Google's $3 Billion Dollar Acquisition of DoubleClick in 2008 cited in Landmark Lawsuit

II. NATURE OF THIS ACTION

11. The seeds for Google’s eventual march toward a monopoly in ad tech were sown in the early 2000s, when it capitalized on its well-known search engine to start a profitable search advertising business. In 2000, Google launched Google Ads (then called AdWords[2]), a tool that allowed businesses to buy advertisements that could be seen by Google search users right alongside Google’s popular search engine results. Businesses quickly learned the power of this instantaneous, highly-targeted advertising technique, and they flocked to Google Ads as a result.

12. By the early 2000s, Google realized that these same advertisers would buy digital advertisements on third-party websites as well. So Google stepped in to profit (as a middleman) on digital advertising transactions having nothing to do with Google or its search engine by creating an advertiser ad tech tool for Google Ads’ customers that wanted to buy ad space on third-party websites.

13. But Google was not satisfied with its dominance on the advertising side of the industry alone; Google devised a plan to build a moat around the emerging ad tech industry by developing a tool that would be used by website publishers as well.

14. Google sought to develop an ad tech tool called a publisher ad server that publishers would use to manage their online advertising sales. Google recognized that because publisher ad servers set the rules for how and to whom publisher advertising opportunities are sold, owning a publisher ad server was key to having visibility into, and control over, the publisher side of digital advertising. By controlling the publisher ad server on the other end of the transaction, Google could further entrench its advertiser customer base by giving advertisers access to more advertising opportunities and pushing more transactions their way.

15. Of course, by becoming the dominant player on both sides of the digital advertising industry, Google could also play both sides against the middle. It could control both the publishers with digital ad space to sell, as well as the advertisers who want to buy that space. With influence over advertising transactions end-to-end, Google realized it could become “the be-all, and end-all location for all ad serving.” The outsized influence it could obtain by having a dominant position on both sides of the industry would give Google the ability to charge supra-competitive fees and also enjoy an abiding dominance sufficient to exclude rivals from competition. Google would no longer have to compete on the merits; it could simply set the rules of the game to exclude rivals.

16. The only problem with Google’s plan was that Google’s publisher ad server failed to gain traction in the industry. So, Google pivoted to acquiring the market-leading publisher ad server from an ad tech firm called DoubleClick. In early 2008, Google closed its acquisition of DoubleClick for over $3 billion. Through the transaction, Google acquired a publisher ad server (“DoubleClick for Publishers” or “DFP”), which had a 60% market share at the time. It also acquired a nascent ad exchange (“AdX”) through which digital advertising space could be auctioned. The DoubleClick acquisition vaulted Google into a commanding position over the tools publishers use to sell advertising opportunities, complementing Google’s existing tool for advertisers, Google Ads, and set the stage for Google’s later exclusionary conduct across the ad tech industry.

17. After the DoubleClick acquisition, Google enhanced and entrenched DFP’s already-dominant market position. Google internally recognized that publisher ad servers are “sticky” products, meaning that publishers rarely switch because of the high costs and risks involved. As DoubleClick’s former CEO observed, “Nothing has such high switching costs. . . . Takes an act of God to do it.” Thus, in order to lock more publishers into DFP and to reinforce its stickiness, Google forged an exclusive link between Google Ads and DFP through the AdX ad exchange. If publishers wanted access to exclusive Google Ads’ advertising demand, they had to use Google’s publisher ad server (DFP) and ad exchange (AdX), rather than equivalent tools offered by Google’s rivals. In effect, Google positioned itself to function simultaneously as buyer, seller, and auctioneer of digital display advertising.

18. Google’s strategy paid off. This arrangement has had a profound effect on the evolution of digital advertising. First, it tilted the industry in Google’s favor, driving publishers to adopt and stay on Google’s DFP publisher ad server in order to have access to Google Ads’ advertiser demand. Second, it cut off the possibility that Google Ads’ advertiser spending could sustain, or encourage the entry of, a rival ad exchange or publisher ad server by providing critical advertising demand. For the vast majority of webpage publishers, this arrangement made DFP the only realistic publisher ad server option. Indeed, by 2015, Google estimated that DFP’s publisher ad server market share had grown to a remarkable 90%. Google’s durable monopoly over the publisher ad server market has allowed it to avoid innovation and competition by controlling the very rules by which the game is played. As a result, other publisher ad servers have left the market altogether, refocused on related markets, or faded into insignificance; no new publisher ad servers have entered the market.

19. Around the same time that Google tied its exclusive Google Ads’ advertiser demand to its publisher ad server (DFP) through AdX, Google took two additional steps to make it more difficult for rivals to compete.

20. First, Google configured Google Ads to bid on Google’s AdX ad exchange in a way that actually increased the price of advertising, to the benefit of publishers and the detriment of Google’s own advertiser customers. As one Google employee observed, Google Ads was effectively sending a “$3bn yearly check [to publishers] by overcharging our advertisers to ensure we’re strong on the pub[lisher] side.” In the short-term, this conduct locked publishers into Google’s publisher ad server by providing them a steady stream of intentionally-inflated prices for certain inventory, at the cost of Google’s own advertiser customers. But in the long run, Google’s actions harmed publishers as well by driving out rival publisher ad servers and limiting competition in the publisher ad server market. In effect, Google was robbing from Peter (the advertisers) to pay Paul (the publishers), all the while collecting a hefty transaction fee for its own privileged position in the middle. This conduct turned the entire purpose of the digital advertising industry on its head. Rather than helping to fund website publishing, Google was siphoning off advertising dollars for itself through the imposition of supra-competitive fees on its platforms. A rival publisher ad server could not compete with Google’s inflated ad prices, especially without access to Google’s captive advertiser demand from Google Ads.

21. Second, Google used its captive advertiser demand to thwart legitimate competition by giving its AdX ad exchange an advantage over other ad exchanges through a mechanism known as dynamic allocation. Dynamic allocation was a means by which Google manipulated its publisher ad server to give the Google-owned AdX (and only AdX) the opportunity to buy publisher inventory before it was offered to any other ad exchange, and often to do so at artificially low prices. Google also programmed DFP, its publisher ad server, to prevent publishers from offering preferential terms to other ad exchanges or allowing those exchanges to operate in the same way with DFP. Google knew that dynamic allocation would inevitably steer advertising transactions away from rivals, denying them critical scale needed to compete, and would advantage AdX, where Google could extract the largest fees. Google’s scheme predictably reinforced publishers’ dependence on both AdX and DFP. Publishers were effectively precluded from using rival ad servers or ad exchanges that might better suit their needs while Google was given a free pass from having to compete on the merits with those rivals.

22. By at least 2010, other ad tech companies had recognized that Google’s platforms were not working in the best interest of publishers, and they attempted to develop innovative technologies to introduce more competition. Some companies began offering “yield management” functionality that helped publishers identify on a real-time basis better prices for their inventory outside of Google’s products. Google recognized that yield managers posed a major threat to the increasingly closed system Google sought to establish, in which only its ad exchange was able to compete based on real-time pricing. So, in response, Google employed a familiar tactic: acquire, then extinguish, any competitive threat.

23. In 2011, Google acquired AdMeld, the leading yield manager, folded its functionality into Google’s existing products, and then shut down its operations with non-Google ad exchanges and advertiser tools. Google soon thereafter changed its AdX contract terms to prohibit publishers from using any other platform (such as another yield manager) that would force AdX to compete in real time with other ad exchanges. As a Google product manager wrote: “Our goal should be all or nothing – use AdX as your [exchange] or don’t get access to our [advertising] demand.” Unsurprisingly, this unabashed, anticompetitive conduct had a profound effect on the market, denying rival ad tech competitors the scale necessary to compete and depriving publishers the benefits of free market competition and real choice.

24. Not long after, in 2013, Google launched Project Bernanke, a secret scheme to manipulate the bids that Google Ads submitted into Google’s ad exchange, AdX, in order to win more competitive transactions and solidify AdX’s dominance in the industry. Project Bernanke allowed Google to suppress competition by preventing rival ad exchanges from achieving the transaction volume and scale necessary to compete. Unless another ad exchange developed both its own unique source of captive advertiser demand—where it could potentially manipulate advertiser bids—and a widely-adopted publisher ad server—where it could see the same advertising inventory and bid data as Google—competition on the same terms as Google was nearly impossible. Once again, by controlling all sides of the ad tech industry, Google has been able to manipulate the system in ways unique to itself so that, in the end, it did not have to compete on the merits for customers and volume.

25. Publishers and competing ad tech providers, increasingly wary of Google’s bullying behavior, have continued to look for new ways to circumvent Google’s dominance. Between 2012 and 2013, market participants began using a technique called “header bidding” as a partial workaround to Google’s self-preferential algorithms and ad tech restrictions. As one Google employee explained, “Publishers felt locked-in by dynamic allocation in [Google’s ad server] which only gave [Google’s ad exchange] the ability to compete, so HB [header bidding] was born.”

26. Publishers used header bidding to take back some degree of power over their own advertising transactions. They inserted header bidding computer code onto their own websites to allow non-Google advertising exchanges an opportunity to bid for advertising inventory before Google’s hard-coded preferences for its own ad exchange were triggered. Header bidding allowed publishers to ensure that multiple advertising exchanges—not just Google’s AdX— could bid on their inventory, thereby increasing the chances that they could find the best match.

27. Google has refused to tolerate this new form of competition, even though it has acknowledged in internal emails that header bidding had grown naturally out of Google’s being “unwilling[] to open our systems to the types of transactions, policies and innovations that buyers and sellers wish to transact.” Indeed, Google privately admitted that “header bidding and header wrappers are BETTER than [Google’s platforms] for buyers and sellers,” and that increased competition between AdX and publishers using header bidding would increase publisher revenues by 30 to 40%, and would provide additional transparency to advertisers. Not only would header bidding enable rival exchanges to compete more effectively against Google’s ad exchange, it might also allow them or others to enter the publisher ad server market if Google no longer had exclusive access to unique advertiser demand.

28. Google executives described header bidding as an “existential threat.” They worried that wider adoption of header bidding practices could lead to Google’s ad exchange having to compete with other ad exchanges on a level playing field, where Google could no longer set the rules in its own favor. If that were to happen, those rival ad exchanges might actually succeed in eroding, or even breaking up, Google’s advertiser juggernaut, and the entire industry could be opened up for competition. Google feared the worst: the entire moat of anticompetitive protections that Google had built around the ad tech industry could be breached.

29. Faced with this “existential” threat, Google sought to stem the rising tide toward header bidding by promoting a Google-friendly analog of header bidding that Google deceptively titled “Open Bidding.” Google has promoted Open Bidding as an answer to the industry’s call for wider participation by rival ad exchanges and increased competition. In fact, Open Bidding was a Trojan Horse that Google used to further cement its own monopoly power.

30. As a condition to using Google’s Open Bidding, Google has required that publishers and participating ad exchanges give Google visibility into each auction (including how rival exchanges bid), allow Google to extract a sizeable fee on every transaction (even where another exchange won), and limit the pool of advertisers allowed to bid in the auctions. In doing so, Google’s ad exchange has retained a guaranteed seat in every auction, regardless of whether Google’s ad exchange offers the best match between advertisers and publishers.

31. Google also sought to co-opt what it perceived to be its two biggest threats (Facebook and Amazon) into Open Bidding. In internal documents, Google concluded that while it “[c]annot avoid competing with FAN [Facebook],” it could, through a deal with Facebook, “build a moat around our demand.” Internal documents recommending a deal with Facebook revealed Google’s primary motive: “[f]or web inventory, we will move [Facebook’s] demand off of header bidding set up and further weaken the header bidding narrative in the marketplace.” Thus, for these reasons, Google ultimately agreed to provide preferential Open Bidding auction terms to Facebook in exchange for spend and pricing commitments designed to push more of Facebook’s captive advertiser spend onto Google’s platforms. Google sought to head off Amazon’s investment in header bidding technology with a similar offer, albeit without the same success.

32. Google also adjusted its auction mechanisms across its ad tech products to divert more transactions to itself and away from rivals that might deploy header bidding. On the publisher side, Google allowed AdX—and only AdX—to change its auction bid by altering Google’s own fee after seeing the price to beat from another exchange.

33. On the advertiser side, Google first considered outright blocking its advertiser buying tool from buying inventory made available via header bidding. The goal: “dry out HB [header bidding].” When Google decided that strategy would be too costly for Google, it pivoted to a different and more insidious strategy with the same effect.

34. Google recognized that “instead of stop[ping] bidding on HB [header bidding] queries, we could bid lower on HB queries,” and win the same impressions on Google’s ad exchange instead. No rival exchange was in a position to compete with this strategy because no rival had the scale necessary to compete against the industry giant, especially considering the built-in advantages that Google afforded its own ad exchange and publisher ad server. Google, and Google alone, had control over both the leading source of advertiser demand and the dominant publisher ad server. So, Google programmed its advertiser buying tool to advantage its ad exchange.

35. Google’s bidding strategy on header bidding transactions proved remarkably effective in stunting the growth of header bidding, but Google still worried that its moat was not fully secure. Google learned that some publishers were using price controls within Google’s own DFP publisher ad server to sell advertising inventory to rival exchanges outside of Google’s closed-wall system, even in instances where Google’s own AdX exchange had offered to pay more for the inventory. Publishers did so for a variety of reasons, including considerations related to ad quality, volume discounts, diversification of demand sources, data asymmetries, or other factors.

36. When Google identified this threat, it simply removed the feature from DFP and instead imposed competition-stifling Unified Pricing Rules. Under these new rules, publishers could no longer use price floors to choose rival exchanges or other buyers over AdX or Google Ads, no matter the reason. Google effectively took away their own customers’ right to choose what buyer or ad exchange best suited their needs. In doing so, Google once again bought itself a free pass on competition.

37. Google’s exclusionary, anticompetitive acts have severely weakened, if not destroyed, competition in the ad tech industry. In decision after decision, year after year, Google has repeatedly done what was necessary to vanquish competitive threats, including by enacting policies that took choices away from its own customers. And despite what Google may claim, it did not do so to protect the privacy interests of Google users. Indeed, Google intentionally exploited its massive trove of user data to further entrench its monopoly across the digital advertising industry.[3]

38. Due to Google’s conduct, ad tech tools that should have evolved to better serve website publishers and advertisers in a competitive environment have instead evolved to serve the interests of Google alone, to the detriment of Google’s own customers. The results have been catastrophic for competition. Today, major website publishers have a single viable choice for publisher ad servers—Google’s DoubleClick for Publishers. Google routes transactions from its publisher ad server to its more expensive ad exchange—AdX—and away from rival platforms, all of which are less than a quarter of AdX’s size.

39. Advertisers and publishers, the key players in this market, have had scant visibility into the scope and extent of Google’s anticompetitive conduct. As the lone conflicted representative of both buyers and sellers, Google has created a deliberately-deceptive black box where Google sets the auction rules to its own advantage. Diminished competitive pressure has reduced Google’s incentive to innovate, and Google’s control of these key ad tech tools has inhibited rivals’ ability to introduce efficiency-enhancing innovations. Publishers and advertisers suffer from reduced competition for both ad tech products and advertising inventory. Google’s conduct undermines the very purpose of digital advertising in the first place: to achieve optimum terms and pricing for digital advertisements so website publishers can continue to serve their vital purposes in society. Indeed, Google’s own documents show that Google has siphoned off thirty-five cents of each advertising dollar that flows through Google’s ad tech tools:

40. The cumulative impact of Google’s anticompetitive conduct is more than simply the sum of each harm Google has caused. As new threats have arisen, Google has spread its actions across wide-ranging ad tech products knowing the synergistic, multiplier effect that its actions would have across the industry. Because Google has such a powerful hand in each aspect of the ad tech industry, it alone has the power to use and deploy hidden levers to manipulate the overall system to its advantage.

41. It is critical to restore competition in these markets by enjoining Google’s anticompetitive practices, unwinding Google’s anticompetitive acquisitions, and imposing a remedy sufficient both to deny Google the fruits of its illegal conduct and to prevent further harm to competition in the future. Absent a court order for the necessary and appropriate relief, Google will continue to fortify its monopoly position, execute its anticompetitive strategies, and thwart the competitive process, thereby raising costs, reducing choice, and stifling innovation in this important industry.

[2] Over the period addressed by the Complaint, Google has renamed its ad tech products a number of times and has either shifted certain functions between products or combined its products in ways intended to obscure Google’s dominance across the ad tech stack.

3 At the time of the DoubleClick acquisition, Google’s privacy policies prohibited the company from combining user data obtained from its own properties, e.g., Search, Gmail, and YouTube, with data obtained from non-Google websites. But in 2016, as part of Project Narnia, Google changed that policy, combining all user data into a single user identification that proved invaluable to Google’s efforts to build and maintain its monopoly across the ad tech industry. Over time, Google used this unique trove of data to supercharge the ability of Google’s buying tools to target advertising to particular users in ways no one else in the industry could absent the acquisition of monopoly—or at least dominant—positions in adjacent markets such as Search.