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Summary: US senators propose bill to break up Google, Facebook ad businesses

US Senators introduced a new bill to that could force Google and Facebook to break up their lucrative digital advertising businesses.

“Companies like Google and Facebook have been able to exploit their unprecedented troves of detailed user data to obtain vice grip-like control over digital advertising, amassing power on every side of the market and using it to block competition and take advantage of their customers. The conflicts of interest are so glaring that one Google employee described Google’s ad business as being like ‘if Goldman or Citibank owned the NYSE.’ This lack of competition in digital advertising means that monopoly rents are being imposed upon every website that is ad-supported and every company—small, medium, or large—that relies on internet advertising to grow its business,” US Senator Mike Lee remarked while introducing the Competition and Transparency in Digital Advertising (CTDA) Act on May 19 along with Senators Amy Klobuchar, Ted Cruz, and Richard Blumenthal (D-CT).

The proposed bipartisan bill could force Google and Facebook to break up their lucrative digital advertising businesses as it bans large companies from running more than one portion of the digital advertising ecosystem. Additionally, the bill has a list of obligations for medium and large-sized digital advertising businesses that aim to increase competition by forcing ad businesses to be transparent about their workings.

In India, Google is subject to multiple investigations by the Competition Commission of India (CCI) concerning its new aggregation practices, Play Store, Android TV, and Android OS, and its digital ad business could soon be on the cards as regulators around the world are taking a closer look into it.

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How does the digital advertising market work?

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To understand what the bill aims to do, it is necessary to understand the various components of digital advertising:

  1. Ad servers/sell-side brokerage: The inventory management software that helps publishers sell their ad inventory. Publishers are websites with ad spaces such as news websites and blogs. The bill defines this component as buy-side brokerage.
  2. Ad buying tools/buy-side brokerage: The software that advertisers (brands) use to buy ad spaces from publishers. The bill defines this component as sell-side brokerage.
  3. Digital advertising exchange: The electronic marketplaces where buyers and sellers of ad spaces are matched. Buyers (advertisers) are represented by their ad-buying tool whereas sellers (publishers) are represented by their ad server.

Source: Competition and Transparency in Digital Advertising Act support document

For more on how the digital advertising market works, read our in-depth explainer here.

What is currently wrong with the digital advertising market?

The major competition concern with the digital adverting market is that Google dominates every part of the ad tech stack: buy-side, sell-side, and the exchange. Facebook comes second. For example, Google’s Ad Manager is used by 90% of large publishers and in 2018 it served 75% of all online display ad impressions, a support document released by Senator Lee’s office claims.

According to the support document, examples of anticompetitive conduct Google is alleged to engage in include:

  • Giving its own ad services information and speed advantages over competitors
  • Steering bids to its own services to the detriment of its customers and competitors
  • Using information about its competitors’ trading activity to give its own properties an advantage
  • Coercing publishers to license Google’s ad server
  • Using its control over publisher ad serving to block competition from other ad exchanges
  • Manipulating auctions to exclude competition from competing ad services
  • Hiding anticompetitive behaviour behind opaque and non-transparent practices
  • Using its control over the ad stack to punish publishers and competitors that try to develop new
    competitive alternatives to circumvent Google’s abuse

For more in-depth coverage on the competition concerns, check out our four-part series of the Texas-led antitrust lawsuit against Google’s ad business, which appears to be the basis of much of this bill.

Prohibition from owning multiple components of digital advertising

According to the proposed bill, no company with more than $20 billion (will be adjusted according to inflation every year) in digital advertising revenue during the previous calendar year may:

  1. own a digital advertising exchange if the company owns either a sell-side brokerage or a buy-side brokerage, or is a seller of digital advertising space
  2. own a sell-side brokerage if that person owns a buy-side brokerage
  3. own a buy-side brokerage or a sell-side brokerage if that person is also a buyer or seller of digital advertising space

If a company meets the above criteria, it must submit a plan for divestiture to the Attorney General.

Requirements for all medium and large digital advertising companies

Any company with more than $5 billion in digital advertising revenue during the previous calendar year will be subject to the following requirements:

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  1. Act in best interests of customers: A buy-side brokerage or sell-side brokerage should use reasonable diligence, care, and skill to act in the best interests of their customers, and may not put their own interests ahead of those of their customers.
  2. Seek most favourable terms for the customers: A buy-side brokerage or sell-side brokerage should seek the most favourable terms reasonably available under the circumstances for each order transaction of the brokerage customer.
  3. Be transparent to customers: Upon written request from a customer, the company should supply to that customer, within a reasonable time, information sufficient to allow the customer to verify compliance of the brokerage with its obligations listed above. The information sought can include:
    • In case of sell-side broker and customer:
      • a unique and persistent identifier that identifies each unique digital advertising space for sale
      • for each identifier described, all bids received, and, for each bid received, the bid submitted to the digital advertising exchange on behalf of the buy-side brokerage customer, the winning price, the uniform resource locator or other property identifiers at the lowest level of granularity, the identity of the digital advertising exchange or other digital advertising venue returning the bid, date, time that the bid response was received in microseconds or a lower level of granularity, web domain associated with the advertising creative, the advertising creative size and format, and whether the bid won the seller’s impression
      • the nature of any data collected or derived from the brokerage customer or any user or customer of the brokerage customer, and the ways in which that data is used by the sell-side brokerage
      • the order or bid routing practices or processes, including any material exceptions to the standard practice of the brokerage
      • the source and nature of any compensation paid or received in connection with transactions
    • In case of buy-side broker and customer:
      • all bids won by the buy-side brokerage customer, and for each bid won, the maximum allowed bid of the advertiser, if any, the uniform resource locator or other property identifiers at the lowest level of granularity, date, the digital advertising exchange, the web domain associated with the advertising creative, the advertising creative size and format, the winning price, the bid submitted to the digital advertising exchange on behalf of the buy-side brokerage customer, and, if possible, whether the ad served and whether the ad rendered
      • the order or bid routing practices or processes
      • the source and nature of any compensation paid or received in connection with a transaction
  4. Maintain privacy: When providing information to a customer on any of the above grounds, the brokerage should, to the greatest extent possible, anonymise, hash, or otherwise render the information incapable of being tied to an individual web user. The customer, on the other hand, may not use the information received for any purpose other than verifying the compliance of a brokerage to the obligation set forth above.
  5. Separate different components of the business from each other: For companies that fall below the $20 billion revenue threshold and own multiple components of the digital advertising business, they must ensure that their buy-side brokerage, sell-side brokerage, digital advertising exchange, and role as a buyer or seller of digital advertising, operate separate and independent from one another and transact business at arm’s length. The companies must establish and enforce written policies and procedures to this effect.
  6. Provide fair access as an exchange: A digital advertising exchange should provide every buyer and seller in the exchange fair access, including with respect to operations of the exchange, co-location, any technology systems or data, information related to transactions, services, or products offered, exchange processes, and functionality.
  7. Publish quarterly reports on routing practices: Every sell-side brokerage and buy-side brokerage should make publicly available for each quarter a report on the order routing practices of the sell-side brokerage or buy-side brokerage for digital advertisements during that quarter broken down by calendar month and retain these reports online for a 3-year period. Furthermore, these reports must be in a format that is readily informative to the average brokerage customer and must contain detail on the top venues to which the total bid requests or bid responses were routed for execution.
  8. Synchronise system clocks with NIST: A digital advertising exchange, buy-side brokerage, or sell-side brokerage must synchronize and maintain its business clocks at a minimum to within a 2 milliseconds tolerance of the time maintained by the atomic clock of the National Institute of Standards and Technology (NIST).
  9. Customer owns the data: All records pertaining to an order submitted by a brokerage customer, and the subsequent result of that order, shall remain the property of that customer unless the information is otherwise publicly available.
  10. Certification: A digital advertising exchange, buy-side brokerage, or sell-side brokerage should certify to the Attorney General on an annual basis that the digital advertising exchange has complied with the requirements of the Act.

These restrictions and requirements mirror those imposed on electronic trading in the financial sector, the support document stated.

How will the Act be enforced?

  1. Legal challenges by Attorney General and State attorneys general: The Attorney General and State attorneys general may file legal challenges for injunction or damages on behalf of US persons who have suffered as a result of any violation of this Act. For a legal challenge brought forth by the attorney general, the court may decide to award simple interest on actual damages that will be deposited in a fund called the Antitrust Consumer Damages Fund. This fund will be available to the Attorney General for distribution to persons in the United States harmed by the violation of the Sherman Act.
  2. Legal challenges by affected individuals: A brokerage customer harmed by a digital advertising business with more than $20 billion in digital advertising revenue in the previous year may bring a civil action in an appropriate court to obtain injunctive relief and recover damages.

The proposed law will hurt users: Google

In a comment to The Verge, Google spokesperson Julie Tarallo McAlister said the proposed law would ultimately hurt users:

“Advertising tools from Google and many competitors help American websites and apps fund their content, help businesses grow, and help protect users from privacy risks and misleading ads. Breaking those tools would hurt publishers and advertisers, lower ad quality, and create new privacy risks. And, at a time of heightened inflation, it would handicap small businesses looking for easy and effective ways to grow online.”

Criticisms of the bill

    • Bad bill, based on a faulty premise: “Not only is this bad policy, but it is based on the faulty premise that advertising markets are analogous to securities markets,” University of Chicago Law Professor M. Todd Henderson wrote in The Wall Street Journal. Henderson explained that Google and others revolutionised the digital advertising market by bringing countless benefits for both sellers (more revenue) and buyers of ads (lower prices). Introducing this legislation would take us back to a less efficient time, Henderson remarked.
    • Could significantly disrupt the online ad ecosystem: The legislation could “significantly disrupt the online ad ecosystem” for ad buyers and ad sellers, Daniel Castro, vice president of the Information Technology and Innovation Foundation, told TechTarget. “There’s so much efficiency right now in online ad buying compared to where it started 20 years ago. It’s so much different and that’s because of integration.”
    • New overhead costs for smaller businesses: “Breaking apart a behemoth could allow other participants to grow — but now, all the smaller players will have to cope with stringent transparency rules. Transparency is good for publishers & advertisers, but it will create significant new overhead for SSPs (supply-side platforms) and DSPs (demand-side platforms),” Trey Titone writes for AdTechExplained.
    • Ambiguity in definitions could affect smaller businesses: Titone also points out that the definitions of digital advertising exchange, sell-side brokerage, and buy-side brokerage are broad and might preclude many small businesses from offering their services and products. “The digital advertising industry would stand to gain by breaking up the most significant player in ad tech since their competitive advantage of seeing every side of an ad transaction could cause revenue to flow to other sources. But these rules could effectively cap the size of ad tech businesses that play on the supply and demand side,” Titone wrote.
    • Google and Facebook do not have a monopoly: Neither Google nor Facebook has a monopoly in digital advertising and many businesses use more than one platform in their digital marketing strategies, the Competitive Enterprise Institute said in an article titled Eleven Lousy Tech Legislation from the 117th Congress. The article goes on to list many other flaws with the proposed legislation.

This post is released under a CC-BY-SA 4.0 license. Please feel free to republish on your site, with attribution and a link. Adaptation and rewriting, though allowed, should be true to the original.

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