When the internet first emerged as the world’s primary form of communication roughly three decades ago, it transformed advertising by offering advertisers unprecedented reach and insights into consumer behaviour.
A set of web-based tools that assisted in placing advertisements on webpages so that online publishers could profit from their content and advertisers could sell their products and services propelled the explosive growth of digital advertising. About 20 years later, a garage-based business called Google would be labeled an abusive monopolist and make the majority of its $1.8 trillion fortune thanks to this technology.
Today, Google’s technology to connect online advertisers and publishers has been found to have violated antitrust law by a US federal court. The 115-page order by US District Judge Leonie Brinkema in Virginia published on Thursday, April 17, is a lot to take in.
Why it matters
The landmark ruling against Google’s digital ad network was delivered in an antitrust lawsuit filed by the US Department of Justice (DOJ) in 2023. The DOJ had sought to break up the tech giant’s sprawling ad empire, starting with its Ad Manager product.
It adds to the mounting pressure on Google as its core search business is also in danger of being dismantled. In August last year, the Alphabet-owned company was found guilty by another US federal court of having an illegal monopoly in the search engine market.
But because it goes after Google’s primary source of income, Thursday’s decision deals the business a more serious blow. The decision will undoubtedly have a significant impact on the online advertising sector as well. Some contend that the company’s adtech stack integration has been essential in generating efficiencies, while others think the decision may result in a free and more competitive market.
“Forced divestiture remedies are ineffective tools that might not accomplish the intended goals. Customers would perceive a more significant impact from better legislation, such as that which is more advanced in Europe, that safeguards consumer rights and improves big tech’s accountability for its influence and content. Senior Director Damian Rollison of Market Insights, SoCi (a marketing
“The antitrust ruling points to an emerging and problematic trend of regulators losing sight of the surpluses created by platforms,” Meghna Bal, Director of Esya Centre, a tech policy think tank based in Delhi, told IndianExpress.com.
The majority of stakeholders may suffer if we lose sight of the synergies between market participants and major platforms, since our research constantly demonstrates that platforms generate value for users on both sides of various digital markets. India needs to consider the big picture and constantly be mindful of the possible drawbacks of using antitrust to upend established market norms, the speaker stated.
How online advertising works
Three main ad tech tools are used to show display adverts to internet users: ad servers, ad markets such as networks and exchanges, and ad buying tools.
Ad servers facilitate the sale of ad spaces to advertisers by publishers, including blogs and news websites, either directly (via agreements with major advertisers), indirectly (through ad exchanges), or both.
The origins of Google’s top ad server technology, DoubliClick For Publishers (DFP), may be traced back to the internet giant’s $3 billion purchase of Double Click in 2008. The DOJ claimed in its case that this acquisition assisted Google in preventing competitors like Microsoft and Yahoo from gaining sell-side control.
The company’s 2011 acquisition of AdMeld, which created a platform to help publishers select which ad networks and ad marketplaces to deal with based on supply, demand, and pricing data, further enhanced its sell-side products. Google’s adtech tools now include its network yield management features.
In essence, ad purchasing solutions enable marketers to purchase the display ad spaces that publishers are offering for sale. Demand-side platforms (DSPs), a particular kind of ad buying technology used by major brands like Ford and Nike, provide more intricate trading and bidding options but come with hefty minimum monthly expenditure commitments. DoubleClick Bid Manager (DBM) or DV360 are the names of Google’s DSP.
Lastly, display ad buyers (advertisers) and sellers (publishers) are connected through ad marketplaces. Ad networks and ad exchanges are the two categories of ad markets. To rank and choose the top bids from advertisers to send to a publisher’s ad server, ad exchanges conduct real-time auctions. Conversely, ad networks combine ad slots from several publishers and subsequently offer them for sale to advertisers.
Google Ad Manager (GAM) provides access to AdX, the company’s ad exchange marketplace. Google Ads (previously AdWords) is the company’s advertiser-facing ad network, while Google Ad Sense is its publisher-facing ad network.
Together, these ad tech stack products display advertisers’ advertising on publishers’ websites. An ad server sends a bid request to an ad exchange when a user visits a website. The bid request contains information about the website impressions, user attributes, pricing, and the time frame for the exchange’s response.
All of the buy-side bids via the ad buying tool are evaluated by the ad exchange, which then shares the highest bids with the ad server. In accordance with pricing, target user characteristics, impressions, and other regulations, the ad server chooses the winning bid.
In addition to taking place in a few seconds, this complete bidding procedure happens billions of times daily throughout the Internet.
Google’s monopoly power in the ad server market
The court ruled that Google’s DFP ad server tool had a “predominant share of the market that is protected by high barriers both to entry and expansion.” “This conclusion is reinforced by evidence that Google has acted to degrade DFP’s features without fear that its customers would switch to alternative publisher ad servers,” the order read.
Over the past ten years, DFP has benefited from a market share of 84 to 90 percent in the ad server market, according to Google’s own estimates. The court observed that there were significant switching costs associated with Google’s ad server technology.
Even when Google makes modifications to its adtech tool that publishers disagree with, including reducing the functionality of DFP by taking away publishers’ option to establish a higher price floor on its ad exchange AdX, publishers hardly ever switch ad servers because there are not any significant alternatives to DFP.
The court stated that “the substantial obstacles to achieving scale in a market dominated by Google caused even Meta to abandon its project to build a publisher ad server.”
Google’s monopoly power in the ad exchange market
The court determined that substantial hurdles to entry resulting from Google’s scale and network effects throughout the display ad ecosystem have strengthened its market power in the ad exchange market. Google receives a 20 percent commission on transactions made through its ad exchange in accordance with the order.
The order stated, “AdX’s customers have not left, and AdX has not lost market share, despite Google never lowering its overall 20% take rate and continuing to reject discount requests.”
“The steadiness with which Google has charged a 20 percent fee in a rapidly maturing market involving transactions with minimal variable costs, the repeated recognition by Google employees that the services AdX provided were no longer worth 20 percent of publisher revenue, and the strong evidence that customers were unable to switch from AdX even when other ad exchanges lowered their prices all support the finding that AdX charged supracompetitive prices,” the court said in response to Google’s claim that it set these prices prior to having monopoly power.
Google’s abuse of monopoly power in these markets
The court ruled in favour of the DOJ on allegations that Google’s tie-up of its ad server tool (DFP) and its ad exchange (AdX) was unlawful since it prohibited publishers from receiving real-time advertiser bids through AdX unless they also used DFP.
In order to make its sellside (AdX) more appealing, it also claimed that Google had “artificially handicapped its buyside (AdWords).” This implies that only publishers utilizing Google’s AdX and DFP products were able to reach advertisers using AdWords.
According to the order, “by forcing Google’s publisher customers to use a product they would not have otherwise used, by making it difficult for rival publisher ad servers to compete on the merits, and by significantly reducing rivals’ market share, the tying of DFP to AdX has had a substantial anticompetitive effect in the publisher ad server market for open-web display advertising.”
“Google further solidified its monopoly power by removing desirable product features and enforcing anticompetitive policies on its customers,” the statement continued.
However, the court did not find that Google’s acquisitions of DoubleClick and AdMeld were anti-competitive.
“When viewed in isolation, these acquisitions are insufficient to prove that Google acquired or maintained this monopoly power through exclusionary practices, even though they helped Google gain monopoly power in two adjacent ad tech markets,” the order stated.
The DOJ’s claims that Google has been abusing advertising were likewise dismissed by the court.
What next
“We disagree with the Court’s decision regarding our publisher tools,” Google stated in response to the ruling. Because Google’s ad tech tools are easy to use, reasonably priced, and efficient, publishers select us over other options.
“This is a landmark victory in the ongoing fight to stop Google from monopolizing the digital public square,” stated US Attorney General Pamela Bondi.
Following Google’s conviction for unlawfully controlling internet advertising markets, the corporation and the DOJ will discuss potential remedies in court during the punishment phase.
The internet giant may resist such an endeavor by claiming that its purchases of adtech companies were not deemed to be anti-competitive, even if the DOJ is likely to try to persuade the court to require Google to sell off its advertising technology in order to stop its monopolistic behavior.