Google’s unhealthy dominance over advertising is finally exposed
But details only trickled out until the full, unredacted document was leaked in January. The ensuing outcry left the CMA no choice but to join in, and Brussels launched its own investigation on the same day as the CMA.
Digital advertising is dauntingly complex, but conceptually it’s still quite simple. The publishers of a newspaper or an application or a game have an empty space to sell. For their part, companies offering products or services want to reach a potential audience, and do so in the least expensive and most effective way possible.
In the traditional way of the old physical world, newspapers negotiated the price of space directly with the agencies representing the major brands. But with electronic advertisements, there is an opportunity for an effective electronic market. A middleman stands between the buyer and the seller, and this is where we find Google, which dominates the sector. According to its own calculations, 84% of publishers worldwide and 99% of large US publishers use Google’s advertising services to fill their digital niches.
Google owes its dominance to the way it can control information – with a presence on both sides of the digital advertising platform, buying and selling, as well as a central position. In one of the most notorious emails uncovered by Texas investigators, a Google staffer explains, “The analogy would be if Goldman or Citibank owned the New York Stock Exchange.”
But were publishers getting good value? Were ad buyers? It was a mystery, and they couldn’t tell precisely, because the manipulations of digital ad auctions were so complex and murky. As another senior Google employee explained in an internal communication, “non-transparent billing on both sides” gave Google “some flexibility to react and counter market changes.” No wonder the casino always seemed to win.
That was until 2014, when publishers designed a clever wheeze that allowed them to compare the performance of Google’s ad exchange with other competing ad exchanges. This was via a technique called header bidding – because a code was inserted into the header of a web page – and for the first time the market could work as it should and reveal the true value of ad spaces. digital. Each party could now also obtain more valuable information.
The results were amazing. Publishers have seen their ad revenue increase by 30 to 70 percent, according to the Texas lawsuit. Advertisers also liked it, as smaller and less successful rival ad exchanges charged lower fees than Google. Internally, Google acknowledged how much it all hurt: rather than taking 20%, a figure mentioned internally, one manager predicted that “margins will stabilize around 5%”.
When Google’s rival Facebook, number two in the advertising market, jumped on the header auction bandwagon, it really changed things. The lawsuit says Google engineered a secret deal with Facebook, dubbed “Jedi Blue,” that gave its biggest competitor huge advantages. He also tried to lure publishers to a mobile platform called AMP, where header bidding was not possible.
Google denies the claims, arguing that the deal was a “publicly documented pro-competitive agreement.” The alleged collusion between Meta (Facebook) and Alphabet (Google) is what makes this lawsuit so explosive: the lawsuit claims that two major market players colluded, acting as a buying cartel. Incredibly, we’re told that Google could guarantee the number of deals Facebook would win, up to a tenth of a percentage point.
The 242-page trial in Texas reveals a cat-and-mouse game that unfolded over several years, but consistent themes emerge. As the pig in the middle, Google made life harder for buyer and seller, obfuscating processes and preserving their own margin. Google denies that the Texas claims were anti-competitive and argues that header bidding continues to grow.
But publishers are now wondering aloud how much healthier the media landscape would be today if the advertising business had been more competitive. Perhaps more could have been used to keep revenue-starved local media alive, for example. Last year, Alphabet, the owner of Google, reported revenue of $257 billion.
Ultimately, while financial and commodity exchanges are regulated, digital advertising exchanges are not. They could have been, but a decade ago President Obama shut down an FTC investigation that would have required exchange owners to be transparent with information. Regulating them wisely today, so that a market can grow, is one of the greatest challenges for our regulators.
Follow Andre on Twitter @andreworlowski