One, two: Google’s millisecond ad auctions are subject to monopoly claims

ALEXANDRIA, Va. (AP) — It happens in milliseconds, ideally, as you browse the web. Networks of computers and software analyze…

ALEXANDRIA, Va. (AP) — It happens in milliseconds, ideally, as you browse the web. Networks of computers and software analyze who you are, what you look at and buy and sell the ads you see on websites.

The company that most likely decides what ads you see and how much the advertiser paid to display them on your screen is Google.

In fact, the Justice Department and a coalition of states argue that Google’s dominance over the technology that controls the sale of billions of display ads across the internet every day is so thorough that it constitutes an illegal monopoly that must be broken up.

The trial, which is being held in federal court in Alexandria, Virginia, will determine whether Google’s ad tech stack constitutes an illegal monopoly. The first week included an in-depth look at exactly how Google’s products work together to run behind-the-scenes electronic auctions that put ads in front of consumers in the blink of an eye.

Internet advertising has evolved rapidly. About fifteen years ago, if you saw an ad on the Internet, it was likely to feature people dancing in excitement about low mortgage rates, and these ads were thrust upon you whether you were looking at real estate or checking baseball scores.

Today, the algorithms that match ads to your interests are carefully calibrated, sometimes to a terrifying degree.

Google, for its part, says it has invested billions of dollars to improve the quality of ads displayed to consumers and enable advertisers to reach their target audiences.

The Justice Department alleges that Google has manipulated automated ad auctions over years to favor itself over other would-be industry players, depriving the publishing industry of hundreds of millions of dollars that it would have received if the auctions had been truly competitive.

Government witnesses explained in detail the auction process and how it has evolved over the years during a hearing in Virginia.

In the government’s view, there are three different tools that work together to sell advertising and place it in front of the consumer. There are ad servers used by publishers to sell space on their websites, specifically the rectangular ads that appear at the top and right of a webpage. Ad networks are used by advertisers to buy space for ads on a range of relevant websites.

In between is the ad exchange, which matches a website publisher with a potential advertiser by conducting a flash auction.

Publishers naturally want to get the highest possible price for their ad space, but court testimony has shown that this doesn’t always happen due to policies imposed by Google.

For years, Google gave its ad exchange, called AdX, the first chance to match a publisher’s proposed floor price. For example, if a publisher wanted to sell a particular ad for a minimum of 50 cents, Google’s software gave its ad exchange the first chance to buy. If Google’s ad exchange bid 50 cents, it won the auction, even if competing ad exchanges were willing to pay more.

Google said the system is necessary to ensure ads load quickly. It would take too long for computers to accept bids from every ad exchange.

Publishers unhappy with this system found a workaround to conduct auctions outside of Google’s oversight, a process that became known as “header bidding.” Internal Google documents presented at the hearing described header bidding as an “existential threat” to Google’s market share.

Google’s response hinged on its control over all three components of the process. If publishers ran an auction outside of Google’s scope but still used Google’s publisher ad server, called DoubleClick For Publishers, the software would force the winning bid back into Google Ad Exchange. If Google was willing to match the price that publishers received in the header bidding auction, Google would win the auction.

Professor Ramamoorthi Ravi, an expert at Carnegie Mellon University, said the rules imposed by Google do not maximize value for publishers and “seem to be designed to privilege Google products.”

Publishers could opt out of the Google ad exchange entirely, but they said at the hearing that they were reluctant to do so because they would otherwise lose access to the vast, exclusive advertiser base in the Google Ads network that was only available through the Google ad exchange.

Google, for its part, says it hasn’t run auctions this way since 2019 and that Google’s share of the display ad market has been declining over the past five years. It says that combining products on the buyer, seller and middleman sides helps them operate smoothly and quickly and minimizes the risk of fake ads or malware.

Google also says its innovations over the past 15 years have driven improvements in matching online ads to consumer interests. Google says it pioneered the introduction of “real-time bidding,” which allowed an advertiser selling shoes, for example, to be paired with a consumer whose online profile indicated an interest in buying shoes.

Google says these innovations allowed publishers to sell available ad space at higher prices because advertisers were confident that their ads would reach audiences interested in their product or service.

The Justice Department says that while Google no longer conducts auctions in the manner described, it helped the company maintain a monopoly on the ad technology market in the years leading up to 2019, and the current monopoly allows Google to keep up to 36 cents on the dollar of an ad purchase, with the transaction covering all of its products.

The Virginia trial comes just a month after a Washington judge ruled that Google’s search engine also constitutes an illegal monopoly. There has been no decision yet on what remedies the judge will impose, if any.