By Jessica Zand
From purchasing to selling ads, Google is involved in every step of the online ad process. In most cases, Google is the only option for advertisers and publishers that want to attract a large consumer base. Antitrust enforcers and advertisers are starting to ask, has Google become too powerful?
Discussions regarding the effect of market dominance on competition began over a century ago. The 1911 antitrust lawsuit against Standard Oil resulted in the dissolution of America's largest company on the grounds of anti-competitiveness. At the time, John D. Rockefeller had built one of the world’s largest companies by buying out smaller oil refineries and partnering with railroad companies to receive lower shipping rates.
The breakup of large, anti-competitive companies was perceived as the purpose of antitrust until the 1960s, where, due to the emergence of Robert Bork’s Antitrust Paradox, courts shifted from favoring small companies with little market share to favoring what Bork called “consumer welfare”. Per Bork, legal rulings had been decreasing competition in American markets by artificially supporting small business, raising prices, and decreasing the welfare of consumers. Over time, Bork’s idea that anticompetitive rulings should seek to maximize consumer welfare became the new standard.
Generally, when employing the consumer welfare standard, the court considers whether the challenged practices result in lower output, higher prices, and decreased product quality and innovation for consumers. Regarding Google and the advertising market, the consumers are advertisers which use Google’s tools and rely on Google for ad space. To assess whether Google is decreasing its advertiser’s welfare, it is important to understand Google’s advertising platform and to break down Google's role in each standard: output, prices, product quality, and innovation.
Google’s power as a mass broker of digital ad sales stems from its 2008 purchase of DoubleClick, a company that developed and provided online ad serving services. Essentially, DoubleClick allows advertisers to provide targeted ads to their viewers. Targeting is possible through Google’s Adsense service. Adsense collects and pools user information from many publishers into “segments”. Advertisers then select which segments they would like Google’s DoubleClick to provide ads to. Advertisers often utilize multiple ad spaces, from Google Search, Google Display (Gmail, YouTube, Google Finance), to individual websites in order to ensure that ads are placed in prime viewing spots.
Ad space, whether a banner on a website or on Google Search, is put up for sale either through Google’s Ad Network or Ad Exchange. An Ad Network enables advertisers to directly purchase ad space from Google (that is from all partnered publishers) while an Ad Exchange enables advertisers to bid on ad space from specific publishers and/or groups of publishers.
The exchange processes auctions every minute between advertisers who want to purchase ad space and publishers who are selling ad space; the highest bidding advertiser with the highest quality ads (quality score determined by Google) sees its ad placed. Ad space is first offered to advertisers who historically bid the highest prices. However, if the exchange’s highest bid was lower than the publisher's minimum price, then the second-best advertisers (that is, those who offer the second-highest prices) are offered a chance to bid for ad space, known as waterfalling.
The waterfall process for selling ad space allows publishers to capitalize on revenue opportunities as advertisers are initiated down the line, one after another. Google’s Ad Exchange participates in its own ad server as well, allowing their Ad Exchange to bid before a waterfall has taken place. Other ad exchanges, not including Google, compete for ad space in header bidding, which is where different ad exchanges compete for publisher ad space. The winner of the header auction goes up against Google’s Ad Exchange. Essentially, no matter who bids the highest, whether an advertiser or an ad exchange, Google can choose to outbid them outside of normal auctioning times.
Output
In 2014, Google stated that access to its Ad Exchange must be purchased with DoubleClick Bid Manager, Google’s demand-side buying platform (DSP). Demand-side buying platforms are software that allow advertisers to manage ad space from multiple ad exchanges. This decision prevents advertisers who want to access Google’s market share of advertising space from using competing DSPs.
Competing DSPs have distinct advantages, specifically when it comes to targeting capabilities. For example, AppNexus, a competing DSP, offers IP Targeting to its consumers, which allows advertisers to define their intended audience before the exchange, and deliver online display ads to all devices connected to a Wi-Fi network (ie; seeing the same ads on a mobile device and computer). This serves to enhance ad viewership, resulting in a high return on investment for advertisers that use this service.
Google’s DSP targets their audiences using demographics, which is more expensive, time-consuming, and often omits customers that fall outside of average demographics when compared to IP Targeting. Since it is very costly to use multiple DSPs, advertisers who used AppNexus’s DSP or competing DSPs must decide if access to Google’s Ad Exchange is worth dropping their favored DSP.
Considering Google’s massive market reach, it is reasonable to assume that advertisers will be bound to using DoubleClick Bid Manager. Thus, by preventing advertisers from using different technology partners’ services in conjunction with Google’s services, there are fewer tools available for the advertisers.
Pricing
Google is one of the largest purchasers of their own search ads and often bids against its consumers for ad space in its own exchange. A Wall Street Journal analysis found that Google’s ads appeared in the top spots for 91% of searches for an advertised product. Due to the fact that Google can bid on ad space before the waterfall process (before other advertisers with lower willingness to pay get the opportunity to bid for space), Google can outbid other advertisers. It is important to note that most advertisers prefer to use multiple exchanges in order to find the lowest price for ad space. By requiring that advertisers use Google’s Ad Exchange, and by outbidding its advertisers and not participating in header bidding, Google raises the price of ads for its consumers.
However, in an effort to not raise prices for its consumers, Google excludes its own bids when configuring the prices of other non-Google ads. Google claims that its Ad Exchange is set up so that advertisers that compete in the auction against Google’s house ads pay as if the house ads were not participating. However, Google’s house ads ultimately cause advertisers to pay more by limiting the number of ad spots, forcing advertisers to compete for fewer, more expensive slots.
Quality and innovation
One might suggest that if an advertiser is unhappy with Google’s ability to outbid advertisers that use its Ad Exchange and surpass the chain of demand for ad space (bidding before waterfalling), then the advertiser should use a different ad exchange. However, the reality is that Google reaches over 90% of internet users worldwide. Newscorp, a long time critic of Google’s advertising practices, considered switching its ad-serving business over to Google’s competitor, AppNexus.
However, the company felt it would risk losing 40-60% of the advertising demand it received from Google’s ad marketplaces, and ultimately decided to stick with Google. For example, YouTube, Google’s streaming service, is the most popular platform for digital advertising, reaching over 2 billion logged-in users every month. No other digital ad-server can even compare to YouTube’s user reach; Vimeo, YouTube’s top competitor, reaches 170 million users. Although advertisers must use Google’s ad exchange and DSP to buy ad space on YouTube, YouTube offers non-skippable video ads, display ads, and overlay ads, ensuring that advertisers will maximize ad viewership. In addition, YouTube offers audience guarantees to advertisers, promising to air ads across its channels until a certain percentage of the advertisers’ target audience is reached. This service is unique to YouTube and allows advertisers to plan ad budgets and obtain access to quality programming.
However, even if Google’s market dominance resulted in increased pricing and decreased output, Google’s effect on its consumers must be compared to its alternatives. In legal terms, this Less Restrictive Alternative (LRA) must result in an option that is not only less restrictive but equally or more effective. Only alternatives that afford equal or more profits to the defendant provide a legitimate alternative. Although Google does not violate all aspects of consumer welfare, there are several alternatives that raise consumer welfare and increase competition in the advertising industry.
One option to raise consumer welfare, championed by Elizabeth Warren, is to unmerge Google and DoubleClick. If Google were to no longer own DoubleClick, all advertisers would have equal opportunity to acquire ad space. Google’s Ad Exchange would also not be able to place bids before waterfalling occurs, meaning that Google would participate in header bidding, eliminating the advantage Google has in placing its own ads.
Another option to raise consumer welfare would be to separate Google’s Ad Exchange and Google’s DSP (DoubleClick Bid Manager), allowing advertisers to use third-party DSPs like AppNexus. The ability to use third-party DSPs and still bid for Google’s ad space would increase advertisers’ welfare by allowing them to use a combination of the best buying tools and ad exchange for their company. Also, advertisers would experience an increase in output (have more buying tools available to them) of DSP services to buy inventory and process data, making the DSP market more competitive.
Google’s status as the dominant search and advertising technology company is not, in and of itself, a violation of antitrust law. However, Google’s packaging of services, from ad auctions to the ad space, decreases competition and raises prices. In the United States, courts have largely viewed Google’s practices as competitive, in sharp contrast with European regulators which fined Google in 2013 and 2019 for violating antitrust policies relating to search practices tied to advertising. The U.S. Justice Department’s inaction brings into question the relevance of American antitrust policies. Are antitrust policies created to rein in the monopolies of the industrial age effective today? Or, more specifically, are antitrust policies adequately applied to tech giants? In the case of Google, the answer to both questions is “no”.