On Wednesday, June 21, the U.S. Federal Trade Commission (FTC) sued Amazon, accusing the e-commerce giant of deceiving customers into subscribing to its Prime service and deliberately making it difficult to cancel.
The regulatory agency filed a lawsuit in a federal court in Washington state, alleging that Amazon entices users to sign up for its Prime membership-a $139 per year service that includes perks such as free rapid delivery, video streaming, and access to over 100 million songs. According to the FTC, consumers find it challenging to figure out how to unsubscribe from Prime, with the cancellation process being cumbersome and multi-step. For years, Amazon has allowed users to easily register for Prime with just a click or two, but cancelling the membership requires opening four webpages, completing six clicks, and choosing among fifteen options.
The FTC stated that Amazon's strategy violates the consumer protection law aimed at protecting online shoppers, passed in 2010.
The complaint originated from an investigation that began in March 2021. The FTC is a federal government agency responsible for enforcing antitrust and consumer protection laws.
Currently, Amazon's Prime membership boasts over 200 million members worldwide.
FTC Chairman Lina Khan expressed that Amazon manipulates users into repeatedly subscribing without their consent, causing frustration and significant financial losses. Amazon uses manipulative, coercive, or deceptive user interface designs, known as "dark patterns," to trick users into automatically renewing their Prime membership. Amazon's leadership has intentionally delayed or rejected changes that would make it easier for users to cancel Prime because these changes would adversely impact Amazon's profits.
The FTC has been studying the use of "dark patterns" in e-commerce for years. "Dark patterns" is a design strategy term that refers to a business strategy pattern that can prompt users to take actions beneficial to the company but not necessarily to the users themselves.
The agency has been looking for cases where companies lure consumers into subscribing with misleading offers and then create obstacles for them to cancel payments. Vonage paid $100 million last year to settle FTC's allegations that it made it difficult for customers to cancel their internet-based phone services and charged unexpected termination fees.
The FTC's complaint states that just before the lawsuit was filed, Amazon modified the Prime cancellation process for some subscribers in April of this year. The FTC suggested that this change indicates that Amazon knows its policy is legally unsound. The FTC proposed that Amazon should make the process of canceling a membership as easy as registration.
The benefits of free and rapid delivery have always been the cornerstone of Prime's growth, and Amazon has used the profits derived from it to invest in other businesses.
This lawsuit is the third one the FTC has filed against Amazon in the past month. In response to the previous two lawsuits, Amazon agreed to pay $30.8 million to settle allegations that it failed to delete child data collected by its Alexa players and illegally monitored users with its Ring doorbells and cameras. Amazon denied the FTC's latest allegations but agreed to settle the lawsuit.
News of the FTC's lawsuit against Amazon over Prime memberships caused Amazon's stock to temporarily drop by 1% during Wednesday's trading. However, this trend didn't last long, and Amazon's stock soon rebounded and began to rise.
Despite the lawsuit filed by the FTC, market confidence in Amazon seems unshaken.
On Wednesday, Jefferies analyst John Colantuoni raised the target price for the stock from $135 to $150, stating that Amazon is still in a consensus uptrend, and the positive sentiment around AI will help Amazon revalue.
Colantuoni expressed that although Amazon's capabilities in generative AI lag behind other major tech companies, the opportunities brought by AI are just beginning. They anticipate Amazon's experience in innovation will gradually help them close the gap in the AI field.
On Tuesday, JPMorgan analyst Doug Anmuth stated that with Amazon's further expansion in e-commerce, he expects Amazon to surpass Walmart in 2024 to become the largest retailer in the United States.
