What the Google Antitrust Ruling Means for Performance Advertising

TLDR: A U.S. court ruled Google guilty of monopolizing ad servers and exchanges, suppressing competition. The decoupling of Google’s products will level the playing field for advertisers and publishers, improving ROI and transparency in digital advertising. This ruling is a win for market competition and innovation.

Clarifying the Ruling

A U.S. federal court has determined that Google holds illegal monopolies in the publisher ad server and ad exchange markets, violating Sections 1 and 2 of the Sherman Act. The court found that Google unlawfully tied its ad server (DFP) and ad exchange (AdX), restricting competition and harming publishers and consumers.

So let’s be 100% clear on the ruling. While Google tried to finesse-spin it as “we won half of the case,” the hard cold fact is that Google is now a (twice) convicted monopolist.

How We Got Here

• Google established dominance in internet advertising through its AdWords marketplace. Google was and is one of the largest pools of buyers (demand) on the internet.

• It launched AdX, an ad exchange, with AdWords serving as the primary demand source.
  

• Google acquired DoubleClick for Publishers (DFP), an ad server used by over 90% of the market.
  

• The company integrated AdX with DFP, stipulating that AdX could not be used without DFP, and vice versa, effectively tying the products.
  

• Given AdWords' significant demand, publishers were compelled to use AdX exclusively.
  

• This bundling violated antitrust laws, establishing Google's monopoly.
  

• Within this framework, Google leveraged its position to view all bids in auctions before placing its own, giving it an unfair advantage.
  

• Additionally, Google charged AdWords advertisers on a cost-per-click (CPC) basis but bid on a cost-per-thousand-impressions (CPM) basis, enabling it to arbitrage and increase its take rate without transparency to advertisers. 
  
  For example, Google makes a CPM bid within AdX on behalf of Adwords CPC advertiser Y.  Leveraging its last look, it knows it needs to bid 1.50 CPM to win a given impression for Advertiser Y.  But they know the estimated CPM value for advertiser Y’s converted CPC bid can go as high as 2.50 CPM. So they bid 1.50 and potentially charge the advertiser up to 2.50.  This huge potential (undisclosed) arbitrage margin is on top of the disclosed AdX fee.  Based on what we saw happen to publisher revenue as a result of introducing header bidding (introduction of legit third party demand), my sense is that this was happening at a massive scale.

The Impact of Eliminating Google’s Iron Curtain Around Digital Advertising

While remedies are pending, a likely outcome is the decoupling of Google's ad server from its ad exchange business. This, in addition to the potential required sale of the Chrome browser in the other Google antitrust suit related to search, will have a profound and positive impact on the entire digital ad ecosystem.

• Google owns 91% of the publisher ad server market. This is not due to Google having a superior product; this is due to bundling of AdX with the ad server.   Now, publishers will be free to work with any ad server they want, which will create a wave of innovation in publisher-focused ad technology.

• Publishers will gain access to a broader range of demand sources in a fair marketplace.
  

• Advertisers will have more confidence in the integrity of the market and will bid accordingly.
  

• Advertisers will have a better chance of winning high-value auctions since Google won’t have last look on all auctions going forward. This will improve advertiser ROI.
  

• Publishers will receive more value from each advertiser bid, resulting in more revenue for publishers.
  

• As marketplace integrity is restored, publishers and advertisers will normalize around transparency and trust, creating more participants, and thus more liquidity, driving more value for all participants. 
  

• Advertisers can compete without Google's informational advantage, leading to a more balanced market.

Effect on Performance Advertising

Google's "last look" advantage allowed it to outbid competitors by viewing all bids before placing its own. Imagine if the New York Stock Exchange was also the largest buyer in the exchange they ran, and also had advanced information on every trade’s bid ask. The market would be rigged, and participants would have less success/ROI. 

Every dollar that passed through AdX was subject to this distorted, rigged marketplace dynamic.  Google could cherry-pick the best inventory (which means the inventory that was closely tied to consumer intent or in-market buyers), which means performance for non-Google participants was artificially suppressed since Google was winning the auctions for all of the most valuable users. This ultimately impacted performance advertisers’ ROI in a huge way — kinda like playing backgammon against the house on a rigged table.

Eliminating this practice levels the playing field in digital advertising, enabling advertisers and other platforms to compete more fairly for the most valuable users by placing ads in front of those users at the most valuable/effective time. This will materially improve advertising ROI, which allows advertisers to pay more for better results, which also benefits publishers, in turn improving the free internet and the consumers who use it.

A Closing Note: Let’s Take Monopolies (and Monopolists) Seriously

In 1919, eight players of the Chicago White Sox were accused of throwing the world series. All were acquitted, but the commissioner of the league banned them from Major League Baseball for life in order to restore the integrity of the game.

That was for… baseball. Here we are talking about Google being convicted of establishing and abusing monopoly powers over an entire industry. Countless companies were crushed — and advertisers and publishers harmed — in the process.

While it’s doubtful that individual contributors and executives that masterminded and executed this monopoly will face criminal charges, my hope and bet is that they will have a hard time finding work in an industry they oppressed for nearly two decades.

The bar for a monopoly is high. Google exceeded it. Adtech companies should take that seriously, as should the advertisers and publishers who have gotten a raw deal from Google. And, as an industry, we should all support an ecosystem predicated on transparency, competition, and innovation. For that, advertisers, publishers, adtech, and consumers will be better off.