]The State of Texas and fifteen other states plus Puerto Rico have filed a suit against Google for antitrust abuses in the online ad market. Late last week, the Southern District of New York unsealed the complaint, which at this point is the third amended complaint. We’ve embedded the document at the end of the post.
As we’ll discuss, the complaint paints a damning picture of how Google has monopolized all of the critical informational choke points in the online ad business between publishers and advertisers; as one employee put it, it’s as if Google owned a bank and the New York Stock Exchange, only more so.
Google shamelessly engages in fraud; in fact, the abuses are so bad that one wonders why the attorneys general are not separately pursuing those charges. Let us crib from the Wall Street Journal’s summary of one of Google’s scams:
The newly unredacted details provide more information about a series of programs that Google ran named Project Bernanke, Reserve Price Optimization and Dynamic Revenue Share. The Bernanke program has been previously reported on, but the newly unredacted complaint reveals that it had three versions between 2010 and 2019.
In the first version, Google misled publishers and advertisers to believe they were participating in a “second-price auction,” where the winner pays the price of the second-highest bid, when using its advertising exchange, AdX, according to allegations from the complaint. However, under Google’s Bernanke program, AdX would at times knock out the second-highest bid, allowing the third-highest bid to win, thus depriving the publisher of revenue, according to the complaint. At the same time, Google would charge advertisers the price of the second-highest bid and pocket the difference, the complaint said.
Google pooled the advertisers’ overpayments and used the money to manipulate auctions on its systems, at times boosting bids from advertisers bidding through its ad-buying tools to ensure it would win an auction it otherwise wouldn’t have, the complaint said.
Another explanation of Project Bernanke:
The extra $9 between the two bids, Google put into a “pool” that it would use to secretly raise the bids by advertisers using its tools to ensure they would always win out over advertisers using non-Google tools. pic.twitter.com/gE5O8Yvvbv
— Leah AntiTrustButVer1fy Nylen ? (@leah_nylen) January 14, 2022
Mind you, I am not able to judge the merits of this suit, since antitrust enforcement has become so weak and precedents have also shifted to favor the big boys. One of the usual ways to successfully muddy the waters in an antitrust suit is to argue over the definition of the relevant market, as in to argue that the competitive space is bigger and the evil prospective monopolist doesn’t have a dominant share if you define its market “properly”. Platform Law set the context upon the release of an earlier version of this complaint, unredacted in late October:
The original complaint filed in December 2020, echoes the findings of numerous competition authorities, including the UK Competition and Markets Authority, the French Autorité de la concurrence, and the Australian Competition and Consumer Commission (more on this later), all of which have found that Google has used its market power across the ad tech supply chain to engage in a variety of leveraging tactics that have distorted competition. In the meantime, the US Department of Justice is reportedly preparing to file its own lawsuit against Google, while the European Commission is also probing the latter over its ad tech practices.
By way of reminder, ever since its acquisition of DoubleClick, Google has become the largest ad tech vendor across each step of the value chain, with market shares as high as 90-100%, while also a major publisher itself (selling inventory on its owned and operated properties like YouTube). While most of this was more or less known, the Texas complaint made headlines for claiming that when faced with the prospect of Facebook supporting a disruptive technology known as Header Bidding, which Google viewed as an “existential threat,” Google struck a deal with Facebook. According to the so-called Jedi Blue agreement, Facebook would curtail its Header Bidding initiatives in return for special privileges when bidding in Google’s auctions.
While originally a significant portion in the complaint was redacted, we now have access to the full lawsuit thanks to the order of the US District Court. Most of the previously redacted passages are (rather juicy) quotes from internal Google and Facebook documents, as well as information on Google’s fees. As such, the unredacted complaint does not include anything new in terms of the claims made against Google, or the theories of harm advanced by the US States. Even so, the unredacted lawsuit shows that these theories of harm are supported by a fairly wide range of damning internal documents. Internal evidence is important, as it makes it much harder for the target of the complaint to raise arguments that are directly contradicted by its own views as expressed internally in tempore non suspecto.
You need only to read the section headers of the filing to get the essence of the argument. For instance:
The enumeration of bad acts goes from A to H. This is only A to C:
AdExchanger describes the sordid revelations in the October and January unsealings of complaints:
In October, a judge in New York unsealed the suit, which revealed quite a few juicy details, including Google’s AdX take rate (which is between double to quadruple its nearest competitors), Google’s penchant for purposely slowing the load times of non-AMP ads and more info on Jedi Blue, the secret program to partner with Facebook as part of an effort to kill header bidding…
The new complaint also claims that Google CEO Sundar Pichai and Facebook (fine! Meta) CEO Mark Zuckerberg approved the 2018 Jedi Blue pact whereby Facebook agreed not to create its own header bidding product in exchange for Google giving Facebook information as well as speed and other advantages in auctions.
The rise of header bidding around 2015 was a big threat to Google because it gave rival exchanges the ability to compete with Google on a more equal footing.
The previously unredacted suit references an email sent by an unnamed Google executive who wrote that header bidding had the potential to lower Google’s profit margins to around 5% from 20%, thereby threatening Google’s ability to justify its fees.
Google then allegedly hatched a plan to squash header bidding by striking partnerships and developing software to protect its position, including Open Bidding, which allowed publishers to route their inventory to multiple exchanges at the same time.
The purpose of the overall “Jedi” program, so named because Google was playing a “Jedi mind trick” on the industry, was to get publishers to stop using header bidding on their own.
Platform Law saw Google’s conduct with header bidding as one of its biggest areas of vulnerability, along with the ad exchange issues discussed above (where the new complaint presented more dirt) and its hypocrisy about privacy. On header bidding:
Indeed, if there is a common theme running across the various internal documents cited in the unredacted lawsuit, this is the inconsistency, or even stark contradiction, between Google’s public position on a variety of issues and the views of its own employees and executives…
While publicly stating that it did not see Header Bidding as a “threat” to its business, internal documents show that Google viewed Header Bidding as nothing short of an “existential threat.” By way of background, Header Bidding was invented by publishers and rival ad tech vendors in reaction to Google’s favoritism towards its own ad exchange, which costed publishers real money, as internally admitted by Google employees. As Header Bidding rose to prominence, Google employees discussed in October 2016 “options for mitigating growth of header bidding infrastructure.” When one Google employee proposed the “nuclear option” of reducing Google exchange fees down to zero, another responded that the problem with competing on price is that it simply “doesn’t kill HB [header bidding].” In response, Google developed its own Header Bidding-like solution now called Open Bidding (code-named “Jedi”), whose success it measured not by financial targets or output increases, but by how much it stopped publishers from using header bidding. However, one senior Google employee commented that Jedi “generates suboptimal yields for publishers and serious risks of negative media coverage if exposed externally.”
Meanwhile, Google was alert to the risk of large entrants supporting Header Bidding…. In response to Facebook signalling its support for Header Bidding, a Google executive impressed in a company deck the “Need to fight off the existential threat posed by Header Bidding and FAN. This is my personal #1 priority. If we do nothing else, this need[s] to [be] an all hand[s] on deck approach.”
Google eventually invited Facebook to the negotiating table. According to the lawsuit Google promised Facebook a series of advantages when bidding on Open Bidding (where Google would still retain control and charge rivals a fee), in return for Facebook curtailing its Header Bidding initiatives. These special terms included speed advantages and assistance in identifying users (which is crucial for online ad auctions). In an internal document Google memorialized that “FAN requires special deal terms, but it is worth it to cement our value.” (Meanwhile, in its web support manager Google states that all auction participants compete “equally”). Any doubt as to the understanding of Google and Facebook when entering into the Jedi Blue agreement (signed by top executives Philipp Schindler of Google and Sheryl Sandberg of Facebook), is dispelled by the internal evidence cited in the complaint. In internal communications, Facebook executives noted that “They [Google] want this deal to kill header bidding.”
Honestly, I am not surprised. Online ads are a cesspool and make gig economy platforms look good. When Uber is caught out cheating by showing drivers a lower gross fare than what passengers actually paid, it goes “Mumble mumble” and narrowly corrects the bad practice. By contrast, as a small publisher, I have no way of verifying anything my ad service tells me because I have no audit rights. I have no idea how much they are skimming on top of what I’ve agreed to pay them.
So I’d love this areas to be cleaned up but I am not holding my breath.
00 20220114_195_0_States Third Amended Complaint
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There is so much sound about reigning in “Big Tech”, and this seems like a slam dunk issue that can not only be used for criminal prosecution (how does this not represent stealing?) but to further legislative and anti-trust efforts spurred at breaking these companies up. I’m not holding my breath either, because these large entrenched companies provide excellent high paying jobs for former high ranking officials. Feel free to make a fuss in the media, but only fines please.
Fines?! Don’t need no stinking fines! We need bars!! (The kind where there’s no alcohol.)
> . . . unnamed Google executive who wrote that header bidding had the potential to lower Google’s profit margins to around 5% from 20%, thereby threatening Google’s ability to justify its fees.
. . . it’s stawk price, engineer/coder fat salaries, and a whole cascading chain of digital parasites making a fat living off of one digital scam after another.
The cultural effects of this were huge. In the 2000s pre-financial crisis, there a thousand flowers blooming in online publishing, then advertising rates crashed and never came back even after the crisis, preventing many independent media sites from being born and helping to kill newspapers.
Meanwhile, “YouTubers” started getting rich instead of independent publishers, until those ad rates crashed too in the 2010s…the Invisible Hand of Google.
The face of google is the engineering prowess and culture, but the inner workings reflect something entirely different.
Do harm.
Advertising creates no wealth, it just transfers money. There’s a case to be made for the value of marketing. But, Google does little of that.
It’s a scummy business model which makes for scummy companies. No surprises here except that more ads aren’t blocked and people still browse with javascript turned on.
I’m not sure how you can unequivocally say advertising doesn’t create wealth. If I don’t know about something that will improve my life, and find out about it through advertising–that is real increased value to me and the producer whom I purchase it from. That’s the definition of wealth.
Granted, much of advertising these days isn’t actually for things that increase the quality of your life. It’s one scam after another like “ask your doctor about Vioxx”
I took the comment as being it doesn’t create any intrinsic wealth
Couldn’t creative and truthful public service communication replace the “skeezy” motive of commercial advertising in improving your life (wealth)?
The signal-to-noise ratio in ads is too low for them to provide any real benefit. In theory there are ads for items you’d be better off having, in reality finding those few ads among all the junk takes too long to be cost effective.
As practiced by google, it destroys wealth.
Lots of small websites make/made money from advertising, and rely on it to pay their expenses. They have very little choice in how they do this: Google is the 600 lb gorilla in the market. If google is then skimming off most of the revenue from that, the websites are accordingly cheated.
As if anything will be done about it. The USA is an oligarchy with corporations such as Google knowing they call the shots in terms of legislation, political power and prosecutions for criminal offences such as the fraud revealed here. If by some miracle Google is convicted and fined, the amount would be derisory. Alphabet Google’s profits are so gigantic and the taxes it pays so miniscule that such a fine would be a fleabite.
Will the Madoff exception to that rule apply, that is, if you rip off other wealthy people, all bets are off?
Of course does the rule apply when you’re as wealthy as Google?
Hopefully, the “fleabite” would carry the anti-trust version of bubonic plague.
When Google was trying to develop self driving cars, I thought they should change their motto to “Don’t YOU do evil — leave the driving to us.”
Yes, the true Google legacy is See No Evil.
so….
project bernanke because it steals from the poor and gives to the rich via manipulation of bids?
silly con valley is a miasma of cynicism and greed
Instead of interest rates, it’s ad rates…
Power corrupts eh? I recently had an old Google account request a date of birth saying it was required “by law.” (??). I can’t see how “the law” has much interest in my birth date but obviously it’s of prime interest to advertisers. Of course Google gives consumers free stuff in exchange for the snooping. But now that Google and the others have put themselves in the censorship and manipulated search business they have flipped the switch from maybe not evil to evil. And with antitrust allegations they have an interest in sweetening the USG (or at least many in Congress) by censoring alternative information. I’ve never bought into the notion that Google was a MIC operation from the getgo. Now?…
They may be referring to COPPA (“Children’s Online Privacy Protection Act”), which requires some sites to establish their users are over 13 years old.
Actually that did occur to me but I’m not sure how filling out a web box “establishes” anything. Maybe there’s a law against lying to Google.
I think that the elephant in this room is that the online advertisement infrastructure is largely fraudulent, with a significant portion of advertising dollars go to fraud. The invaluable Ad Contrarian estimates it to be on the order of 97% of the money goes to items other than delivering a real eyeball.
While his number is high, there is no doubt that fraud is pervasive and central to the business models of online advertisers. It is yet another case of the law of phishing equilibrium, which states that, “If fraud can happen, it will already have happened.”
That’s Bob Hoffman right ? I get his weekly missive, he’s brilliant.
I wish that he also did distribution via RSS.
I used to work in online advertising. I now work for a casino. At least the casino is upfront about how gambling works. Online advertising is scummy as hell. The dirty secret is that outside of google adwords and Facebook campaigns, most marketing is just showing you ads for sites you’ve already been to, tying to be the last person to show you a banner ad before you buy something so they get credit for it.
Do no evil. For we don’t have to _do_ to be evil, we _are_ evil. *)
*) oh, and just to be safe, go redirect all searches for evil.
What’s shocking to me is that despite Google having access to reams of personal data on internet users, they are really bad at targeting ads. I am constantly barraged by Google and YouTube ads that are completely irrelevant to me like midi files, weight loss products, and women’s clothes. They are totally ripping off their advertisers by poor targeting.
Gregorio – For a while I was getting feminine hygiene product ads in Spanish.
I don’t speak Spanish and have never accessed a Spanish language web site. I also would assume my name indicates I’m not female. (Maybe Google is so “woke” they don’t assume gender based on first names. /s)
Same here. I am deep in the heart of Tucson, yet I keep getting pummeled with ads for a real estate agency that specializes in a well-to-do suburb that is north of our fair city.
Yup. Like I have one or two mill to drop on a wigwam in Oro Valley.
OTOH, I am quite adept at clicking on that “Skip Ad” button.
Yves – Your embed code doesn’t seem to be working. I see the string instead of the document.
This has to be an issue on your end. I see it in Safari, Firefox, and Chrome, and for the latter two, I am not logged in as a site admin, I am a third-party user.
I’m later checking back, but I do see it now.
The link to the complaint is broken.
So let me get this right, Google is probably largely responsible for:
1. Publishers get reduced revenue from ads on their sites
2. Publishers add TONS more and intrusive ads to their sites to try to salvage revenue streams
3. Users use ad blocker to remove ads
4. Publishers add paywalls to sites
5. Users go to “free” sites where opinion is king, the more radical and rage-provoking the better
Great. Just great.
You forgot
6. Small businesses are priced out of online ads and
7. They have no alternative to turn to except for local newspapers/ add papers
8. They pay Google and get poorer or have to repercute the add prices on their customers
9. Google doesn’t pay taxes so everybody gets poorer, and Google gets richer (yep the targeting sucks in mysterious ways)
I do not mind paying to access an article but not when the website only offers a yearly subscription
I don’t believe it. When this happened, their motto was still “Don’t be evil”.
ROFL.
It didn’t “happen.” Google DID it.
It’s been 3 decades or more since a senior executive and lobbyist told me ( In a very condescending tone)
that monopolies increase competition.
I’m sure that a goodly percentage of congresscritters would agree with that statement.
“In the first version, Google misled publishers and advertisers to believe they were participating in a “second-price auction,” where the winner pays the price of the second-highest bid, when using its advertising exchange, AdX, according to allegations from the complaint. However, under Google’s Bernanke program, AdX would at times knock out the second-highest bid, allowing the third-highest bid to win, thus depriving the publisher of revenue, according to the complaint. At the same time, Google would charge advertisers the price of the second-highest bid and pocket the difference, the complaint said.
Google pooled the advertisers’ overpayments and used the money to manipulate auctions on its systems, at times boosting bids from advertisers bidding through its ad-buying tools to ensure it would win an auction it otherwise wouldn’t have, the complaint said.”
The Three-Card Monte dealer on the streets has more ethics.
You missed the proper punctuation:
Don’t. Be evil.
Why not?
We live in unregulated society yet all our fiction requires self regulation for some(<99%)
Nope. Google was telling people to not be evil because they knew from the start that being evil pays.
This will go nowhere. Giggle has so much information (porn search history, private affairs via gmail, search histories ….. ) on people in justice departments, congress and regulators {are there regulators now a days?}. After 6 – 10 years of litigation, hearings, and headlines, there will be a few fines.