US v. Google: Why Scale and the Resulting Network Effects are Necessaryby@legalpdf

US v. Google: Why Scale and the Resulting Network Effects are Necessary

by Legal PDFSeptember 11th, 2023
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The ability of an ad tech product to achieve scale of buyers, quality of impressions, and depth of data targeting is important to its long-term success:

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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 7 of 44.


D. Why Scale and the Resulting Network Effects are Necessary to Compete in Ad Tech

66. Scale is a critical factor in the long-term success of each of the key products that comprise the ad tech stack. Scale and related network effects are cumulative; they reinforce market power for incumbents and raise barriers to entry and competition for nascent and smaller rivals. There are at least three important dimensions of scale at play in online digital display advertising.

67. First, scale in ad tech means having a significant number and variety of publishers or advertisers using a particular ad tech product. For example, an ad exchange that has significant scale enjoys large numbers and varied types of (i) publisher advertising inventory, on the one hand; and (ii) advertisers that bid through the ad exchange, on the other hand. This scale is key to attracting both publishers and advertisers to the ad exchange because ad exchanges are characterized by strong network effects (meaning that the value of an ad exchange to its users increases as more users adopt the tool). An ad exchange with access to more inventory— especially more sought-after inventory—will be more attractive to advertisers. Likewise, an ad exchange with more advertisers—and more unique advertisers—will be more attractive to publishers. This aspect of scale plays out in similar but less pronounced ways for publisher ad servers. For example, larger and more valuable inventory justify an ad exchange incurring the cost to integrate with a particular ad server. Publisher ad servers are also relatively more expensive to build and relatively less expensive to run, so a larger publisher base allows the publisher ad server to spread the fixed costs over more publishers. With respect to advertising buying tools, more advertisers and more overall advertising spend will attract publishers to a particular tool. Moreover, to the extent that an advertiser buying tool has access to data from a related sell-side product, the advertiser buying tool can gain unique targeting abilities.

68. Second, scale includes the number and quality of impressions that publishers have offered for bidding through the ad tech product, the number of bids advertisers have made, and the number of transactions that have been completed—as well as the associated revenue for those transactions. The more business the ad tech provider has done, the more data that provider has, and the greater the ability the provider has to increase the value of its services. For example, an ad tech provider that is able to see a larger swath of advertising inventory made available for auction will have greater insights into the universe of inventory available, and can adjust—or suggest adjustments to—its customer’s bidding behavior accordingly. Additionally, an ad tech provider that is able to see at scale who ultimately buys or bids on inventory and at what prices can create bidding strategies that can be used to predict more accurately future auctions for similar inventory. For example, the ability to observe the depth and distribution of bids for different advertising inventory can provide valuable data on how demand might change based on price and other factors. In addition, data concerning advertisers’ buying strategies, and how all of this information changes over time, is incredibly useful. Without access to this type of inventory, bidding, and transaction information at scale, an ad tech provider is less able to offer a competitive ad tech tool to publishers or advertisers.

69. Third, scale includes the depth of targeting data that an ad tech product has available and can use to identify the most valuable matches between particular pieces of publisher inventory and advertisers. This aspect of scale in the ad tech ecosystem is influenced both by an ad tech provider’s access to relevant targeting data from seeing and winning more digital advertising transactions (which can provide important information on an internet user’s characteristics and behavior) as well as from other parts of its business (e.g., Google’s access to website contextual data and detailed user profiles on its customers using Search, Chrome, Android, or Gmail).

70. The ability of an ad tech product to achieve scale along these dimensions is important to its long-term success. For an ad exchange, increasing publisher inventory and advertiser demand, understanding the likely bid landscape based on prior consummated transactions, and having access to detailed user targeting and contextual data all increase the ad exchange’s chances of being the supplier of the advertiser bid ultimately selected by the publisher ad server. This is key because ad exchanges only collect a revenue share on winning bids—even though the ad exchange incurs costs (for personnel, equipment, and processing power) for every bid request and response, whether won or lost. An ad exchange lacking sufficient access to these various dimensions of scale may not be able to compete effectively, innovate, or even operate.

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This court case 1:23-cv-00108 retrieved on September 8, 2023, from 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.