to benefit their bottom line, which now includes blocking money losing products from advertising on their site. In order to promote products with paid advertising, vendors must cut the cost of the product for Amazon.

An e-mail CNBC obtained an email from Amazon to one of its vendors said: “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 company's goal now is to try and increase profits, out of what is traditionally a low margin business. In its most recent quarter, Amazon posted 3 billion dollars in net income, the highest in company history, while profit for the full year more than more than tripled to 10 billion dollars. However, because Amazon is primarily a distribution company, their profit margins aren't at the high levels one would expect given that they are mostly selling other people's products. Global distribution costs cut into their profit margins.

Amazon is still in a phase of growth, but there is expected to be a slowdown to their business in 2019. “This year, we expect Amazon will generate roughly 440.83 billion dollars in worldwide retail ecommerce sales, a 19.8 percent increase over 2018. This represents a slowdown in growth from a 22.4 percent increase in 2018,” eMarketer wrote in February.

Brands are being pressured to lower their prices if they want to advertise, negatively affecting small businesses who use the site. In December Wall Street Journal reported that Amazon was eliminating products that couldn’t turn a profit from its inventory. This new policy blocking ads that don't turn a profit is likely part of the strategy to increase their bottom line.

CNBC also reported that the company also announced the closure of its 87 pop-up stores and introduced "Amazon Day," a service that reduces Amazon's shipping costs by allowing customers to get all of their orders throughout the week on one specific day. Amazon has also stopped ordering products from smaller brands earlier this month, according to Bloomberg, as part of an effort to push brands to the third-party marketplace, where Amazon makes money from storage and shipping fees.

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.”

One of the big issues with this policy for Amazon is that it's creating a conflict of interest. According to Fast Company, because Amazon ads boost 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 they feel are overstepping their boundaries and even breaking laws in such a manner. This week, the European Union fined Google 1.7 billion dollars for impeding competition in the market.

Amazon will stop at almost nothing to guarantee they become highly profitable.

Photo via Amazon.com