Auctions In The Crosshairs

0:08Welcome to The Big Story, a roundtable featuring members of the AdExchanger editorial team. Every week, we bring you an in-depth discussion of key developments in digital marketing and media.

0:23Today's episode is sponsored by Basis, the leading intelligent operating system for autonomous advertising. Its enterprise AI solution transforms campaign briefs into strategies and media plans that integrate directly into omni-channel activation. You can learn more at basis.com.

0:44Today, we're going to talk about two very big moments in big tech. First, Judge Brinkman made her decision last week. Google will not have to spin off its ad tech business as a result of its guilty verdict in the antitrust trial. However, it will have to adopt a number of behavioral remedies. We have our editor-in-chief, Alison Schiff, who has been our hound on the antitrust case, here to tell us more.

1:12Then speaking of auctions that are not as they seem, the FTC is suing Amazon over how it runs its ad auctions, alleging that the many, many SMBs on the platform were competing against a shadow participant invented by Amazon who drove up the auction prices. In many cases, the advertisers were paying exactly what their bid was or quite close to it. To walk us through what's going on here, we have our managing editor, Anthony Vargas. Hey, everybody. We have a really interesting conversation ahead, even if maybe regulation isn't your jam. We've got takeaways for buyers, sellers, tech companies thinking about how they are participating in auctions or perhaps structuring themselves.

1:55I think these are both very impactful decisions for the industry, so I'm very excited to talk through them. I'm, of course, Sarah Sluice, our editorial director. We are going to dive in, but first, fall is upon us, and so is Programmatic I.O. New York City. Our conference lets the established place to talk about disruption. We've seen it before, ad tech upending the media ecosystem. And this year, you can attend to surf the wave of new tech and not get sucked under the surge. That was my very summery, beachy promo. I might have to switch to something about falling leaves next week, you guys. So as always, our listeners can use the code POD10 to shave an extra 10 % off your ticket price.

2:37So lock in your plans for September 20th and 29th, and we'll see you there. Come over and say hi if you recognize our voices or our faces. So with that, let's dive right in. And Allison, it's, I think, one, you missed part of the antitrust trial due to Jewish holidays. days you were foiled by them and then you were on your honeymoon when the decision happened so it was indeed them some breaks yeah and um there was something else google related back when google um announced its second delay for cookie deprecation i was on leave so i missed that also and when judge brinkham found google guilty it was passover so it's just yeah one Some of it also, maybe not the honeymoon piece, but like it's intentional oftentimes the way certain news drops.

3:32You're talking about how Trey Desk announced its layoffs the Friday before the long Labor Day weekend when like people are most likely to be offline and distracted and not reacting to that. So it's a classic technique for news to drop certain times. Although I wonder why Judge Brinkmore would want that to be released during a more quiet time. Because if anything, wouldn't the 80 plus year old Judge Brinkbo want a little sizzle with one of her final decisions? I don't know. I mean, maybe she thought her decision would be a beach read, although it's not actually available until the 16th of September because both sides have the opportunity to redact before her decision is public.

4:12I don't think that she's paying attention to the calendar in that way. The way companies drop news before a holiday, if it's not good and they want to bury it. Not that that even works anymore. Right. I mean, people are so terminally online that you can't bury stuff that way anymore. But yeah, I don't think our friend Leonie was purposely putting it out the week before Labor Day. It just happened that way then. Yeah. Well, I hope everyone involved had a good Labor Day weekend and weren't busy redacting things. So let's talk about behavioral remedies. Maybe you should give a refresh of what a behavioral remedy even is and kind of how people view that type of remedy in terms of, you know, all the different things available, including, right, like splitting up a business, which is one of the most, you know, intense ways to remedy an antitrust issue.

5:08So divestiture is the most or spinoff is the most a breakup, the most extreme action that you can take in antitrust. And the one thing we do know for sure is that Judge Brinkama is not going to force Google to break up its advertising business. So that's a little disappointing for some people. But I and I I'm not like, oh, I I knew this before. I just I really didn't think it was going to happen. And I think I'm on a record on this podcast saying that it just it didn't feel like a real possibility. There hasn't been a big breakup in a while. A behavioral remedy is exactly what it sounds like. It's enforcing and hopefully the court will actually be able to enforce this with some kind of infrastructure or mechanism.

5:59It's very difficult to do, but enforcing some kind of behavior change. So there was bad behavior in the past, and we want to ensure that that bad behavior is not going to continue in the future. And in this case, very likely Google will have to share real-time bid information. There were a lot of remedies discussed during the remedy phase, of course. And so it's not as if we don't have a sense of what will be the actual remedies even now before Judge Brinkema has her decision unsealed. and yeah just to speak to your point allison around like you know kind of feeling this coming i feel like most of the reactions i've seen out there from the wider industry have really been like unsurprised about this i don't know if it's like a mix of like you know cynicism over the current state of like antitrust regulation in america and just the idea that like you know the u.s government would actually break up one of these like big U.S.-based tech companies when they seem to get away with so much every day.

7:01Or if it's just like, you know, particular cynicism about this case or just like, you know, people really paying attention to some of the arguments around it. But like we knew for a while that Judge Brinkham seemed reluctant to go the breakup route because, you know, she had also flagged some concerns around like potential negative impacts to Google's publisher clients if, say, you know, GAM was split up with like the SSP and the ad server being separate things. Would publishers then have to pay a different provider for ad server fees, you know, if Google wasn't giving it to them for free because it was bundled with the SSP, all these different things.

7:38So like it felt like the writing was on the wall here for a while. So like there's not a lot of surprise out there, but even still, you know, major implications for the industry. And also you're not just divorced, you know, It takes how many years of appeals and then the actual divestiture itself. So even if she had called for a divestiture, it wouldn't have happened for a very long time, putting aside the appeals. Yeah, our junior was in the courtroom for the remedies phase of the trial. And he was telling us the other day that the DOJ was projecting that any kind of divestiture would be like a nine year, nine plus year legal process.

8:13So, yeah, no immediate relief was coming, even if they did go that route. And it's maybe not cynical, but just even practical that like that decision was chosen in part because it might mean that some of these behavioral remedies are put in place faster than maybe a breakup that would be like a decade long process. So that's interesting. I mean, I was gonna say yes, but I think courts are not that great at monitoring tech compliance. Like the classic example is Microsoft back in 2001. The government found Microsoft guilty of maintaining an illegal monopoly over Windows. And there were behavioral remedies put in place.

8:55It required API data sharing, some other things, I think like restrictions on retaliation or whatever. And basically nothing changed. And it's not because Microsoft was cheating the decree or anything like that. It's just because, well, one, behavioral changes can't undo the structural advantages that some dominant platform already has. But also, it is really difficult for the court to stay on top of this. What are they going to monitor it day in and day out? Also, it's quite complex. And I think one thing that came up during the trial was that Google hadn't really followed the restrictions that were put in place when it acquired DoubleClick.

9:36click. There were some things it was supposed to do or not do that it did instead, which, you know, definitely makes me feel a bit skeptical about some of these behavioral remedies, although I certainly feel that if it's something like data sharing, right, that is more visible, right, I feel like SSPs would be quite loud if they weren't getting access to that info. But I think as we saw in the trial, like there's so many ways you can put your finger on the scale in an auction kind of ties into the Amazon segment we'll talk about ahead that are just really, really hard to suss out unless you actually go through that whole trial process.

10:18It can feel like a pinky swear, a behavioral remedy, you know. And you mentioned breakup and divorce. So in my mind, I'm like just going full metaphor in that earlier where I'm like, okay, so if they, if it had to do divestiture, that would be the equivalent of getting divorced, the ad tech, the ad server and the SSB getting divorced. The behavioral remedy is like the equivalent of going to marriage therapy and promising you're going to do better. Even if it's against one's true nature, you're like, I'm always going to be fair. I'm going to share I'm going to do all the good things I will be open and transparent yeah I will be open and transparent interoperable if you will I'll stop hiding all my secrets you can look at my text in a black box okay thank you for indulging that example people can hold that in their head and think about it in that way yeah we got Allison's doggy.

11:18So, okay. So let's, let's move on to kind of the next thing. We still don't have the full decision details to walk through, but we do know some more details. So what about tying, right? Like it was guilty of tying, meaning it bundled, it's ad exchanger and ad server together, the things that can't be broken up. So how would the court remedy that specifically based on what we know so far. Oh, Oliver stopped barking at just the right moment. So I will say just again, to repeat, like we don't know the full details until Judge Brinkema's opinion is unsealed. But there are three main buckets of like remedies.

12:01So limits on self-preferencing, data sharing with publishers, and then like non-discriminatory treatment of rival exchanges and ad servers. And I think the data sharing piece is really the most significant in the context of tying because one of the ways that bundled GAM harmed publishers is that Google could see everything flowing through the combined stack and then they could use that information asymmetrically. So requiring data, sorry, requiring Google to share data with publishers and then to pass like real time ad X bids to rival ad servers that would chip away at like an information advantage.

12:43But I mean, there's a caveat, like the tying violation itself, the actual bundling of ad X and DFP into one product like that isn't being undone. Like we were just saying, like Google still owns both sides. So the remedies are trying to neutralize the harm from the bundle, but without actually breaking the bundle apart. And so I think it remains to be seen whether that's sufficient. Putting aside the fact, which we haven't touched on, that a lot of this is litigating the past. I mean, AI, AI, AI, right? like that's the world we live in now and talking about adx and dfp and all of these things it's kind of like the world that was it's the past and yeah on the on the demand piece i mean you know this came up uh in the conversation i had recently with uh edtech therapies jenna maron and scott messer for our 500th episode of ad exchanger talks which if you haven't listened to go check it out shameless plug uh but yeah one of the things that scott brought up there was like Like, you know, even if all the, you know, proposed behavioral remedies that were discussed during the remedies phase of the trial get implemented, Google still has its ways to operate around those behavioral remedies.

13:59And the big thing is they ultimately still control the demand. And, you know, publishers are going to go with the demand flow. So like even like, you know, the tying of the ad server with the SSP and all that stuff, like obviously that gave Google structural advantages in the SSP and ad server market that the federal government found were monopolistic by nature. But the big piece is they control the demand. So it's like, yeah, their SSP and ad server product have benefited, but publishers are going to go where the demand is. And that's still Google's big competitive advantage. word um so uh word the one thing that i think a lot of people want to see is google change how it works with pre-bid how information is fed and passed between them its role there so um do we know anything about what judge brinkma has decided as it relates to pre-bid and behavioral remedies I mean, we don't know specifically yet because, again, like it's under seal until next week on the 16th.

15:05But pre-bid came up a bunch during the trial. It came up during the remedy phase. But before we talk about the specifics, I do just have to state the delicious irony that pre-bid is the open source header bidding framework that was originally created as a workaround to Google's first look advantage. And now it's going to be part of the solution, very likely. Yeah, that does feel like justice, you know, or, you know, as we speak about this Justice Department case, but yeah. And I guess, you know, while we're talking pre-bid, well, did you have something to add there, Allison? Oh, yeah. Well, just what's interesting is that both sides like landed in roughly the same place on pre-bid like Google and the DOJ, like at least in principle.

15:48So, I mean, Google actually, which is amazing because they never even wanted to join pre-bid. They signaled support for a server to server integration between DFP and pre-bid. And that would allow publishers to insert an independent, non-Google controlled auction like tool in between its two main products. like we were just talking about tying. So this messes with that a little bit, I guess, in a good way. And the DOJ actually wants something similar. So on the surface, it looks like they have common ground, but there's like devil in the details on this one because Google, their proposal is to only do standard display ads on the open web.

16:27And it explicitly leaves out like TV, like streaming TV, video, in-app ads. And it's like a very significant carve out. And DOJ, like they want the same pre-bid integration to apply to all those formats, not just the one that Google chooses to include. And it's like a very meaningful gap. So I'm very curious to see how pre-bid comes up in Judge Brinkama's decision when we get to read it. Yeah. And the only thing I would add there is, you know, as it happened and, you know, the news will be live by the time this podcast is live as well. So I can say, you know, I just wrapped up a conversation with Prebid's new president, who's a returning face, Garrett McGrath, who was previously the chair of Prebid for several years and also was part of Prebid's founding originally when it was, you know, designed as that header bidding workaround like you just alluded to before.

17:19And, you know, he brought up the same thing where it's like both the DOJ and Google have suggested some kind of like pre-bid adapter, edX bidding into pre-bid auctions and competing on a level playing field with other SSPs as a potential fix here. Prebid has no foreknowledge of Judge Brinkham's decision here. But what Garrett was telling me was he would be very surprised if it wasn't part of the decision that Google AdEx has to integrate into Prebid. And what he was telling me was this would be a very easy lift on Google's part. It would require almost no heavy lifting on Prebid's part either.

17:58It'd basically just be, you know, as simple as Google, just like every other SSP accessing Prebid's open source code and in a couple of days spinning up their own version of the adapter to get into those auctions. So that could be a more immediate fix that could bring relief to publishers and SSPs and, you know, other entities that Google competes with in the ad tech market. At least, you know, much quicker than a decades long spinoff process would have taken anyway. Guys, can we buy Steph Laser a T-shirt that says like we did it or something? Just send it to her with no context. For our listeners who are missing the context there, Steph Laser was a big early proponent of Google having to introduce a pre-bid adapter.

18:45So we'll leave it there. And it sounds like we'll have more to cover when the decision is made live next week. and I'm sure Alison will do all the summarizing for us in a future podcast and on our site. And I'm super interested to geek out here on the similarities between the Google case and the Amazon one. So we'll take a quick break and talk more about that when we get back.

19:14I'm Sarah Sluis, Editorial Director of Ad Exchanger, and I'm here with Mark McEachern, VP of Product at Basis, which is supporting our podcast this month. Hello, Mark. Hello. How are you doing? I'm good, especially because we're going to talk about three-letter acronyms, which I think is one of ad tech's favorite things, although this goes beyond just ad tech. So help explain this to our listeners. What is an MCP server and how are advertisers using it? I do love a good TLA. MCP stands for Model Context Protocol. Anthropic built it, open sourced it in late 2024, and then handed it to the Linux Foundation.

19:57It's plumbing that connects the systems to agents. It lets an AI model reach into a piece of software, see what's available, and pull the right lever instead of hand developing of the spoke integration for every tool that the model touches. And over the past year, Google, Meta, Amazon, and others have rolled out their own ad platform MCP servers, as have DSPs and SSPs. A buyer can now say, pull my campaign report, or build this audience in plain language, and have that request land correctly inside whichever platform is listening, without building a custom connector for every combination. And eventually those instruction sets, they begin to look like standard adapters.

20:45Okay. So MCPs are taking off like wildfire, I would say, and with good reason because they're very useful. So tell us a little bit more about what advertisers are able to control when platforms have an MCP server. So control depends on who built the server. An agent can pull reporting, diagnose a stalled campaign, or explain a CPC spike. but in most cases, a human still has to make the change. Some folks like Meta have enabled agents to create audience, set budget, and launch a campaign all by itself. But where it's furthest along, advertisers can do all that. They can let the agent read performance data, build and activate audiences, adjust the budget, launch campaigns, and even generate creative variations all through natural language.

21:33Letting one agent shift budget across platforms on its own is where the industry says it's heading. but that's not the standard practice yet. The industry direction is obvious, though. Fewer read-only endpoints, more agents with their hands actually on the wheel. And at that point, governance and guardrails become the real conversation, not the pipes themselves. So you're talking about a lot of new ways that people can connect and companies can connect to each other. So does that mean we're going to be solving for media fragmentation? Marketers run dozens of platforms to get to all that media.

22:12DSPs, walled gardens with the clean rooms, measurements, they're all bolted together with their own quirks and logins. Each of them historically needed their own bespoke API integration, its own authorization, and some team member who knew how it all fit together. MCP doesn't unify the stack, but it has the potential to unify the interface to the stack. One agent could sit on top of all of them. As an example at Basis, we have Compass, our proprietary strategy and planning agent. It has direct integrations with buying platforms, including our own DSP. Advertisers use it to upload briefs along with their research, performance history, which is then synthesized into a proposed media mix, audience personas, and creative strategy.

23:01initiating an omnichannel planning conversation through one interface. Okay, so if I'm thinking about MCP servers as a shorthand, it might help unify my interfaces if I'm a buyer, but the platforms themselves remain fragmented. Indeed. There's a lot of room for innovation under the hood. MCP is the unifying layer. There's the command and control on top of it. Well, thank you, Mark, for helping explain MCP servers. I know I understand them a bit better after these few minutes, And thanks to Basis for supporting our podcast. Thank you.

23:38And we are back. So we're going to talk about another piece of news that happened during that, you know, traditionally quiet last week of August, which is LOL. Well, the FTC sued Amazon saying that it wasn't operating a second price auction, even though it said it was, which means that a lot of small businesses using their platform, using those sponsor listings had to pay a lot more than they normally would. So tell us a little bit about what the FTC is alleging. Yeah. So basically you kind of summarized it there where basically like, you know, the FTC is alleging that Amazon was portraying its sponsored product search at auctions as a second price auction when, you know, according to the FTC's claims, in reality, the auctions function much more similar, similarly to a first price auction model.

24:30And basically, you know, the FTC has a lot of very damning sounding quotes from internal Amazon communications where Amazon executives and employees are referring to this, you know, soft. What's the what's the phrase again? What was it? Soft reserve price. which we can get into that yeah yeah they had this soft reserve price which they were referring internally to like an invented uh bidder that they were like clear was not actually tied to any like real advertisers demand but it was basically like you know an algorithmic trick on the platform's part to what the way amazon describes it is this is basically how they would ensure that more relevant advertisers were winning the auctions for certain search terms um but the way the FTC kind of describes it in practice, it ended up being that, you know, the winning bidder would put forth their bid.

25:24And then instead of paying just a penny more than what the second highest bidder would have paid, this so-called invented auction participant would slide in and submit a bid that was much closer to the highest bidder's bid price, effectively making that bidder pay almost their full bid price for the ad impression. I want to geek out as an auction nerd for a minute who was like really into all the Google antitrust stuff. So I think it's ultimately, I think a data challenge, because I think if you're a publisher with really great predictive knowledge, you could set a floor price of$9 knowing that an advertiser is going to bid $10 and be able to kind of command most of its stated value, like the close to the maximal price that the advertiser is willing to pay.

26:19But if you don't have great data and you set a floor price of$2 and someone comes in wanting to bid$10, then you kind of have lost$8 is probably how they look at it. And then, so I guess basically what Amazon did was like, oh, you want to pay $10? Well, let me just like invent an extra bidder who's seven or eight or nine. So it's using data post auction to kind of make the price go up. I don't know if I maybe maybe that confused things more. But I think that's the key distinction is that you're, you're, you're choosing the clearing price after the advertiser has already made its bid when when the advertiser assumes that they're making this like closed bid, that's just going to clear, you know, above whoever else was bidding in the auction and the floor price.

27:07Yeah, and I think that would be kind of like, you know where the sort of obfuscation piece kind of comes in or like you know like i guess kind of like the the piece where it feels like you know the platform was trying to like do something like do something that was benefiting from its insight into what the actual bidding patterns were so like you know if this was like a floor price that was established before anybody placed a bid there probably might not have been any issue with it but since it was something that the platform was doing after bids came in and it ended up being the case that you know at least as far as like the ftc claims amazon ended up making some 20 billion dollars off of like you know squeezing the margins on these like second price auctions there uh then it becomes like okay this is something that the platform is doing to benefit itself and the ftc is telling uh and amazon's telling of course they're doing it for the benefit of advertisers and to make sure that you know end users are seeing the most relevant ads that they can.

28:04But, you know, it has the nice consequence of putting more money in Amazon's pocket, of course. Can I say something, though? That's just I mean, of course, 20 billion dollars is a lot of money. But how much money does Amazon make every year? They make like 750 plus billion. Did I say a million? I meant billion. 750 plus billion dollars a year. And so I don't know it's just wild to me to risk something you know so small which is for their 20 billion corner for their mere 20 billion the universe which I'm sure has you know thousands of employees uh at least and then a thousand associated with it right yeah and from Amazon's perspective like yeah it's a it's small potatoes 20 billion but like you know as far as the FTC is concerned when it's looking at the impacts on like small businesses for small advertisers on Amazon, that$20 billion is a ton of money.

29:00And Allison, I wonder if you can speak to why the FTC is pursuing this case, because I think for me, that was the moment that felt the most surprising to me when I saw that headline is like, oh, like why the FTC? Simply because we've seen auction manipulation come up a lot during both the Google Search antitrust trial as well as the antitrust trial for ad tech that we just talked about. So like, why the FTC? Why is this not some kind of antitrust situation? They're using the powers that they have. So the Google case was traditional antitrust and the DOJ had to adhere to traditional antitrust rules.

29:42They had to prove that Google had monopoly power in a defined market, which was actually a little bit awkward because they had to twist themselves into a pretzel to kind of create a market. It was almost gerrymandered. And that limits like some of the arguments you can make, but it's also what allows you to bring the case. It's a high bar. And like it took years to pull together a long time to litigate. And they have to prove, which is not always easy, that a company, Google in that case, abused its monopoly power. But FTC's Amazon case is structured differently. because it's a consumer protection and deception case.

30:22And the FTC's power comes from the FTC Act, Section 5. And that's why all the allegations are about unfair and deceptive business practices. So the theory isn't that Amazon is a monopolist, like in this case. It's that Amazon misled advertisers about how its auctions worked. So like we were saying, charging them more than they realized that they were paying. And I think that framing is I mean, lawyers can correct me if I'm wrong, but I think it's potentially faster to litigate and maybe easier to explain to a judge or jury because you don't have to define a market and then be so constrained by that market or prove monopoly power.

31:03um but it also probably means that if this gets adjudicated or settled or whatever like the remedy is gonna be weak sauce like hey guys stop deceiving deceiving people okay like disclose your auction mechanics thanks yeah and i think like you know there's there's definitely like a groundswell it feels like right now around like ad auction transparency because like i feel like i'm having more conversations about just like you know coming up with standards like industry-wide standards for auction disclosures and like, you know, potentially like the MRC and like other, like, you know, industry bodies, like getting more involved in that kind of stuff.

31:40Like SIM has put out like, you know, it's like a proposal for, uh, that's CIMM, uh, for the, uh, you know, for auction transparency disclosures. And, you know, I think the big part of this is like, there's so much different terminology being bandied around in like training documents and like online help, like FAQs that these like platforms published around, like trying to understand, like, what exactly is at play with their auction mechanics and just how much pressure are these proprietary algorithms putting on the mechanics beyond the sort of like bog standard industry definitions of the terms.

32:16So like, you know, you hear stuff like, okay, well, it's a second price auction, but then you dig into like the help documents and it's described as like a modified second price auction or like a dynamic second price auction. Blended price. Blended price. You know, there's all these like weird little like terms of art that like nobody on the buy side really has a firm handle on what they mean. And we just published an article by Sarah Caputo, who's a buy side consultant who's previously also worked as a as a consultant for Amazon, although that business relationship is done. And and she, you know, had previously been like, you know, kind of evangelizing Amazon as like a like a standard bearer for the rest of the buy side platforms to kind of adhere to.

33:00And, you know, so she published this thing that was basically like, you know, after this FTC complaint came out, I was digging back into like some of like the help documents on the Amazon DSP side, which is not covered in the FTC complaint. And she was like, I have all these questions about just like, how are they defining these terms? And like, what is like, all this stuff is like unclear. And, you know, her argument was that it shouldn't be a burden on the buyer to kind of like suss all of this out. It really should be a burden on the platform itself to clearly explain how this stuff works. And I think like, you know, this is this FTC case is just, you know, even if it's not directly correlated to like, you know, display advertising or what was going on with Amazon's DSP business, it is opening up these wider questions and bringing more light to these wider questions of like, how do any of these auctions work?

33:48And do we really understand any of it? I highly recommend checking out Sarah's full piece on our website. Yeah, so I think, Allison, it sounds like one of the defenses that Amazon has is like, oh, the winning bid, the average winning bid price in its auctions actually dropped 50 % between 2019 and 2024, which is when it started manipulating the auction. And so I think what they're trying to say there is like advertise or, you know, people were lowering their bids because they noticed that they were clearing at higher prices. And that kind of just like makes me spiral and like want to have a Ph.D.

34:31in economics on the podcast. You know, we're, you know, like the legal reason for the FTC thing. But to the point of like transparency, it's like, OK, so you're doing something that, you know, allegedly allowed you to like add an extra 20 billion to your pockets. but also basically buyers are now assuming that their bids are going to clear, you know, higher. So they're lowering their bids anyway. Like, what's the point? Like, did it fully correct? Or was Amazon still squeezing out more margin? And then on top of that, it's just more exhausting and time consuming, you know, when something isn't running the way that it was said to be run.

35:08So I feel like a full, full spiral based on this, this info. Do you need ad tech therapy? Pull me out of the spiral. I mean, I don't know that I don't have a PhD in economics. I can barely settle a restaurant bill. So I'm not equipped to pull you out of your spiral, Sarah. But I kind of feel like Amazon's defense is it's kind of like beside the point, right? Because the allegations that the FTC is making, it's primarily that Amazon overcharged advertisers, like in absolute terms. Like it's that Amazon manipulated its auction mechanics allegedly without disclosing that to advertisers. So all the mechanics are interesting to us.

35:50We are we are nerds and I want to know more. But yeah, I mean, really, the issue here is that if you think you're in a second price auction, but you're actually in something much closer to a first price auction, then that affects how you bid. It affects how you try to optimize. It affects how and how much you spend. And the decisions that you make are at least somewhat based on your understanding of how an auction functions. And you should have that information even if you don't have log files or whatever. I feel like I've lived through this kind of auction manipulation for so many years covering the SSP space, you know, where I think a lot of times something similar was happening where there would be a floor price that would then be raised.

36:37You know, and in some cases, the SSP was pocketing some of that extra money. We also know about Project Bernanke, which was almost like a third price auction where they kind of used the delta between the bid and the clearing price and like put in like a pool of funds to be used on other auctions. Like that just feels like there's a near infinite way to manipulate auctions. and it's always a challenge when you have an auctioneer who is also a participant in the auction. When you run an auction and you participate in it, invariably it seems like there's always some kind of funny business because there's just such a high incentive to put your finger on the scale.

37:22I've always wondered, by the way, what Ben Bernanke thinks of the fact that he had we got named something auction manipulation named after him yeah i'm sure there's a repository of bernanke uh memes and so forth uh you know it's a sign you made it but but yeah i think like you know as far as like all the like you said sarah this is a pattern that's been unfolding for years and it's like you know i was alluding to in my piece it feels like it's like another like you know it's always groundhog day and ad tech it's like we're always talking about the same things It's slight variations on the same like manipulations and whatever.

37:56And it's like maybe that's like a good thing that like, you know, there's more scrutiny being paid to these things by government regulators. But then you also get into the argument of like, how well does anybody really understand this stuff? And like, you know, it's a system designed to be opaque by virtue of like how the way the auctions work. So it's like, is it just fundamentally baked into ad auctions that there's going to be this kind of like alleged shadiness going on by all these various different players? Or is there a way that we can actually create a much more transparent ecosystem? stuff.

38:30The first point you're making is one reason why the buy side reaction has been so muted, I think, because honestly, none of this is that surprising. Like buyers have been watching auction dynamics get more and more opaque for years. And so have we, we covered black box algorithms like bid shading. You get all the levers taken away from you that you used to, you know, use. And it's all like in the name of performance and efficiency, which feel like obfuscating terms actually. But it's also like kind of, I don't know, you can't have nice things because you don't make the effort. Like you can't complain and complain and complain about a lack of transparency and then just keep on spending as you always do.

39:11Yeah. Right? I mean, ideally not. I'll also point out kind of a key difference that I think is at stake here. you know, kind of playing the devil's advocate here. I think the auction manipulation that I saw is like the publisher SSP reporter, you have Google with its ad server kind of controlling the rules and being the auctioneer there that then affects, you know, Google, which was a participant in the auction, Google ad X, as well as these other independent ad tech companies, the OpenX, you know, Magnite, Pubmatics of the world, Criteos, and then the publishers themselves. So you had all these independent ad tech companies who couldn't really run their businesses the way they wanted to because they were stuck in this Google ad server auction.

40:02Whereas I feel like for Amazon, or I mean, there was also some, we got the shaking the couch cushions comments in the Google search trial where they acknowledge kind of manipulating some of these prices in order to meet their quarterly earnings. It's like a closed ecosystem where ultimately, like if Amazon manipulating the auction means that I'm not performing as well on Amazon, I'm just going to pull my dollars out. Whereas I don't think that level of flexibility existed because you have the ads on the display market because you have this ad server SSP publisher structure. So I think that to me is at least like a positive market correcting force, you know, presuming that there is a place for a marketer to shift their budget.

40:54If you're kind of one of these small brands where Amazon's like 80 % of your sales, maybe you do just have to pay this higher ad tax. And that's probably going to be one of the FTC's most strong arguments. Like if people don't have the choice to shift dollars elsewhere or kind of vote, vote with their vote with their marketing dollars. I mean, that kind of answers a question that I wanted to ask you, which was a question that you brought up when all of us were chatting about Amazon and the FTC like earlier this week, right? Like you were just tossing it out there as the devil's advocate. Why can't Amazon just run its auction however it wants?

41:32And if you don't like it as an advertiser, just take your money elsewhere. But like you were just saying, Amazon isn't just another ad platform. Like what alternative do you have that has even half or a quarter as much reach and influence? So you can't really have a meaningful take your money elsewhere, you know, argument. If you want to reach like in market shoppers or whatever, you know, if you're talking about Amazon, it's just a different story. yeah and i mean you know it kind of comes to mind like oh maybe they could go to like meta but it's like as you know as we know there's also like a class action lawsuit alleging that meta overcharged advertisers for uh and it's at auction so you know it's a whole thing like by the way this is why i could like could not i took economics and i was like i can't oh my god really i i was like maybe i'll be an economics major when i was a freshman but like they're just kind of talking about the perfect markets and i'm like there's no no perfect market exists like i found that part to be like super annoying and that's all you learn in econ 101 is like the perfect marks i'm like no person would behave this way because that's why i became a social scientist as an english major this is reminding me of when we had to read candide and it was like there was no such thing as like the oh no this is the oh we already live in the the most perfect world because god created it and he wouldn't create it cool yeah it's um but today i i this is actually bringing me back i remember many years ago i was like doing a q a with these people who had like written some kind of paper about second price auctions and i'm kind of like describing how like the google auction was structured and like their heads were like exploding as we chatted they were like but this is like cannot compute like this is not how it would work like oh but they say they're doing this but it's really this and it was they were just like How does this function?

43:23We did not account for this in our, you know, econometric formula or whatever. Anyway, so I guess what I would say too is, right, like, so there's behavior, like, right, like we know like what the, how a participant should behave in a first price versus second price auction. A second price auction, you're supposed to state your full value and then you get a discount on that, right, versus the first price auction, like your, well, I don't think I'm actually saying that correctly. But like, but I would say like with the second price auction, you might expect like, okay, I'm going to bid 10, but I'm going to clear up four.

43:56And that's actually what my business can support. Whereas the first price auction, you might just bid at four because that's what your business can support. But I assume Amazon saying that the the that 50 percent average winning bid decline is in part because advertisers were adjusting their bids as if they were behaving, you know, in more of a first price auction because they couldn't pay the full amount. So I feel like there was some of that happening. Maybe Amazon should just switch to a first price auction. I don't know. Yeah, that's a big part of the Amazon argument where it's like the FTC just fundamentally misunderstands how advertisers bid.

44:32They are like, you know, dynamically adjusting their bidding strategies in response to what they win and what they don't. And then, you know, Amazon also claims that like roughly 92 % of placed ads are not given to the highest bid on its platform. So like it really is like leaning into this argument that like this is all to serve the purpose of making sure the most relevant advertisers end up winning. But as far as what's true, we really can only find out if this actually goes to trial and we get some insight into what was really going on here. Well, that feels like a good note to end on, Anthony, in terms of what's next.

45:08So thanks for thanks for tuning in to our auction TED talk. So much here around nuances of auction dynamics. Always, you know, ship me a note if you want to talk more. Tell me about your auction observations. And we'll see you next week.

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