DOJ vs. Google, Your Third Day of Downloads: Ex-Googler on the Lectern and Auction Dynamics in Focus

The federal antitrust trial against Google that began earlier this week in Virginia delved so deeply into the nitty-gritty of ad technology by its third day that even this reporter covering the case barely knew some of the terminology.

Anyone up for a real DRS?

Read on for an explanation from Justice Department witness Professor R. Ravi, a computer scientist and academic expert in the field of applied mathematics that studies the optimal allocation of resources.

Because, you know, that’s just kind of a test.

If you haven’t been following along, you can quickly find out what’s happened so far:

Here’s a summary of day three.

Kid at the stand

Before Prof. Ravi was called, the day began with testimony from a much less willing government witness: former Google advertising executive Brad Bender.

If there’s anyone who should be the go-to source for institutional knowledge on Google’s display business, it’s Bender. He worked at DoubleClick for more than a decade, joining Google in a 2008 acquisition and then spending nearly 15 years rising through the ranks, including as vice president of product, display and video.

But Bender testified only because he was unable to quash the subpoena. The DOJ lawyer questioning Bender asked the judge to allow him to be treated as a hostile witness.

The Justice Department has spent significant time investigating the Bender email exchanges. The first one was Email sent by Bender to his team in 2009. contained detailed notes taken by a colleague about a talk that DoubleClick CEO David Rosenblatt gave shortly after the acquisition on Google’s display strategy.

“It’s a long read,” Bender wrote in an email, “but if you get a chance, it’s worth getting his (David’s) perspective.”

The presentation was full of honest statements:

For example, Rosenblatt said that without access to supplies, “nothing else matters. It turns out that the most effective way to access those supplies is by owning a master ad server that premium and non-premium publishers use to manage their inventory. This gives the network a so-called “first look” at every expression.”

Also: “The initial reason Google was interested (in DoubleClick) was because Google was ahead of the curve intellectually but was having trouble building its own primary ad server.”

And on why running an exchange business is so much more “sustainable” when you also have an ad server: “In my opinion, nothing really matters more than the platform. Nothing has such high switching costs. If there’s a better network or exchange, you can just switch to that. Switching platforms is a nightmare.”

“To do this, we need divine help.”

Under direct questioning, Bender noted that simply sending an email did not mean he agreed with every point in it.

‘The problem is that HB exists :)’

But the second email that the Justice Ministry focused on was even more candid. – and therefore more difficult to explain.

In March 2018, Bender received an email from Jonathan Bellack, who led product management for Google’s publisher ad platforms. The email included a note noting that a “huge portion” of publisher revenue from header bidding actually came from Google demand going outside the Google ecosystem and back through third-party exchanges.

(DBM stands for DoubleClick Bid Manager, which stands for DV360.)

Bender forwarded Bellack’s message to one of his direct reports, Payam Shodjai, and wrote, “This looks like it’s pretty broken. Is there anything we can do to help with this situation in the short term?”

To which Shodjai replied that “it’s more complicated than ‘DBM should stop buying HB stock’. The problem isn’t that DBM is buying HB stock – the problem is that HB exists :)”

This is a smiley face.

Shodjai noted that header bidding is a “no-brainer” for publishers because it yields better returns. Header bidding was created only because “publishers felt locked in by DFP’s dynamic allocation, which only gave AdX the ability to compete.”

It’s better (or worse?): “Because DBM is the largest buyer on many exchanges, we are also the largest buyer of HB stocks because we have no way of distinguishing HB stocks from non-HB stocks. So, for DBM to stop buying HB stocks would mean that DBM stop buying on 3P exchanges. That’s something we can certainly discuss. It has big competitive implications.”

Shodjai then notes that Google’s exchange bidding “stops the bleeding” but isn’t perfect, as margins are low at 5%. Project Poirot “has actually been quite effective, causing DBM to spend 7% more on AdX and reduce spending on other exchanges.”

And the scene.

Poirot vs. Exchanges

Speaking of Poirot, here’s an interesting fact: Google has been including little graphics of moustaches in some of its internal Project Poirot documents, supposedly as a reference to Detective Hercule Poirot’s famous mustache.

We know about the little whiskers because the evidence included an internal Google document analyzing the impact of Poirot’s launch, including on third-party exchanges. The chart on it shows a 10% drop in Rubicon’s win rate and double-digit declines for both PubMatic and OpenX.

Google launched Project Poirot in 2016 as a program to bid on offers when DV360 would bid on exchanges other than AdX. From Google’s perspective, this had the added benefit of Header Bidding Suppression.

According to Prof. Ravi, who analyzed Poirot and other Google auction dynamics in an expert report for the government, features such as Project Poirot, first look (which became last look after the headline auction) and unified pricing rules (UPR) “were not well designed to optimally allocate impressions and appear to have been designed to give Google products an advantage over others.”

In response, Google’s lawyers noted that of all those algorithms, only UPR still exists. They also said that the last look, while it still existed, would have resulted in higher CPMs for publishers because it gave AdX a chance to beat the highest header bidding bid.

Under cross-examination, Prof. Ravi admitted that the latest look would have made publishers more money if AdX had offered more than the header bidding auction. But he had the opportunity to explain that in the case of redirection.

According to him, the latest assessment would not have provided the publisher with “any benefit” if AdX had paid the same price as the winning bid, which would likely have been the case if Google had known what price it had to meet or beat.

Tough bets

Meanwhile, the government said the same was true for Google’s other auction features, including seller-side dynamic revenue sharing (DRS).

Instead of charging a flat margin before bidding, DRS allowed Google to adjust its download rate up or down with each impression to make AdX more competitive in the auctions. This meant Google could bid higher in some auctions, lowering its fee, and then recoup it later by charging a higher margin in another auction.

By winning more often, Google put itself in a position to continue to win, partly because it influenced the overall auction dynamics in its favor and also because other exchanges could not lower their fees to compete on price.

The Justice Department presented as evidence an August 2017 email from Martin Pál, a Google engineer and scientist, who wrote that DRS allows AdX to “pay a lot and win when AppNexus has high CPMs, and pay little when AppNexus has low bids.”

At one point, Google also introduced another type of dynamic revenue sharing, called “true DRS,” which involved Google using machine learning to decide whether it should take a 0% margin or its usual 20%.

If the algorithm assumed that Google could take a 20% commission and still win, that’s exactly what it would do.

Buyer’s point of view

The final witness of the day was Jed Dederick, chief business officer at The Trade Desk, the only other named buy-side witness besides Todd Parsons, chief product officer at Criteo, who had not yet testified.

It’s not 100% clear why the DOJ wanted DSP on the stand. Google’s DV360 DSP is a major competitor to The Trade Desk, but it’s not part of the DOJ complaint, which concerns Google’s publisher-focused tools.

But The Trade Desk bids on multiple exchanges, including AdX, which is one of the most important sources of supply. Still, TTD has concerns about the transparency and fairness of the AdX auctions, it said, something the company has repeatedly raised with Google.

For example, sites built for advertising purposes “are a huge problem for serving content on the open web,” Dederick said, and Google and AdX “are some of the biggest providers of MFA.”

But nothing changed after those talks, he said, including TTD’s relationship with AdX. “We wouldn’t be competitive without access to AdX,” Dederick said.

During cross-examination and just before the scheduled end of the trial, the defense attempted to introduce TTD’s email into evidence, which is still sealed. An objection was raised, and all members of the public and press were asked to leave the courtroom while Judge Leonie Brinkema considered what to do.

Lawyers (Dederick also has his own attorney) will decide how to resolve the expungements during a hearing early Thursday morning before court resumes session at 9 a.m. ET.

The first witness of the day on Thursday is Rahul Srinivasan, who was a Google Ad Manager product manager from 2016 to 2019. It’s possible Dederick will finish his testimony later in the day. Stay tuned.