“Google operates on the buy-side and the sell-side, runs an exchange, and participates in the market as a buyer and as a seller. The equivalent in financial markets would be working with a broker that also represents the counterparty, runs the exchange, and has a proprietary trading desk—all without ethical walls between business divisions to protect its customers’ welfare,” an antitrust lawsuit filed by sixteen US states led by Texas against Google reads.
The lawsuit alleges that Google unlawfully monopolised online advertising. In part 1 we explored how online advertising works and Google’s monopoly power in various markets in online advertising. In this post, we will dive into the alleged anticompetitive conduct Google engaged in to acquire and maintain its monopoly power, specifically how the company is using initiatives like AMP, Unified Pricing, and Chrome Privacy Sandbox to foreclose competition.
You can read other parts of this series here.
Overview of how online advertising works
Online advertising for display ads (e.g. image-based ads) relies on three main components:
- Ad servers: The inventory management software that helps publishers sell their ad inventory. Publishers are websites with ad spaces such as news websites and blogs.
- Ad buying tools: The software that advertisers use to buy display inventory from publishers.
- Ad marketplaces: The electronic marketplaces where buyers and sellers of display ads are matched. Buyers (advertisers) are represented by their ad buying tool whereas sellers (publishers) are represented by their ad server. There are two main types of marketplaces: ad exchanges and ad networks.
For more on how the online advertising market works, read our explainer here.
Google punishes publishers not using its AMP framework
- AMP is not really faster than normal web pages: “Google employees knew that AMP only improves the ‘median of performance’ and AMP pages can actually load slower than other publisher speed optimisation techniques,” the lawsuit states. Google also throttled non-AMP pages by giving them artificial one-second delays to make AMP pages look faster in comparison, the lawsuit alleges. “Throttling non-AMP ads slow down header bidding, which Google then uses to denigrate header bidding for being too slow,” the lawsuit adds.
- How Google forces AMP on publishers? Since the AMP format severely limits the number and type of ads that publishers can sell, many do not want to use it because of loss in advertising revenue. “However, Google uses its scale in search to punish publishers that do not choose AMP,” the lawsuit claims. Specifically, Google Search ranks non-AMP pages lower in search results and AMP pages in a section called in Top Stories.
- AMP works well only with Google products: Although AMP is not compatible with header bidding, it worked “fully compatible with routing to exchanges through Google’s ad server,” and “AMP pages would directly communicate with Google cache servers rather than publishers’ servers. This enabled Google’s access to publishers’ inside and non-public user data,” the lawsuit explains.
- A Faustian bargain: “Google gave publishers a Faustian bargain: (1) publishers who used header bidding would see the traffic to their site drop precipitously from Google suppressing their ranking in search and re-directing traffic to AMP-compatible publishers; or (2) publishers could adopt AMP pages to maintain traffic flow but forgo exchange competition in header bidding, which would make them more money on an impression-by-impression basis. Either option was far inferior to the options available to publishers before Google introduced AMP. Just how inferior? According to Google’s internal documents, 40 percent less revenue on AMP pages,” the lawsuit states.
Project NERA and Privacy Sandbox for Chrome create a “walled garden”
“Google has advanced two different projects to achieve this anticompetitive end-goal: the first is Project NERA, and the second, Privacy Sandbox. With both, Google’s objective stands in stark contrast to the open internet that Google claims to protect,” the lawsuit alleges:
- Project NERA:
- What is it? According to internal documents cited by the lawsuit, Project NERA was Google’s first plan to “successfully mimic a walled garden across the open web” so it can protect its margins. Project NERA allowed Google to control the design of publishers’ ad space and then force those publishers to sell their ad space exclusively through Google’s services.
- How did it help Google? “To get publishers to give Google exclusive access over their ad inventory, Google set publishers up for a lose/lose scenario,” the lawsuit states. First, Google started leveraging its popular Chrome browser to track and target publishers’ audiences and it did so by steering users to sign in to Chrome using their Google account. Then, Google “turned around and offered to give publishers the ability to tap into Google’s now-deeper trove of user data in exchange for the publishers’ agreement to give Google exclusive control over their ad space. If publishers did not agree to the new exclusivity terms, Google would continue to use Chrome to collect data about their users to sell more Google ads at the expense of the publishers’ ad space. For Google, Project NERA represented a win-win,” the lawsuit reveals.
- Privacy Sandbox:
- What is it? When regulatory scrutiny around Big Tech increased, Google transitioned from Project NERA to Privacy Sandbox, the lawsuit states. In the eyes of the regulators, “Google was number one in the world when it came to tracking users online through cookies,” and the company attempted to shed this image by “building a walled garden out of the open web and ground that approach in privacy language,” the lawsuit explains.
- How will it work? As per this plan, by 2022 “Google plans to modify Chrome to block publishers and advertisers from using the type of cookies they rely on to track users and target ads. Then, Google, through Chrome, will offer publishers and advertisers new and alternative tracking mechanisms outlined in a set of proposals that Google has dubbed Privacy Sandbox,” the lawsuit states.
- How it cements Google’s monopoly power? These changes raise barriers to entry and exclude competition in the online advertising business and further strengthen Google’s position because they will affect small publishers and advertisers who track users and target ads, the lawsuit alleges. But “the same advertiser will be able to continue tracking and targeting ads across Google Search, YouTube, and Gmail—amongst the largest sites in the world—because Google relies on a different type of cookie (which Chrome will not block) and alternative tracking technologies,” the lawsuit explains. This “will pressure advertisers to shift to Google money otherwise spent on smaller publishers,” the lawsuit adds. Furthermore, non-Google ad buying tools are bound to get hurt because they primarily rely on the cookies that Google is set to block, but Google’s ad buying tools “partially circumvent reliance on the same type of cookies because Google grants them exclusive access to user data from Chrome and Google’s Android mobile operating system” the lawsuit states. And because Google’s ad buying tools favor Google’s exchange, this will further strengthen Google’s monopoly in that market as well.
Google excludes competition through Unified Pricing rules
- What is it? Publishers would prefer to apply higher price floors to Google’s AdX exchange than they apply to other exchanges because of the information advantages Google has over others, but in 2019 Google manipulated its core search algorithm to punish publishers doing this. Then in more direct addressing of the issue, Google introduced Unified Pricing rules which eliminated differential price floors altogether, the lawsuit states. “As a result, publishers can no longer route their ad space to an exchange like AppNexus at a price floor lower than the price floor they apply when routing the same impression to Google’s exchange,” the lawsuit explains.
- How does it affect competition? “Previously, publishers could choose to transact with DV360 only in non-Google exchanges by increasing DV360’s price floors in Google’s exchange. Unified Pricing rules ended this practice and forced publishers to transact with DV360 and Google Ads in Google’s exchange. Forcing publishers to transact with Google’s ad buying tools only if they also transact in Google’s exchange was one of Google’s main aims with Unified Pricing,” the lawsuit claims. In addition to prohibiting publishers from discriminating between exchanges and bidders based on price, Google also prohibited publishers from discriminating on non-price criteria like ad quality, the lawsuit states.
- How does it help Google? “Publisher auction records reveal that Google’s exchange grew its share of exchange impressions by 20 percent after the introduction of Unified Pricing rules,” the lawsuit claims. Furthermore, some publishers were selling their inventory to “Google’s exchange for half as much as what Google’s exchange historically paid” and “records also show that Unified Pricing rules result in Google’s ad buying tools tripling and quintupling the share of impressions they win,” the lawsuit states.
- Google was aware that this was self-serving: “Externally, Google falsely declared that abolishing price floors benefited publishers. Privately, however, Google recognized that Unified Pricing was “extremely self-serving,” the lawsuit adds.
- How Facebook and Googled colluded to come up with these rules? In a meeting between the two companies in May 2019, “the parties discussed publisher pricing floors, and Facebook told Google it would rather publishers not have the ability to set price floors. These discussions helped Google later decide to prohibit publishers from setting lower price floors for non-Google (or non-Facebook) exchanges, networks, and ad buying tools,” the lawsuit states.
Other deceitful tactics used by Google to force market participants to re-route trading through Google
In addition to colluding with Facebook and using initiatives like AMP and Privacy Sandbox to kill header bidding, Google employed other tactics like crippling their ability to measure the efficiency of exchanges in header bidding, the lawsuit states. The lawsuit outlines the following tactics:
- Google trades ahead of bid orders to foreclose exchange competition: “A publisher like USA Today would route their inventory to multiple exchanges through header bidding, then route the winning exchange bid into their Google ad server. Google programmed its ad server to let its exchange displace the winning header bidding exchange bid by paying one penny more,” the lawsuit explains. This feature, which came to be known as Last Look, allowed Google to always prevail.
- Google deceives exchanges to forgo header bidding: In March 2017, Google told publishers that its exchange would no longer trade ahead of other exchanges that bid through Google’s Exchange Bidding program, giving them a reason to choose Google’s Exchange Bidding over header bidding. But Google did not actually stop trading ahead, the lawsuit alleges. “Internal documents reveal that Google simply replaced one version of Last Look for another by using a new technique that allowed Google to continue to jump ahead of rival exchange bids. Specifically, Google deployed a bid optimization scheme based on predictive modeling,” the lawsuit reveals. Other non-Google exchanges “cannot compete with similar bid optimization schemes because Google’s ad server restricts publishers from accessing and sharing their user IDs,” the lawsuit adds. “Truly giving up Last Look would have cost Google too much; Google predicted a 10 percent hit to DV360’s revenue and at least a 30 percent decrease in Google Ads’ revenue,” the lawsuit states.
- Google deceives publishers to disable rival exchanges in header bidding: In one case, Google told a publisher not to participate in a rival exchange because it puts a “strain on its servers.” After the exchange uncovered Google’s act, Google employees discussed playing a ‘jedi mind trick’ on the industry and ‘get[ting] publishers to come up with the idea to remove exchanges … on their own,’” the lawsuit reveals.
- Google cripples publishers’ ability to measure the success of rival exchanges
in header bidding: Starting from 2018, Google’s ad server started redacting various data fields from the records it shared with publishers, “making it nearly impossible for publishers to compare the relative performance of exchanges in header bidding with the performance of exchanges going through Google’s ad server,” the lawsuit states.
- Google sets caps for publishers using header bidding: “Google also throttles publishers’ use of header bidding by capping the number of permissible “line items”—a feature in Google’s ad server that publishers must use to receive bids from exchanges in header bidding. […] In a competitive market, an ad server would help publishers use header bidding because it will better optimize publisher yield,” the lawsuit states.
- Google’s ad server gives exchanges that forego header bidding a leg up: Google’s ad server does not share “minimum bid to win” data with exchanges in header bidding but shares it with exchanges in Google’s Open Bidding program. Using this data, exchanges in Open Bidding “adjust their bidding strategy in order to beat exchanges returning bids through header bidding,” the lawsuit alleges.
- Google excludes competition through “non-transparent pricing”: “Google’s non-transparent pricing strategy includes obfuscating the take rate that publishers and advertisers pay Google,” the lawsuit alleges. So small advertisers who use Google Ads do not know how much they for the ad space, how much goes to Google, and how much goes to the publisher. This lack of transparency allows Google to charge higher fees at points in the supply chain where there is little competition and “impedes potential and actual competitors from assessing a possible return on investment and entering the market to compete,” the lawsuit says.
Peter Schottenfels, a Google spokesman, said that the lawsuit’s claims about AMP are false and that the company’s engineers designed the framework to load webpages faster, not to harm header bidding.
Google has also expectedly denied the other allegations of the lawsuit. “This lawsuit is riddled with inaccuracies,” a Google spokesperson said.
“Just because Attorney General Paxton asserts something doesn’t make it true,” the spokesperson added. “In reality, our advertising technologies help websites and apps fund their content and enable small businesses to reach customers around the world. There is vigorous competition in online advertising, which has reduced ad tech fees, and expanded options for publishers and advertisers. We will strongly defend ourselves from his baseless claims in court.”
Google also published a blog post making detailed rebuttals to some of the claims in the lawsuit.
- Google Antitrust Lawsuit Part 1: How Online Advertising Works And How Google Dominates It
- Google Antitrust Lawsuit Part 2: How Google Unlawfully Ties Its Various Products In Online Advertising
- Google Antitrust Lawsuit Part 3: What Is Header Bidding And How Did A Secret Deal With Facebook Kill It?
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