Amazon Ran Expensive Ads for Unsellable Products

eCommerce giant Amazon is facing scrutiny as reports surface regarding its advertising system mistakenly charging online merchants exorbitant amounts for promoting products that were already unavailable for purchase.

The issue came to light when a seller, Rob Robinson, discovered he was being billed for advertisements despite not making any sales.

According to Robinson, who owns Computer Upgrade King, he noticed a significant drop in profit despite having a robust advertising budget, prompting him to investigate further.

What Really Happened?

The problem stemmed from Amazon's automated advertising system, which continued to promote Robinson's merchandise in California, even though he had already ceased selling products there due to regulatory concerns.

As a result, Robinson incurred a huge advertising cost without generating any sales. Despite his efforts to bring attention to the issue, Amazon initially denied any wrongdoing. 

"We were building computers for free," he explained at the time.

After Bloomberg reported on Robinson's experience, Amazon admitted that Robinson and other sellers had been charged for misdirected advertisements and offered refunds. The company also pledged to make necessary fixes to its advertising operation.

"We will similarly contact and refund any affected sellers, and are updating our processes to ensure any such ads are not charged going forward," an Amazon spokesperson said.

However, the refunds offered fell short of Robinson's expectations, with Amazon only offering $15,000 for losses that cost him from $200,000 to $300,000. 

Notably, Robinson also mentioned that the misplaced advertisements adversely affected his sales performance, impacting his business's conversion rate — a crucial metric used by Amazon's algorithm to determine product popularity and search result rankings.

Where Amazon Falls Short

The incident highlights the limitations of Amazon's advertising business, which lacks geographic targeting capabilities compared to its competitors.

While companies like Meta Platforms Inc. and Google offer features that enable advertisers to target users based on location, Amazon's advertising system primarily focuses on matching shoppers with products without considering geography.

Despite Amazon's acknowledgment of the issue and promises to rectify it, Robinson remains dissatisfied with the resolution offered.

He intends to explore alternative avenues for selling his products, including investing in Google search ads to direct shoppers to his own website.

"The real problem with Amazon is there’s no escalation path when things go wrong,” Robinsons said. "You have to go to the media and embarrass them."