Google Makes Its Google Ads’ Advertiser Demand Exclusive to Its Own Ad Exchange, AdX

IV. GOOGLE’S SCHEME TO DOMINATE THE AD TECH STACK

B. Google Uses Its Acquisitions and Position Across the Ad Tech Stack to Lock Out Rivals and Control Each Key Ad Tech Tool

1. Google Thwarts Fair Competition by Making Its Google Ads’ Advertiser Demand Exclusive to Its Own Ad Exchange, AdX

91. The DoubleClick acquisition was a first step in Google’s march to monopoly. After purchasing DoubleClick, Google restricted Google Ads’ purchasing of display inventory to sources controlled by Google (inventory owned by Google or by publishers using Google’s monetization products, including its newly acquired publisher ad server). The goal was ultimately to lock publishers into its ad exchange and publisher ad server, and block competing ad exchanges and publisher ad servers from accessing Google’s valuable pool of advertiser demand. Google implemented this restriction when it launched “AdX 2.0” on September 17, 2009. At the time, Google identified one of AdX’s two differentiators from other ad exchanges as unique “access to AdWords advertisers.”

92. Google has continued to sacrifice profits and act against the interests of its own advertisers by blocking its Google Ads’ customers from buying almost any inventory through non-Google platforms, such as rival ad exchanges and networks, even if those competitors offered more valuable inventory or the same inventory at lower prices. Google estimated that by 2017, Google Ads was forgoing $863 million per year in revenue by not purchasing inventory from rival ad exchanges and networks. But Google believed this forgone revenue was worth it in the name of advancing its growing moat and protecting its monopoly positions across the ad tech stack. Exclusive access to Google Ads’ demand compelled most publishers to adopt whichever ad tech tools Google required to effectively access that demand.

93. Google Ads’ unique and sizeable advertiser demand is what makes Google’s ad exchange unavoidable for most website publishers. Google Ads’ demand is unique both in its volume and diversity of advertisers (now with more than two million) and in its ability to attract advertisers at scale who cannot effectively use any other digital display advertising tool to purchase ads on the open web. Even for Google Ads’ advertisers who can use alternative buying tools, many of them are pushed into Google Ads in order to buy other forms of critical advertising inventory that Google makes available effectively only through its buying tools, such as portions of YouTube, Gmail, and Search ad inventory. Together, these characteristics mean that Google Ads has a significant scale advantage by controlling a unique demand group (that spends about $11.5 billion on display inventory each year).

94. Google Ads is also differentiated from other sources of advertising demand because Google’s data-targeting advantages allow it to identify inventory that is uniquely valuable to Google Ads’ advertisers. Google Ads’ targeting data is derived from a wide array of user data that Google compiles across its many market-leading or monopoly products (e.g., Chrome, Gmail, Google Search) as well as data that Google requires its publishers to share with it through a data pool called the “ICM Coop.”[10] Google Ads combines this targeting data with contextual data Google extracts while crawling publisher websites. These sources of data fuel the immense network effects that raise barriers to entry and insulate Google from competitive pressure.

95. The advertiser make-up and data advantages of Google Ads lead it to buy large swaths of inventory that otherwise would go unsold. Certain inventory is valuable only to advertisers that use Google Ads exclusively; other inventory is undervalued without the user targeting and contextual data that Google makes available only to Google Ads. Google does not simply limit access to this data to its own advertiser buying tools. It also has exercised its market power to undercut rivals’ ability to compete using the same or similar data. For example, after the DoubleClick acquisition, Google “hashed” (i.e., masked) the user identifiers that publishers previously were able to share with other ad technology providers to improve internet user identification and tracking, impeding their ability to identify the best matches between advertisers and publisher inventory in the same way that Google Ads can. Of course, any purported concern about user privacy was purely pretextual; Google was more than happy to exploit its users’ privacy when it furthered its own economic interests.[11]

96. Google recognized the power it wielded in Google Ads and used it to prop up and insulate its other ad tech products from competition. According to a 2011 internal analysis, Google found that allowing Google Ads to buy inventory on rival ad exchanges would cause serious losses to its publisher platforms (DFP and AdX) because many publishers and advertisers would prefer to transact through rival platforms. Google estimated that in such a scenario its ad exchange would lose 20 to 30% of its impressions, and its publisher ad server would lose 20% of its publishers. Later internal studies confirmed Google Ads’ stranglehold. A 2014 Google experiment found that more than half of the impressions that publishers offered on its ad exchange would go unsold without the critical Google Ads’ demand. If the Google Ads’ demand was removed from the ad exchange, Google’s publishers would experience a 65% drop in revenue because no advertisers outside of Google Ads were interested in buying the unique impressions available or able to do so in light of the auction restrictions described below. Google congratulated itself on having effectively locked out meaningful competition. At one Google strategy meeting, Google executives applauded the fact the “unique Google Display Ad demand” allowed it to justify “why we can charge 20%” fees for open auction transactions won on AdX, even on transactions that did not use Google Ads’ buying tools.

97. By preventing publishers from accessing this incredibly valuable demand through rival ad exchanges that publishers otherwise would prefer, Google distorted the way in which website publishers partner with Google’s competitors. As Google’s former head of global strategy and commercialization explained: “When [advertiser] demand can only be found through certain sources, it compels publishers to work with that product.” Because Google owns both DFP and Google Ads, and publishers needed to use DFP to access Google Ads’ demand effectively, Google had no incentive to operate DFP for its own publisher customers’ benefit in the way that DoubleClick did.

98. For Google Ads’ single-homing advertisers, Google has made it impossible for any rival ad exchanges to compete for the opportunity to link them with publisher inventory. As a result of this restraint, single-homing advertisers have more limited access to advertising inventory (less “reach”). Google recognizes that while this exclusivity locks in publishers, it harms Google Ads’ advertisers, which have no reasonable alternatives to which they can turn. As explained in one 2012 internal document, the policy amounts to a “buyside-subsidizes-sellside model” that “artificially handicap[s] our buyside (GDN [Google Ads]) to boost the attractiveness of our sellside (AdX [ad exchange]).” Later, in 2014, one Google employee complained about Google Ads’ sending Google’s publisher platforms a “$3bn yearly check by overcharging our advertisers to ensure we’re strong on the pub[lisher] side.” These complaints by Google’s own employees working on Google’s advertiser tools reflect the artificiality of the restrictions imposed on Google Ads, and make clear that the restrictions are what they seem: blatant exclusionary conduct designed to obtain and maintain monopoly power rather than efforts to build a viable, vibrant ad exchange. Deliberately overcharging its own advertisers is also clear evidence of monopoly power over the advertising side of the ad tech industry. No other competitor could engage in such conduct and expect to stay in business.

99. In response to pressure from within Google’s own ranks, including by employees managing Google Ads, and only after it shored up its market position across the ad tech stack, beginning in 2015, Google allowed limited categories of advertising demand to bid for some inventory on rival ad exchanges. This was something that Google’s engineering team had previously considered and viewed as technically possible, but which its product leadership had refused to allow. Google’s buy-side employees championed this new feature as in the interest of Google Ads’ advertisers and Google Ads itself, as a standalone product.

100. Even for the limited subset of demand that Google finally allowed Google Ads to bid on rival ad exchanges, Google disadvantaged those bids. Specifically, Google refused to allow Google Ads’ advertisers to submit bids to rival exchanges using the same bid modelling and targeting data that Google Ads used to generate bids for Google’s own ad exchange. Likewise, when submitting Google Ads’ advertisers’ bids to rival exchanges, Google submitted only the single highest bid, whereas when Google submitted the same advertisers’ bids to Google’s own ad exchange, AdX, Google submitted its two highest bids to improve the revenue payout to publishers.

101. In effect, Google systematically decreased the payout that Google Ads provided to publishers by extracting higher fees on the transactions (now ranging from 32% to 50%). In aggregate, Google understood “32% margin and no 2nd price makes [Google Ads demand] less desirable to access via a middle-man.” Once again, Google acted to preserve its own monopoly power rather than its customers’ best interests.

102. Google implemented these changes not because it was interested in helping its advertisers achieve the best return on their advertising investment; rather, by submitting two bids, Google was able to redirect sales back to AdX, ensuring AdX’s “must have” status in the industry and making it difficult for rivals to have the scale necessary to compete. In fact, Google has gone so far as to enter into non-disclosure agreements with these rival ad exchanges to prohibit them from telling publishers that even this limited form of Google Ads’ demand could be found outside of Google’s ad exchange. Google imposed these restrictions because it understood that “when our competition is able to say that they have access to [Google Ads], whether it is equal or not, our sales and marketing teams will have to be prepared for significant competitive pressure.” Rather than face that competitive pressure, Google simply restricted rival exchanges’ ability to market their capabilities to their publisher customers.

103. Google’s coupling of Google Ads’ demand to its budding ad exchange was significant in Google’s plan to dominate the market and exclude competition. Google took its existing scale advantages in Google Ads and extended those to Google’s other ad tech products, by driving more opportunities and transactions through them and away from rival marketplaces. As predicted, Google’s nascent ad exchange grew exponentially after its relaunch in 2009. In the wake of the DoubleClick acquisition and the implementation of these restrictive policies, Google’s ad exchange display revenue grew 283% in 2009 and an astounding 844% in 2010. By June 2011, Google executives boasted about becoming the “#1 player” in U.S. display advertising, a substantial jump for a company that had failed to gain traction with its own publisher ad server just five years earlier. Today, because of this exclusionary conduct, 95% of Google Ads’ spend flows through Google’s own AdX ad exchange, while less than 5% flows through rival ad exchanges. The combination of Google’s acquisitions with its anticompetitive business practices has suppressed, or altogether eliminated, the necessary growth for rivals to compete.

[9] Diagrams are provided throughout to highlight the location within the ad tech stack where the conduct predominantly occurred. They are not intended to identify all areas where the identified conduct impacted the competitive process or other market participants.

[10] The ICM Coop is not a real cooperative among website publishers. Rather, it is a data pool over which Google has sole control that publishers must participate in in order to receive competitive bids from Google Ads. Google estimated the value of this data to Google Ads was $4 billion in 2015.

[11] See supra, n. 3.