Impacts From Changing Online Advertising are Unclear, but Far-Reaching
On January 24th, 2023, the Department of Justice (DoJ) filed a complaint against Google regarding its system of advertising services. The complaint claims that Google intentionally gained control of multiple AdTech tools to establish a monopoly in violation of the Sherman Act. In addition to the action taken by the DoJ, Congress has proposed the Advertising Middlemen Endangering Rigorous Internet Competition Accountability Act (AMERICA Act) to ban companies from owning both the publishing and advertising side of the online ad industry. The size of the online advertising market is large, meaning effects from these transformative actions will be widely felt and the effects unknown. While agencies should seek to enforce the law, lawmakers should be cognizant of far-reaching actions before making drastic changes to it.
Google’s Online Advertisement Model
The crux of the DoJ’s complaint is that Google owns AdTech tools that cover multiple steps of the advertising process.
Businesses looking to advertise online begin by finding a program to help them match their ads with publishers. Google owns two different options for this. Large businesses typically use demand-side platforms, such as Google’s Display and Video 360, which are geared towards large advertising campaigns and use data to bring users relevant ads. Smaller businesses typically go with ad networks which are simpler and more hands-off compared to demand-side platforms to select clients. To facilitate this Google offers Google Ads.
On the other side of the process, online publishers offer space on their platform through a program called a publisher ad server. This tool both matches the space with advertisers and matches the ad to users. Google also owns AdTech in this space through its program Google Ad Manager.
Matching buyers and sellers of advertising space is done through a marketplace called an ad exchange service. Google provides Authorized Buyers, formally known as Google AdX or DoubleClick, for this part of the transaction. When multiple advertisers try to purchase a single advertising space on a site, the advertising software determines the bid amount, and an auction begins. This process occurs in the time it takes to load a webpage, with the winner getting the ad space.
Department of Justice Case
The DoJ alleges that Google has a long-standing pattern of acquiring a role in each part of the online advertisement process and that the company requires businesses that use one service to use the entire suite, thereby excluding competitors. The DoJ also claimed that Google was manipulating bids through Project Bernanke in 2013 by having their ad servers give priority access to people using Google AdX and subsidizing their bids so no one else could compete at the same scale. To make up for this, Google charged higher fees on bids that did not face as much competition. The DoJ argues that this helped Google cement its position as a monopoly.
The DoJ says the result of Google’s dominance of the market is higher costs for users. One example is Google AdX takes 20% of transactions during the auction. This raises prices for users since other companies, such as PubMatic, do not have transaction fees.
Switching to another company is not an easy solution according to the complaint, giving the market a “stickiness” that diminishes the effect of competition. This makes it easier for Google to charge higher prices.
According to the DoJ Google has between 40 percent to 90 percent market share depending on the segment. Google has stated in response that its total market share of online advertising is less than 70 percent.
Google’s market power is not unchallenged, as shown by ad revenue going down for two quarters in a row as of the first quarter of 2023. Newer platforms like TikTok and Amazon are gaining providing new ways for companies to get advertisements to audiences.
If successful, the DoJ’s recommendation is that Google will be forced to divest from the advertising sector to restore market competition.
The AMERICA Act
In addition to DoJ efforts, on March 30th, 2023. Senator Mike Lee and a bipartisan coalition submitted the Advertising Middlemen Endangering Rigorous Internet Competition Accountability Act (AMERICA Act). The AMERICA Act would ban owning both the publisher and advertiser side of the online advertising sector, forcing Google and others like Amazon to divest from these services. It would also target online advertising companies that process more than 20 billion dollars per year in ad transactions to implement processes to make bids more transparent by requiring the companies to provide proof they acted in the best interest of the customer.
Effects on Online Advertising
The divestment from advertising, either through the DoJ suit or through the AMERICA Act will inevitably impact online advertising. However, it is not clear exactly what those effects will be. Possible benefits to consumers include increased competition and lower prices for advertisers. As for negative effects Google has stated that this would undo years of innovation on their part and hurt advertiser’s access to the tools Google offers. It will likely disrupt a lot of businesses that rely on these advertisements to reach consumers.
In the U.S., 78 percent of advertising revenue is in digital marketing, meaning that changes to the marketplace will likely be felt across different industries. Any changes to the law should take into account the potential for far reaching impact on the advertising industry.