USA v. Google LLC - Part 31 - V. ANTICOMPETITIVE EFFECTS

V. ANTICOMPETITIVE EFFECTS

262. Google’s course of conduct has corrupted the competitive process by which publishers and advertisers select, and then use, pivotal ad tech tools. In doing so, Google has undermined publishers’ and advertisers’ ability to make optimal matches for advertising inventory on mutually agreeable terms. Google also has interfered in rivals’ attempts to partner successfully with Google’s publisher and advertiser customers, thereby limiting the competitive benefits that would otherwise flow from customers’ ability to effectively multi-home across competing ad tech products. Instead of fostering a competitive and innovative market, Google has wielded its market power to dictate the terms on which publishers and advertisers do business, ensuring those terms advance Google’s anticompetitive ends and bottom line rather than its customers’ best interests.

263. Google’s conduct, described above, consists of a series of interrelated and interdependent actions, which have had cumulative and synergistic anticompetitive effects, the full scope and effect of which could not be fully recognized in real time by anyone outside of Google. Google’s anticompetitive conduct includes, but is not limited to:

(1) Google’s acquisition of DoubleClick to obtain not only a dominant publisher ad server, DFP, but also a nascent ad exchange, AdX, in order to pursue its goal of dominance across the entire ad tech stack;

(2) Google’s restriction of Google Ads’ advertiser demand exclusively to AdX;

(3) Google’s restriction of effective real-time access to AdX exclusively to DFP;

(4) Google’s limitation of dynamic allocation bidding techniques exclusively to AdX;

(5) Google’s providing AdX with a “last look” auction advantage over rival exchanges;

(6) Google’s acquisition of AdMeld to stop its yield management technology from promoting multi-homing across ad exchanges;

(7) Google’s use of Project Bell, which lowered, without advertisers’ permission or knowledge, bids to publishers who dared partner with Google’s competitors;

(8) Google’s deployment of sell-side Dynamic Revenue Share to manipulate auction bids—without publishers’ knowledge—to advantage AdX;

(9) Google’s use of Project Poirot to thwart the competitive threat of header bidding by secretly and artificially manipulating DV360’s advertiser bids on rival ad exchanges using header bidding in order to ensure transactions were won by Google’s AdX; and

(10) Google’s veiled introduction of so-called Unified Pricing Rules that took away publishers’ power to transact with rival ad exchanges at preferred prices.

264. Google’s anticompetitive scheme spans nearly two decades and continues to the present. Moreover, the flywheel effects of even the earliest conduct are lasting, enabling and amplifying the impact of subsequent conduct, and setting in motion Google’s march to an everincreasingly dominant position across the ad tech industry that persists today. Google has distorted the competitive market forces that would otherwise determine prices and output and would incentivize innovation, efficiency, customer choice, and control. Google’s conduct has preserved Google’s dominant market positions at all levels of the ad tech stack and allowed Google to siphon away a supra-competitive portion of advertiser dollars before they can reach website publishers.

265. Collectively, by hamstringing rivals’ abilities to compete on the merits, Google’s conduct has stifled innovation and limited publisher and advertiser choice. Google’s conduct has harmed internet users as well. Fewer advertising dollars reach website publishers—because of higher ad tech fees and less efficient advertising matches—meaning those publishers have fewer resources to create content for internet users. These harmful effects are not just historical; rather, Google’s anticompetitive conduct continues to affect the marketplace on an ongoing basis.

266. Higher Prices and Higher Margins for Google. The overarching goal of much of Google’s conduct has been to force as many transactions as possible (especially high-value transactions) to flow through its own ad tech products, with Google taking a cut of the advertising spend at each step of the way. The focal point of Google’s monetization strategy has been its ad exchange, where it charges its highest revenue share fees: consistently around 20% for open auction transactions since 2009, while its rivals charged only a fraction of that amount. Google’s documents admit that ad exchange technology largely became commoditized years ago, and but for Google’s ability to build and defend a moat around its ad tech products, competition would have driven prices down for most transactions by as much as 75%, especially where that same advertising demand is otherwise available on rival ad exchanges. Instead, Google has succeeded in defending its supra-competitive prices for all transactions flowing through its ad exchange without ceding—and indeed growing—its market share even today.

267. The revenue share fees Google charges come directly out of advertisers’ advertising budgets and ultimately out of website publishers’ bottom-line revenues. This means that advertisers are able to buy fewer ad impressions at the prices at which publishers are willing to sell, less advertiser spend makes it to the publishers that internet users rely upon to generate and disseminate important content, and ultimately fewer publishers are able to offer internet users content for free (without subscriptions, paywalls, or alternative forms of monetization).

268. Scale, Flywheel Effects, and Diminished Multi-Homing. Google’s strategy to shift additional transactions to its ad exchange and inhibit the ability of publishers and advertisers to transact effectively through rivals was not merely to charge supra-competitive fees. Google was also concerned that too many transactions flowing through alternative pipes—other ad technology platforms—could allow rivals to gain scale and challenge Google’s competitive moat. The growth of alternative ad tech tools posed a risk of increased competition via more effective multi-homing, leading to pressure to reduce prices and increase choice and quality for publishers and advertisers.

269. Scale plays a critical role in a company’s ability to offer a competitive ad tech platform at a low price and high quality. Scale would bestow many advantages on Google’s potential competitors. These include indirect network and feedback effects to attract more advertisers and publishers, more data to improve the efficiency of their transactions, and the opportunity to spread their fixed costs over a larger number of transactions. Google’s conduct had the purpose and effect of depriving rivals of sufficient scale to meaningfully compete in the ad exchange, publisher ad server, and advertiser ad network demand markets. Even for conduct Google ostensibly has discontinued, the effects are persistent and ongoing. Scale builds on itself and is self-reinforcing. Google’s conduct denying scale to rivals has had a lasting impact that continues to affect today’s marketplace.

270. Google has accomplished this objective in a number of ways. Collectively, Google’s conduct has allowed its ad exchange to win more impressions by providing it with more opportunities to win transactions on preferential terms, initially through programs like dynamic allocation and later through the implementation of Project Poirot and Google’s socalled Unified Pricing Rules. By using Google’s control of the publisher ad server to give its ad exchange preferential access to publisher inventory, Google has been, and continues to be, able to drive up rival ad exchanges’ and advertiser ad networks’ costs; impede publishers’ attempts to identify high-quality, real-time matches through those ad exchanges and networks; limit the ability of ad exchanges to win transactions at sufficient scale; and diminish rival ad exchanges’ ability to attract publishers and advertisers to their platforms.

271. Rival ad exchanges have incurred costs to process and respond to each bid request from a publisher, but have been unable to effectively compete on the same terms as Google’s ad exchange to win the impression. Because ad exchanges are compensated only on transactions they win, an ad exchange’s win rate is critical to the long-term financial viability of the ad exchange and its ability to innovate.

272. Moreover, strong network effects operate in the publisher ad server, ad exchange, and advertiser ad network demand markets, which are driven largely by scale. Due to indirect network effects, both advertisers and publishers are attracted to ad exchanges with more parties on the other side. A rival ad exchange that has less scale due to Google’s anticompetitive conduct is less able to attract and maintain additional publishers and advertisers; it swims against the strong current of indirect market effects that benefit Google’s larger ad exchange. Similarly, for an advertiser ad network to rival Google Ads’ dominance, it must be able to benefit from network effects and have sufficient access to publisher inventory at scale. A competing advertiser ad network would additionally benefit from the associated contextual and user targeting data that provide a competitive advantage. Google’s actions inhibiting rival ad networks from accessing inventory on the terms that publishers prefer has the effect of impeding competition. The result in both cases is a feedback loop that continues to inhibit the growth of rivals while preserving Google’s dominant positions.

273. Additionally, Google’s conduct has succeeded in locking publishers into Google’s publisher ad server. Google’s restrictions have rendered its publisher ad server the only viable means to obtain meaningful access to the unique, sizeable Google Ads’ advertising demand available almost exclusively on Google’s ad exchange, as well as the other advertising demand Google made preferentially available there. Because publishers must as a practical matter singlehome with one publisher ad server, this exclusivity essentially compelled publishers to use Google’s publisher ad server and inhibited rivals from entering or remaining in the market. As a result, a potential competitor to Google’s publisher ad server would need to enter both the publisher ad server and the ad exchange market, both at scale, in order to compete. Only a rival ad exchange operating at scale together with a publisher ad server would likely attract publishers to switch away from Google’s highly restrictive publisher ad server. Google perceived that header bidding posed an existential threat to its publisher ad server monopoly because header bidding could allow a potential rival to generate sufficient scale in the ad exchange market and, subsequently, enter the publisher ad server market (or facilitate the entry of a new publisher ad server). Google quashed that threat and deprived its rivals of the ability to gain such scale via header bidding or other innovations.

274. Lack of Choice and Control for Publishers and Advertisers Alike. Google’s anticompetitive conduct has narrowed publishers’ and advertisers’ choices about how to do business with one another in several ways. Dynamic allocation prevented publishers from effectively offering their inventory on the same terms—or any terms of their choosing—through multiple ad exchanges. Through the Unified Pricing Rules, Google disabled the function in its publisher ad server that previously allowed publishers to specify the terms on which they wished to transact with ad exchanges and other sources of advertising demand. And unbeknownst to advertisers, Project Poirot surreptitiously discounted their advertising spend on the ad exchanges they selected and directed that spend toward Google’s ad exchange instead.

275. More broadly, Google’s march to monopoly in the publisher ad server market has left publishers today with basically no choice when selecting a publisher ad server. And because the publisher ad server determines how publisher ad inventory is awarded to an advertiser, publishers have no choice but to acquiesce to Google’s will as to how that process should work. Competition no longer constrains Google’s ability to write the rules in its favor.

277. Less Innovation. Competitive pressure drives innovation, as competitors are incentivized to develop new ways to outperform one another to attract customers. The lack of any meaningful competition for publisher ad servers has severely dampened innovation in that market. Reflecting on Google’s dominant sell-side market position, Google executives noted the weakness that Google “often play[s] fast follow vs first movers.” A more competitive market would have fostered greater innovation. For instance, if not for Google’s acquisition of AdMeld and subsequent deprecation of its yield optimization technology, real-time bidding among ad exchanges may have become available to publishers several years before the advent of header bidding, and well before Open Bidding. Similarly, had Google not had a monopoly of the publisher ad server market, a rival publisher ad server may have introduced a tool for server-side real-time bidding among ad exchanges similar to Open Bidding. Instead, the industry was forced to rely on header bidding, which, although useful, is limited because it serves as a partial workaround that was not integrated into a publisher ad server. Moreover, rival ad exchanges have been limited in their ability to introduce any innovation that requires the cooperation of a publisher ad server, even where such cooperation would improve both products. In the absence of serious competitive pressure, Google has a diminished incentive to improve its publisher ad server or ad exchange products.

278. The United States is among the advertisers harmed by Google’s anticompetitive conduct. United States departments and agencies, including ones in this district such as the Army, purchase open web display advertising using Google and non-Google ad tech tools. Since 2019, the United States has purchased in excess of $100 million in open web display advertising. The United States has incurred monetary damages as a result of Google’s anticompetitive conduct by virtue of the supra-competitive fees, manipulated advertising prices, and lower quality advertising matches described above.