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Google Works Against the Interests of Its Customers By Submitting Two Bids into AdX Auctionsby@legalpdf
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Google Works Against the Interests of Its Customers By Submitting Two Bids into AdX Auctions

by Legal PDFSeptember 27th, 2023
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2 bids will always beat 1 bid!

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USA v. Google LLC Court Filing, retrieved on January 24, 2023 is part of HackerNoon’s Legal PDF Series. You can jump to any part in this filing here. This is part 16 of 44.

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


4. Google’s Dominance Across the Ad Tech Stack Gives It the Unique Ability to Manipulate Auctions to Protect Its Position, Hinder Rivals, and Work Against Its Own Customers’ Interests


a) Google Works Against the Interests of Its Google Ads’ Customers By Submitting Two Bids Into AdX Auctions


129. Google Ads determines how to bid on behalf of its advertisers using price and budget maximums decided by the advertiser. For each piece of available inventory, Google Ads runs an internal auction of Google Ads’ advertisers, based on an algorithm that considers eligible advertisers’ specified maximum cost-per-click prices, Google’s predictions of the likelihood of a user clicking an ad, and a number of other factors. These bids are then converted into a cost-perimpression (“CPM”) bid, which, until 2013, Google then adjusted downward to ensure Google Ads would charge an expected 14% take rate on each impression—in addition to the 20% take rate charged by Google’s ad exchange. If Google Ads then won the impression—and the user ultimately clicked on the ad—the Google Ads’ advertiser would pay the amount paid for the impression plus Google’s fee.


130. Until late 2019, AdX operated what was known as a second-price auction. In a second-price auction, the advertiser with the highest bid wins the right to display its ad on the publisher website. The winning advertiser, however, only pays one cent more than the price of the second-highest bid, and gets to keep the difference between the two as an “auction discount.” If the advertiser is the only bidder, then it must pay only the minimum price the publisher agreed to accept, known as the price floor.


131. Because of this auction dynamic, advertiser buying tools have an incentive to submit only one bid into an ad exchange’s auction. If an advertiser buying tool submits two bids into a second-price auction, the higher bid might win the auction while the lower bid sets the price; without the second bid, the inventory might have been sold to the winning advertiser at a lower cost (possibly even at the floor price set by the publisher). In essence, the second bid into the auction only serves to drive the final auction price upwards, while conveying no real increased chance of winning.


132. To avoid driving up the cost of advertising, non-Google advertiser buying tools only submitted a single bid into AdX auctions. But Google took a different approach for Google Ads and, unknown to advertisers, submitted two bids from Google Ads’ advertisers into the AdX auction. This was contrary to the interests of Google Ads’ advertisers—who benefited when Google Ads paid less for impressions resulting in clicks—but furthered Google’s goal of locking publishers into its ad exchange and publisher ad server. These higher payouts for publishers on Google’s platforms were a key part of Google’s overall strategy to prevent new publisher ad servers from entering the market and to increase the stickiness of Google’s own publisher ad server by raising publishers’ switching costs. The strategy allowed Google to extract additional margins across the ad tech stack through the two-tiered auction structure described above. A publisher that left Google’s platform not only lost access to all of the unique advertiser demand available only on Google Ads, but also lost access to an advertising buying tool willing to overcharge its advertisers to benefit its publishers.


133. Google generally did not disclose to Google Ads’ advertisers the fees that Google extracted from their ad purchases. Even when it did publicly disclose average fees from the perspective of the revenue received by publishers, it did not disclose that those fees came on top of advertising prices that were inflated by virtue of Google Ads’ bidding practices. This obscured the total “take rate” Google was keeping for itself, making it difficult for advertisers to compare Google Ads to any potential competitor.


134. Google’s internal analyses confirm the purpose and effect of Google Ads’ doublebid policy. A 2013 study found that Google Ads submitted the top two bids in 85% of the auctions it won, meaning its bids set the price in the vast majority of auctions it won. Because Google Ads did not face meaningful competition for its advertising customers, however, this statistic did not lead Google to reduce its advertisers’ bids or otherwise adjust its bidding strategy. Rather, the study confirmed Google’s understanding that it had full control and pricing power over a unique pool of advertiser demand that was often interested in inventory other advertisers did not or could not value in the same way. As Google itself acknowledged, Google Ads had “no margin or inventory sourcing constraints” so it was able to “establish[] processes to tune margins in the backend,” outside auctions. As usual, what mattered most was Google’s own dominance, not its customers’ best interests.


135. Years later, little had changed when Google revisited the question of what would happen if Google Ads submitted only one bid into the AdX auction.[14] The answer: the 30 to 40% boost in publisher revenue from Google’s two-bid strategy would disappear. Strikingly, the same analysis showed that if Google Ads submitted only one bid on AdX—and thereby was able to buy inventory at lower prices—its profits on Google Ads would increase by an astonishing 50% in the short run.



136. But Google simply could not risk a change that weakened its ability to keep publishers locked into its publisher ad server and ad exchange. The loss of inflated publisher revenues on Google’s platform might finally make a rival publisher ad server an attractive alternative and threaten Google’s monopoly. If publishers switched, Google would lose control over the ad selection process and be forced to interoperate with those rival products for inventory.




[14] On the limited occasions where Google Ads bids on inventory on third-party exchanges, it submits only one bid.



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This court case 1:23-cv-00108 retrieved on September 8, 2023, from justice.gov is part of the public domain. The court-created documents are works of the federal government, and under copyright law, are automatically placed in the public domain and may be shared without legal restriction.