How Google Managed to Avoid Charging Publishers More Than Anyone Else

For years, Google charged the same 20 percent commission for ad transactions that occurred through its platform, even though it was higher than any other player in the industry. Executives privately worried that the fee would be difficult to defend. Now, the Justice Department says it is a key sign of Google’s monopoly on online advertising.

Google’s so-called takeover rate was the focus of the final day of the first week of the Justice Department’s second antitrust trial against Google. Citing internal Google documents and the testimony of Google’s former sell-side advertising executive, Chris LaSala, the Justice Department sought to show that Google never experienced any real pricing pressure because of its unwavering market dominance, despite knowing that its fees were higher than those of its competitors and that customers complained about its tools. The trial continues this week, with YouTube CEO and former Google advertising executive Neal Mohan set to testify on Monday.

According to emails presented in court, Google executives wondered whether the 20 percent fee their AdX exchange charged for facilitating transactions was sustainable and worried about how they would continue to justify it. Jonathan Bellack, another Google advertising executive, wrote in one 2018 exchange that the fee was “not defensible in the long term.” In another 2018 email, he also acknowledged that the fee should be in line with market value and that it “should not be twice the price.”

But prices held, largely because Google could control access to a huge advertiser base through the Google Ads network, allowing publishers full access to that market only through AdX. In one 2018 email, In response to a question from another CEO about disclosing Google’s buy-side fee and how much it would be, LaSala noted that the fee for buying and selling ads “is in place now not because comparing two offers gives you 20% value, but because it’s unique demand through AdWords that’s not available any other way.” He said he believed that “the seller-side revenue share should probably peak at 10%” for the Open Auction, and that “unique demand” from Google Ads was “the only reason we can keep 20%.”

In an email exchange in 2019, LaSala noted “the ongoing call for transparency from buyers and publishers. It’s reasonable and shouldn’t be dismissed.” He also said it was “questionable” that a 20 percent fee would be “reasonable in the long term” and pointed to a signal that the “market rate” for ad transactions in the Open Auction was “closer to 10 percent.”

Brian O’Kelley, founder of AppNexus, an ad exchange that unsuccessfully tried to build an ad server for publishers that could compete with Google, described AdX’s 20 percent traffic rate as “significantly higher than our competitors” in testimony.

The messages between Google executives underscore their recognition that AdX’s ability to connect Google’s publisher-side tool with its large advertiser base allowed the company to collect an unusually high commission. While Google argues that its system ultimately benefited all parties, the government is trying to argue that it illegally connected the publisher’s ad server and the ad exchange — not to provide a better experience, but to maintain a monopoly.

“Publishers keep the majority of the revenue when they use Google ad technology, and our fees are transparent and consistent with industry rates,” Google spokeswoman Jackie Berté said in a statement. “Even when only Google tools are used to buy and sell ads, the publisher keeps about 70% of the revenue.” Google will have a chance to present witnesses and present its own case against the Justice Department once the government’s case is over.

Even as Google defended its service, Googlers recognized how difficult it would be for publishers to switch ad servers if they were unhappy. LaSala testified that switching ad servers was “a tough task,” and in his time at Google, he could only recall one publisher that did so: Disney. Rather than switch to another tool, Disney built its own.

As Tom Kershaw, former chief technology officer at rival ad exchange Rubicon, testified earlier in the day, “I have the option of starving to death. I don’t choose that option.” Giving up access to the Google ad network by bypassing AdX, he said, “is the equivalent.”