The Department of Justice V Google Ads: Part 2

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3:44Call Zone Media. Hello and welcome to Better Offline. I'm your host, Ed Zitron.

4:01I am joined by Jason Kint, once again, the CEO of DCN, who'll be telling us more about the first week of the Department of Justice versus Google Ads. Jason, thank you so much for joining. Thanks for having me back, Ed. Thrilled to be here. So what's been happening since we last spoke? How'd the first week go? It's a blur. I mean, it's an impressive operation. I think we talked about how this district is known as the Rocket Docket, and that's how they got from filing a complaint to actual trial in like a year and a half. So it has that reputation, and we saw it in action this week. I mean, every day we start at 9 a.m.

4:38sharp, like clockwork until 6 p.m., with three or four senior executives testifying every day. And who's testified so far? Three or four ex-Google employees we've heard from. We've had CEOs of all the major ad tech companies. Andrew Casale from Index Exchange, CEO of Magnite, and Rubicon. Actually, it's now called Magnite. And then who else do we hear from? We heard two different publishers, executives. So we've kind of gone down the list. We've had one expert witness, a computer science professor from Carnegie Mellon. And so is this currently the Department of Justice's case? Like it's them laying out their case?

5:24Yeah, this is what they call their case in chief. And it'll take probably about, I think, two weeks. And then Google will have a chance to defend itself. So what's the thrust of their argument other than they have a monopoly? Well, it's that there are three different markets at work here that they have a monopoly in. So, you know, some of the back and forth is still Google trying to break that apart and blur into one single kind of two sided market, they call it. But but the Justice Department is their complaint is, again, that there's three markets. There's the sell side, there's the ad exchange, and then there's the buy side.

6:00Google in their opening statement has already tried to make that into one market that's a two-sided market, trying to lean into a prior Supreme Court decision that involved American Express. I don't think they'll have much success there. but um once you get past proving that there's three markets there and that they've got monopoly power in them then it's also a tying argument that they've used one of the one of those to build up and maintain market power through through bad conduct to um to do that so so do me a favor break me down those three parts then and then we can get into the degree sure um so the the publisher side, the sell side, Google has the product that a lot of people still know as DFP, which came from their double click acquisition.

6:51So that's the publisher ad server. And according to the Just Department's opening statement, they've got like 91 % of the market share for the publisher side. And a publisher in this case is like a website? It'd be like a website. That shows Google ads on it. Exactly. And so that's the server that's, it's kind of the sort, I guess what you call the source of truth, we've always called it, but it's the ad server that says, hey, I've got this ad. And then it takes care of deciding who wins it and then ultimately rendering and serving the ad. And then actually dealing with all the accounting and inventory projections, etc.

7:32So that's what's the sell side of this auction market, this real-time auction market. And then to go to the other side, you've got on the buy side, Google has their ad demand that they have through their ad network that they also have. I think the Just Department's arguing they have like 80-some percent of that market. That's really important because a lot of the arguments are that you couldn't use other products and still have access to that Google demand. And so they use that advertising demand of advertisers that want to spend money in order to ensure that everyone else stays on their supply chain.

8:15And then in the middle is the ad exchange, which Google's called Ad X. And that's the exchange that acts as the ability to take in bids of the ad inventory and then clear them. So it's the place where Google sells ads on Google to Google? No, it's the ad X would be the what would take the sell side. So the publisher ad server. So all the different websites are out there across the web. It would take their inventory and say, hey, I've got this ad impression. I'm requesting somebody to bid on it. And then Google could handle the bid because of its demand. But other parties could come in, too, and bid.

9:02And it would decide the highest bid. So how are they using this as a monopolist then? Where is the other than being on every single transaction? Are they are they doing anything else to basically intervene and drive up price? Well, I mean, a couple of the main themes that are going on throughout the entire week is that that adx, which is the exchange, Google takes 20 % of the revenue, and they've never had to come off of that price. And so the CEOs of Index Exchange and these other exchanges that are out there were testifying, and they charged like half of what Google charges, sometimes even as low as 5%.

9:46Andrew Casale, the CEO of Index Exchange, said they actually went down to zero, and they weren't able to take away business from Google. So Google is able to keep that 20 % and extract monopoly rents according to one of their own internal... Forgive my ignorance here, but how do they... Is it that there's a bunch of ad inventory that Google only has access to? It's the opposite of it. It's actually that you can only have access to the demand, the ad spend that Google has, if you're using AdX. So that ad demand won't travel through any other exchange. And why is that? Is it just because it's a decision by Google?

10:33And so, yeah, so they've made the decision to only allow their demand to go through ad X. So what's stopping people from building their own ad X? There's other exchanges out there that try to compete with, with ad X, but they're not able to because they can't get access to all the ad demand and that spend. And it's that critical. And everybody wants to stay on AdX. And Google has then advantages, which we can go through, because of the way that AdX operates. So what are those advantages? I think the biggest one that was part of the opening statements is what's now last look, they call it. There was something called first look, which was really before the auctions really opened up with header bidding.

11:22and first looks kind of just this it's to simplify it's basically if you put in if a publisher said hey i've got this ad unit and i'm willing to sell it to anybody and the floor the lowest price i'll sell it for is five dollars then google always had the chance to say i'll take it before it even goes into the auction they could say they had first look and they could just say i'll take it for five dollars and a penny basically before they even put it in the auction And over time, that transitioned into something called Last Look, so that when auctions started to open up, because of their privileged position that Google had, they had something called Last Look, where after all the auction took place, they could then look at the winning bid and decide if they wanted to beat it by another penny.

12:12Oh, so they can literally just rig the dice pretty much as they want? I mean, that's the reading in the room. And it's interesting because I think one of the biggest questions always going into this trial was, it was originally going to be a jury. Now it's this Judge Brinkema. Can you explain these live high-speed trading auctions of ad tech to the average American? And they're doing a really good job of explaining it. I think the judge gets it. The people in the room get it. And, you know, I think Last Look was one of the better examples where the Justice Department in their opening statement described it as kind of like a classic silent auction where every party writes down their bid on the slip of paper.

12:59It's in a sealed envelope and you only get to bid once. And then at the end of the auction, Google gets to peek into the envelope, see what the highest bid is and say, you know, I'll pay a penny higher for that. So Google gets to bid twice where everyone else gets to bid once. Essentially. That's essentially what happens, right? And so they get to pick up wherever they think there's additional value because of the quality of the impression. And this is in the tool that lets publishers sell ad space, right? Yeah, that's basically what's called an SSP. It's the supply side platform that takes their inventory and puts it out for auctions.

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17:24She seems sharp as a tack, and she's fair as can be. I mean, she runs a courtroom like I've never seen. But the technical aspects of it, I think they're going as deep as they really need to. And, you know, they had an expert witness in Carnegie Mellon, computer science professor, Dr. Ravi. And he did a really good job of with some visuals of explaining the kind of the three or four kind of most important ways in which they were, quote unquote, rigging or allegedly rigging the auctions. And he kind of walked through each of those. And it was easy to follow. And what was his testimony exactly? What did he get into?

18:06Well, he walked through that last look and why that was so important as an example that we just talked about. He talked through something called dynamic revenue sharing, which is a pretty big advantage that Google just gave itself in AdEx also, So where, you know, the way he testified was that Google recognized, and there's tons of emails that they put up that back this up. So it's not, or maybe past the stage of having to say their allegations because there was evidence going up on screens. But what they did was, you know, Google takes 20%, as I mentioned, of the transactions that go through AdEx.

18:49And so the other 80 % goes to the publisher. So in simple terms, if it's a dollar, if it's a dollar transaction, Google is going to take 20 cents. The publisher is going to take 80 cents. And what they did was they said, you know what, if we've got this last look and we know that somebody else is going to win this ad at 81 cents because we're only going to get 80 cents across to the publisher. Why don't we take our revenue share down off 20 percent to 15 percent? And so then we'll win. Oh, God. and 85 cents will go through and we'll win the bid. And so in Google's own words, in their own email, they described it as just another way to exploit the fact that they have last look.

19:31So we've got this last look. Why don't we come off of our 20 % share if it allows us to win the impression? And so that's a way to, you know, it didn't actually drive that much more revenue through, but what it did was it gave them a lot more volume and activity um a lot more of the bids were won through their exchange rather than the other competitive exchanges that were out there if that makes sense it does so you talk about them needing addicts to continue like forgive me if i understood this but the demand that they have that's really their secret source the demand that they can source why isn't why can't anyone else get that kind of demand what is it that's stopping them well it That's where this is interesting because it kind of starts with the search trial that they just won last month.

20:20And so that remember the other case over in D.C. was that Google has monopoly power over search text advertising, too. And so they've got this platform in which advertisers are going in to buy ads in which they've got monopoly power. And so trying to convince a lot of smaller business advertisers out there, small market advertisers, to go through another platform is in itself difficult. There's friction there. And so everybody spends money on Google already. And so they already come in with that massive advantage. And is it more expensive to use other platforms? Is it more burdensome to set up with them?

21:03You know, we haven't really got into the quality of the buy side platforms. They seem to be described as relatively comparable. So it's more a matter of having one central interface in which you're buying. So but it's clearly that money is going to be coming through from the Google site no matter what. That's going to go to Google's platforms, going to go to the wider web. And so they just walk in with a massive advantage on the demand side. And so the real challenge is that that's, or the issue is that demand should be able to go to other exchanges, not just to Google's. And that's where I think Google's trying to set up its defense is that they shouldn't have to connect their demand to other platforms.

21:44There's no issue with, well, we'll get to the legal piece of it, but go ahead. Yeah, even though that seems a perfectly reasonable thing to say for anything like this. Right. So is this suggesting that all Google properties run through AdX? Like you can't buy advertising on Google ads without going through AdX? Can't buy. No. So I'm sorry to, yeah, I wish I had my visual as we're talking. But you can't, if the advertising demand on the buy side on Google, that has to go through AdEx in order to go to other publishers. And so, yeah, I think that's the same thing you were saying. And that demand is coming from advertisers, as in people who want to advertise on different platforms.

22:36That's right. But then it goes through adx and then Google basically gets to monkey with it at the beginning and the end of it. It's just it feels fairly, fairly crooked. That's the feeling when you're sitting in the room. It very much does. And there's a lot of emails from Google employees where you can tell they feel like this might be a little crooked, you know. So there was a thing, The Verge quoted a particular witness from News Corp that seemed quite interesting, who said she felt like they were being held hostage by Google. Yeah, she was really solid with Stephanie Laser. She no longer is with News Corp.

23:19She's actually at Amazon now, which is interesting. But she gave really clear evidence and testimony. And, you know, she was explaining how there was really no choice to use any platform but DFP as their ad server. And therefore, with it, it comes with all these other obligations. And, you know, the one thing that Google did that she seemed to really not like was there is a point that was important in time where Google said to publishers, you can no longer have floors, price floors on individual exchanges. So what does that mean? Essentially, if you're a publisher, if you're a website and you're saying, I have this ad that's available and I will allow five different exchanges to put forward their highest bid for it.

24:15And when you say ad available, you mean like space on a website to advertise? Like a banner on their homepage. Yeah. So a banner on their homepage, and they're making it available to, let's say, five different exchanges. One of those is ADX, but then let's say also Pubmatic and Rubicon and Exchange, these various SSPs we call them. And for a while, you could actually set a price floor, essentially the lowest price you were willing to sell that banner on the homepage. And you could set it individually based on the exchange. So what publishers were often doing was they were putting a higher price for Google, for AdX, for a number of reasons.

24:55And some of those reasons included wanting to diversify. So not all the revenue and spend was coming from Google because that could create risk, as we see. They also wanted to manage the quality of the ads because sometimes the ads weren't as high quality coming through AdX. So by having a higher price point, it kind of weeded out some of the garbage. And so there were a number of reasons. And at this moment in time, Google said, you know what, you now need to have a universal price floor across everyone. And that basically gave AdEx the same, you know, the same advantage. It made sure it had the same price floor as everyone else.

25:30But how do they maintain a price floor across other platforms? Like, did they just say, if you violate this, you're off of our ad platform? Well, it all, it's because again, DFP, the ad server, is also Google. So it's the final source of truth. Yeah. So they own the place where ads are negotiated, the place where ads come from, and then the server that puts the ads on places. Bingo. That's really, that's good. That seems like. It's a good business if you can keep it, right? Yeah, but that might be a problem for them.

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