How Google Changed Its Deal with Publishers Who Couldn’t Say No

Google changed the rules for its publisher ad product, knowing that websites that sell ad space would object, in an effort to regain more control over the ad technology market, the Justice Department argued on the fourth day of an antitrust hearing against the company.

Through testimony from a former Google executive, internal company emails and a recording of a controversial 2019 meeting with Google publisher customers, the Justice Department has painted a picture of a company that ignored customer preferences to bolster its own business position, knowing they had few viable alternatives. Google’s lawyers have countered that executives listened to customer feedback and made some changes, even as they kept the core changes intact.

The history of one Google feature, brought to the Justice Department, suggests that the tech giant faced so little competition in some parts of the ad tech market that it could unilaterally set terms. Making changes that would negatively impact customers without losing business could suggest a monopoly — and the government argues that rather than choosing Google products for their quality, publishers simply couldn’t walk away.

The change in question was called the Unified Pricing Policy (UPR). Before the UPR, when publishers listed ad inventory for sale on their sites through a publisher ad server, they could set different floor prices for ad exchanges to bid on that ad space. This means that a publisher like Wall Street Journal could set a different minimum bid it would accept from Google’s AdX ad exchange than from another exchange, such as PubMatic. Google knew that publishers would often set higher minimum prices for AdX than on other exchanges, according to documents filed in court.

One reason Google understood this to be the case, according to internal emails from the time, was that publishers valued diversifying their ad revenue streams to reduce their dependence on Google. In emails shown in court, Google executives acknowledged that publishers were setting a higher floor price for AdX as part of a strategy to essentially “put more pressure on Google.” The emails agreed that this was a rational decision. “Publishers were willing to tolerate some loss of revenue in exchange for reduced dependence on Google as a whole,” one slide said.

But with UPR, Google eliminated that choice. The new rules meant that publishers had to set the same floor price for each exchange. Stephanie Layser, who worked in programmatic advertising at Wall Street Journal News Corp’s parent company, which at the time Google introduced the UPR in 2019, testified earlier this week that it told Google it believed the UPR was “in the best interests of Google, not the best interests of their customers.”

This was the lead-up to a tense April 2019 meeting in New York, where Google broke the news about UPR to publishers invited to an announcement event. The Justice Department played excerpts from a recording of that meeting, in which several publishers, including Layser, complained about the feature.

Felix Zheng, who headed programmatic advertising at IBM Watson Advertising at the time, told Google executives that taking away their “control” over floor prices was “something that was very hard to give up.” Jana Meron, who headed programmatic strategy and data at Business Initiate At the time, he said, “This is what limits us.”

If publishers decided they wanted to switch because they didn’t like the UPR, Layser said at the meeting, it doesn’t seem like they’ll be able to fully access Google’s advertiser network outside of Google’s ad exchange, AdX. In response, Rahul Srinivasan, a former Googler who worked on sell-side products at the time, said that was a valid argument.

Google executives have acknowledged that the rollout will be difficult to communicate. Sam Temes, chief product and sales officer, highlighted concerns that communicating “an even bigger shift of spending to AdX will be difficult.” Martin Pál, an engineer, worried that the UPR “will cause a backlash from publishers who may see this move as taking away functionality that they are quite attached to and consider critical to their business.”

In a statement for EdgeGoogle has disputed that take. “We introduced the Unified Pricing Rules and other updates to improve the transparency and fairness of the auction and help publishers achieve their goals,” Google spokesman Peter Schottenfels said Thursday. “During the rollout, we made changes and introduced new features in response to publisher feedback. As we heard in court today and from a Justice Department expert yesterday, publishers saw increased revenue as a result.”

On cross-examination, a Google lawyer produced an August 2019 email describing an “improvement” in the market’s perception of UPR “through ongoing dialogue with publisher partners and the press, and incorporating some publisher feedback into product changes.” This fall, another internal document showed, Google said publishers saw a “neutral or positive impact on revenue.”

Google introduced UPR in 2019, along with other changes that publishers were expected to like, including moving from a second-price auction to a first-price auction (in which the winner pays their bid rather than the second-place bid, which typically results in higher ad revenue).

The Justice Department has tried to characterize Google’s bundling announcement as a mix of good news and bad news, in an effort to soften the blow to publishers. Srinivasan testified Thursday that executives’ understanding that “some publishers might be upset about the UPR” was just “one of many factors” that led them to launch it alongside the first-price auction. He added that Google believes that different pricing policies “are less relevant in a first-price world.”

In an email exchange in May 2019, the colleague noted some “difficult PR” after the announcement and asked whether Google could move to a first-price auction without removing floor price controls. Srinivasan responded that the “primary internal goal” was for exchanges to compete on a level playing field. Moving to a first-price auction, he wrote, “gives us additional justification to remove some of those controls.” Ultimately, though, at least some publishers felt cheated — and now they’re getting their day in court.