Google Manipulates Its Publisher Fees Using Dynamic Revenue Sharing (learn more here)

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

D. Google Responds to the Threat of Header Bidding by Further Excluding Rivals and Reinforcing Its Dominance

2. Google Blunts Header Bidding By “Drying Out” the Competition

c) Google Manipulates Its Publisher Fees Using Dynamic Revenue Sharing in Order to Route More Transactions Through Its Ad Exchange and Deny Scale to Rival Ad Exchanges Using Header Bidding

198. Emboldened by its success in manipulating advertiser fees under Project Bernanke, Google implemented a similar program for the ad exchange fees it charged publishers. The goal was the same: push more high-value transactions through the Google ad exchange and away from rival ad exchanges, including those engaged in header bidding. Google did not simply lower its publisher fees across the board to compete aggressively on the merits. Rather, Google again used the competitive data it alone obtained through its publisher ad server monopoly to adjust its fees—and in turn its ad exchange’s bids—in a manner calculated to increase the number of competitive transactions won by Google’s ad exchange, while preserving Google’s margins and increasing Google’s revenues and profits. In doing so, Google again was able to cherry-pick the most valuable transactions out of the hands of rival ad exchanges, further sabotaging their ability to build scale and compete effectively, all without compromising Google’s rich bottom line because Google deftly made up the difference in its take rate on other, less valuable, transactions.

199. Google called this program sell-side dynamic revenue share. It altered the standard 20% ad exchange fee (revenue share) charged to publishers (sell-side) on an impression-by-impression basis (dynamic). At a high-level, the program doubled down on the benefits Google afforded its ad exchange through dynamic allocation. With dynamic allocation, Google’s ad exchange already had the ability to see and use the competing price of its competitors before bidding, while rivals were forced to compete in the equivalent of a blind, sealed-bid auction. Advertisers on Google’s ad exchange were able to observe the rival ad exchange’s offer price and bid accordingly. Google’s ad exchange also used the rival ad exchange’s price as a floor, only charging the winning advertiser on Google’s ad exchange more when other advertisers on the exchange also had higher bids.

200. Dynamic revenue share created an additional advantage for Google’s ad exchange: after Google’s ad exchange ran its auction, Google could adjust the winning bid up or down—by as much as 20%—to beat the price offered by a rival ad exchange. This ensured Google’s ad exchange won even more transactions at a cost equal to or only slightly above the highest bid of Google’s ad exchange rivals, recouping any discount of ad exchange fees by raising the fees it charged on other less competitive transactions. Only by virtue of Google’s control of the dominant publisher ad server and the advantages that ad server afforded Google’s ad exchange, such as last look, could Google implement such an anticompetitive program.

201. Since its launch in 2009, Google’s AdX ad exchange has consistently charged nearly all publishers a 20% revenue share fee for all “open auction” transactions—auctions not limited to a small set of buyers—on its ad exchange. This means that for transactions on Google’s ad exchange, Google could withhold 20% of what the advertiser buying tool paid before passing the balance to the publisher (on top of any fee Google charges advertisers using its advertiser buying tools). Beginning in 2014, Google changed the way it applied AdX’s fee. Instead of taking a 20% cut on every individual transaction, Google allowed its take rate to fluctuate across transactions with the goal of averaging a 20% fee for each publisher over the course of the month, which continues today.

202. Google implemented the sell-side dynamic revenue share program with the competitive data it was able to obtain through its publisher ad server monopoly. Through dynamic allocation, buyers on Google’s ad exchange, including Google Ads, were able to see the highest rival bid before competing. After running its own internal auction, Google’s ad exchange compared its highest bid to the highest rival bid, which set the price floor of the Google ad exchange auction. When comparing bids, Google considered the “net bid” to the publisher, i.e., the amount the publisher would receive after all ad exchange fees were deducted. If Google’s ad exchange would have lost a transaction because Google’s ad exchange fee brought its net bid below the rival bid, Google could adjust its fee for that impression to win the transaction. Depending on the rival bid and the publisher at issue, Google could reduce its ad exchange fee to 0%, essentially boosting its ad exchange’s bid by 20%. If no rival ad exchange’s bid was competitive, Google’s ad exchange charged the full 20% fee, or more.

203. Because Google’s publisher ad server provided its ad exchange—and only its ad exchange—the ability to effectively open the sealed bids of its rivals before bidding and adjust its bid accordingly, only Google’s ad exchange could win more transactions this way without substantial decreases in margins. All other ad exchanges had to compete based either on static average prices in the waterfall or bid for impressions via header bidding without any information on competitors’ bids. Because of the way dynamic allocation operated, rival ad exchanges were disincentivized from lowering their own ad exchange fees to boost their bids. If they did so, they were not particularly more likely to win additional transactions. Instead, Google’s ad exchange could still swoop in afterwards and win the transaction by matching the rival ad exchange’s bid. By contrast, Google could adjust its ad exchange fee (1) only when necessary and (2) by the exact amount needed, given its privileged position in the publisher ad server space.

204. Google later went a step further, allowing its revenue share fee to go negative for some transactions (i.e., subsidizing its advertisers’ bids), as it had with Project Bernanke. Google offset these subsidized transactions by charging more than a 20% ad exchange fee on transactions where there were no competitive bids from rivals.

205. The program, which continues today, substantially improved Google’s position while further depriving other ad exchanges of scale. With the launch of the initial version of the program, Google saw an increase of more than 11% in the number of transactions flowing through its ad exchange, providing an additional $105 million in annual revenue to Google, almost entirely at the expense of rival ad exchanges. The more aggressive version of the program launched in 2016 resulted in an estimated increase of almost 5% in Google’s ad exchange profits while reducing the amount of advertiser dollars that were ultimately paid to publishers.

206. Google did not allow publishers to make an informed choice about whether to provide Google’s ad exchange with these advantages. Rather, Google pushed through sell-side dynamic revenue share in the same way as many of its other programs: it imposed the changes on publishers by default with virtually no transparency for publishers or advertisers into what Google was doing. Even when one large publisher asked for an explanation, its Google client representative declined to provide any details, indicating the change likely would have little to no impact on the publisher.

207. Of course, Google did not disclose that the program further stacked the deck in favor of Google’s ad exchange or that it was designed to further concentrate high-value transactions on Google’s platforms at the expense of competition by rival ad exchanges.