Google's Quiet Dominance Over The 'Ad Tech' Industry
Opinion 2/26/2015 @ 6:00AM
Google's Quiet Dominance Over The 'Ad Tech' Industry
Guest post written by Allen Grunes
Mr. Grunes, a former attorney with the Department of Justice’s Antitrust Division, is cofounder of the Data Competition Institute.
A few months ago, display advertising on the Internet mysteriously vanished for more than an hour. On more than 55,000 websites such as BuzzFeed and Forbes, spaces that usually display advertisements went blank. It turned out that Google’s behemoth online advertising platform, DoubleClick, was to blame. The DoubleClick ad server had crashed, disrupting the entire infrastructure by which advertisers buy billions of dollars of ads across millions of websites.
Think about it: In an era of global competition, one company’s network crash broke the Internet.
The crash was a stark reminder of how an established player like Google has quietly achieved dominance over the so-called “ad tech” industry, the multi-billion dollar economic backbone that supports the vast majority of “free” content and services online.
The exponential growth of the Internet over the past decade is the direct result of advertising that enables Internet publishers to monetize their content. Ad tech makes this possible by helping companies track, serve and measure the effectiveness of ads online. Without a healthy, competitive ad tech industry, much of the free online content we use every day would go behind paywalls or disappear altogether.
Google’s efforts to dominate ad tech and squeeze out competitors is bringing that potentially ominous future closer to reality.
Piece by piece, Google has assembled a dominant position at each critical juncture in the complex ad tech infrastructure. Google imposes restrictions on publishers and advertisers alike to force them into committing exclusively to Google’s end-to-end ad tech pipeline, making it more difficult for smaller companies to retain their footing or for new innovative companies to enter. Industry observers warned the Federal Trade Commission about this prospect several years ago, and the agency vowed to keep a close watch. But the FTC has failed to rein in Google’s aggressive behavior, at least so far.
Internet advertising has exploded in recent years, driven primarily by technologies that allow advertisers to target ads precisely and in real-time to specific groups (e.g., 30-year old men in Massachusetts driving Toyotas) regardless of what sites members of those groups are visiting.
It used to be that advertisers connected directly with online “content publishers,” a catch-all phrase for any website that has space to sell advertising. Those publishers would decide what ads to buy and what audiences to reach, much like advertisers directly call a particular newspaper to place an ad. Now, advertisers bid to have their ads served to particular users or in response to specific keywords, with ad tech companies playing match-maker between publishers and advertisers. Winning advertisers’ ads are then served on content publishers’ websites, videos or apps, and advertisers review and optimize their campaigns based on data received from their ad tech tools. All of this takes place within a few milliseconds.
Broadly, there are six critical ad tech markets, each of which is essential to the functioning of this type of real-time advertising: Ad Networks, Ad Exchanges, Demand-Side Platforms (DSP), Supply-Side Platforms (SSP), Ad Servers and Analytics Platforms. The details of each are a subject for a longer, in-depth look at how the ad-tech market works, but suffice to say that Google is now the largest and/or dominant player in each. Google is the world’s leading analytic platform and controls some of the leading ad networks: AdSense, Google Display Network and AdMob. Google’s DoubleClick is the largest ad exchange in the market. To round it out, Google’s DoubleClick Bid Manager is the largest DSP.
When the FTC closed its investigation of Google’s acquisition of DoubleClick in 2007, it vowed to monitor Google’s behavior in the affected ad tech markets, saying: “We want to be clear, however, that we will closely watch these markets and, should Google engage in unlawful tying or other anticompetitive conduct, the Commission intends to act quickly.” Since then, widespread concerns have been raised about Google’s engagement in a range of exclusionary conduct, including the very same tying that the FTC had said it would move quickly to address.
Google now locks in publishers and advertisers at both ends. It ties services that advertisers or publishers do not want to those that they need, pressuring them to use Google-only services all the way up and down the pipeline. For example, Google ties its dominant ad exchange to its publisher ad-serving tools, and it pressures advertisers to use its DSP to buy ads on its exchange.
Another example of Google’s brazen conduct is its new “enhanced dynamic allocation” feature, which gives Google’s own exchange a “first look” at the advertising opportunities spit out by its dominant DoubleClick ad server. Google tells publishers that dynamic allocation is a “risk-free way” to “maximize revenue” by comparing bids on the DoubleClick with other exchanges. In truth, Google compares other exchanges’ average bids with the highest bids on its own exchange. Through this sleight of hand, Google steers publishers into its own exchanges, maximizing its profits at publisher expense.
Google also blocks competitors by requiring exclusive agreements and preventing cross-platform interoperability. Publishers are barred from using third-party tools to manage their data or to maximize revenue by comparing bids on different exchanges. The result is that publishers commit their inventory exclusively to Google rather than incur the additional expense of “multi-homing.”
The FTC vowed to police Google’s behavior in the booming “ad tech” industry. They need to live up to their commitments and start taking action.