]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