The Google court case... wow

The US anti-competition lawsuit became publicly available over the weekend. The content is compelling. Anyone involved in publishing or marketing should read it

Welcome to Unmade, written on another crisp, beautiful morning as the sun came up at Sisters Beach, Tasmania. I swear the dawn chorus is getting louder.

Happy Howl at the Moon Night. Despite being in waning gibbous phase. I thought we were supposed to wait for a full moon.

Today’s writing soundtrack: Dire Straits - Making Movies. Imagine dropping the needle on that album 40 years ago and hearing Tunnel of Love, then Romeo and Juliet, as the first two tracks. The rest of the album would have been such an anticlimax.

We had a big day for paid signups to Unmade yesterday. A reminder that the price is going up at the end of the week, and will never be as low again.

The button below gets you 20 per cent off what was already the (I suspect) overly low price of $180 per year. Come the weekend, I’m putting that up. Until Friday, you can subscribe for the discounted price of $144 per year. The first paid subscriber only post will be later this week.

Get 20% off for 1 year

Today feels like a good day not to be reliant on programmatic advertising as my business model.

Project Jedi and the evil empire

Reading the documents, it’s hard not to overreact.

We’re approaching something close to settled science on the proposition that Google has too much power in the digital advertising market. But when you read the case for the prosecution, written by a prosecutor, it’s something else altogether.

The case in question is a civil lawsuit filed on behalf of more than a dozen US states under US competition law. It’s led by Texas’s attorney general Ken Paxton. It was filed late last year, and unsealed over the weekend.

You can now read the whole thing here.

Paxton is not necessarily the hero you’d choose to make the case. He was closely aligned to Donald Trump’s attempts to overturn the result of the last election. But his legal team sure can write.

Unlike the Australian Competition and Consumer Commission’s more measured approach, this case takes the reader on the journey. And at the end of the journey, the reader is looking for the button to press to break up Google and parent company Alphabet.

If you can spare two or three hours to read the outline of the case in the link above, I recommend the investment of time, particularly if you don’t understand the intricacies of programatic advertising, but feel that you probably should. The case is written in plain language aimed at at an intelligent reader, but not one already embedded in the programmatic world. At some point, they’ll need to persuade a jury.

And the documents suggest that Google’s dominance in the digital advertising space comes not just from out-innovating every else, but from some more shady manoeuvres. The company controls every stage of the digital advertising process, on both the publisher and advertiser side.

Up until now, Facebook has seemed like the bad guy of the digital behemoths. But perhaps Google has simply been better at hiding it.

For anyone working in publishing wondering where their business model went, they’ll find an answer in the document. And for anyone in marketing pondering the question of why their digital advertising dollar seems to disappear, they’ll get an answer too. It’s the same for both questions: Google’s taking it.

Before In get into it, it’s worth being clear that Google is fighting the case. Last night a spokesman gave me this statement: “Just because Attorney General Paxton asserts something doesn’t make it true. This lawsuit is riddled with inaccuracies. In reality, our advertising technologies help websites and apps fund their content, and enable small businesses to reach customers around the world. There is vigorous competition in online advertising, which has reduced ad tech fees, and expanded options for publishers and advertisers. We will strongly defend ourselves from his baseless claims in court.”

And Google’s specific rebuttals can be found in a post it published back in January.

And there’s a lot to rebut. The bomb drops from the beginning:

“The halcyon days of Google’s youth are a distant memory. Over twenty years ago, two college students founded a company that forever changed the way that people search the internet. Since then, Google has expanded its business far beyond search and dropped its famous “don’t be evil” motto. Its business practices reflect that change. As internal Google documents reveal, Google sought to kill competition and has done so through an array of exclusionary tactics, including an unlawful agreement with Facebook, its largest potential competitive threat, to manipulate advertising auctions. The Supreme Court has warned that there are such things as antitrust evils. This litigation will establish that Google is guilty of such antitrust evils, and it seeks to ensure that Google won’t be evil anymore.”

The document then methodically unpacks the digital advertising chain, explaining how Google came to dominate each stage, and snuff out attempts to bring in more competition. It wasn’t an evolution of a market, it was a scheme.

The issue is not just how large a cut of each digital advertising dollar Google takes, but how well hidden that is. As the case puts it:

Google excludes competition by purposefully keeping its auction mechanics, terms, and pricing, opaque and “nontransparent.” When marketing its exchange to publishers and advertisers, Google has explained that an ad exchange is “just like a stock exchange, which enables stocks to be traded in an open way.” However, Google’s exchange is not open at all.

Google’s non-transparent pricing strategy includes obfuscating the take rate that
publishers and advertisers pay Google. Google tells the small advertisers who use Google Ads to bid the price they pay Google for ad space, but not the price the inventory actually cleared for in Google’s exchange, the revenue the publisher receives, or the markup Google keeps.

And more extraordinarily:

“Google also obfuscates price transparency for publishers. Overall, evidence suggests that publishers selling inventory through Google receive approximately 70 percent of advertising revenue paid by advertisers, and in some cases that amount is as low as 58 percent. In other words, Google’s take rate is approximately 30 percent and in some cases is as high as 42 percent.”

No wonder digital publishing is tough. Imagine trying to run any business where a middleman skims 42 per cent of your revenue, and you cover all the costs.

And the skim takes place at every stage.

Immediately after acquiring a publisher ad server and launching its exchange in 2009, Google began to require that the small advertisers bidding through
Google Ads transact in both Google’s ad network and Google’s ad exchange. Google also required that the large publishers wanting to receive bids from this enormous group of small advertisers trade in Google’s exchange and license Google’s ad server. In essence, Google demanded that it represent the buy-side, where it extracted one fee, as well as the sell-side, where it extracted a second fee, and it also forced transactions to clear in its own exchange, where it extracted a third fee.

The document gets into plenty of specifics. The rise of header bidding, a technique used by publishers to get around Google’s attempts to lock them into its own exchange, threatened Google’s profits. So it plotted to kill it off, the document claims. That included, it suggested, colluding with Facebook (surprise surprise…) in an agreement known internally as Jedi Blue.

Above and beyond its unlawful agreement with Facebook, Google employed a number of other anticompetitive tactics to shut down competition from header bidding. Google deceived non-Google exchanges into bidding through Google instead of header bidding, telling them it would stop front running their orders when in fact it would not. Google employees also deceived publishers, telling one major online publisher that it should cut off a rival exchange in header bidding because of a strain on its servers. After this misrepresentation was uncovered, Google employees discussed playing a trick—a “Jedi mind trick”—on the industry to nonetheless get publishers to cut off exchanges in header bidding. Google wanted to “get publishers to come up with the idea to remove exchanges … on their own.” Google then proceeded to cripple publishers’ ability to use header bidding in a variety of ways.

It was the major reason for Google launching its AMP (accelerated mobile pages) project. When AMP launched in 2015, it was presented to publishers as being about helping them deliver faster mobile content through cached versions of their sites.

But according to the document:

Google gave publishers a Faustian bargain: (1) publishers who used header bidding
would see the traffic to their site drop precipitously from Google suppressing their ranking in search and re-directing traffic to AMP-compatible publishers; or (2) publishers could adopt AMP pages to maintain traffic flow but forgo exchange competition in header bidding, which would make them more money on an impression-by-impression basis. Either option was far inferior to the options available to publishers before Google introduced AMP. Just how inferior? According to Google’s internal documents, 40 percent less revenue on AMP pages.

There were also a string of sneaky individual projects, says the document, including “Project NERA”:

To get publishers to give Google exclusive access over their ad inventory, Google set publishers up for a lose/lose scenario. First, Google started to leverage its ownership of the largest web browser, Chrome, to track and target publishers’ audiences in order to sell Google’s advertising inventory. To make this happen, Google first introduced the ability for users to log into the Chrome browser. Then, Google began to steer users into doing this by using deceptive and coercive tactics. For example, Google started to automatically log users into Chrome if they logged into any Google service (e.g., Gmail or YouTube). In this way, Google took the users that choose not to log into Chrome and logged them in anyways. If a user tried to log out of Chrome in response, Google punished them by kicking them out of a Google product they were in the process of using (e.g., Gmail or YouTube). On top this, through another deceptive pattern, Google got these users to give the Chrome browser permission to track them across the open web and on independent publisher sites. These users also had to give Google permission to use this new Chrome tracking data to sell Google’s own ad space, permitting Google to use Chrome to circumvent reliance on cookie-tracking technology.

Then there was the internal team known as gTrade. This team, the document alleges, figured out programs to rig digital trading so advertisers paid more than they needed to when winning bids. And they created another program to make sure that advertisers on Google’s own exchange won bids, even if an outside transaction would have delivered a better rate.

Bidding on ads is rigged in Google’s favour at every stage, says the document, which unfavourably compares the model to the New York Stock Exchange:

Once Google routed publishers’ impressions to Google’s exchange, Google further harmed publishers by foreclosing competition between the bidders in its exchange auction. Google considered, but ultimately decided against “creating a completely neutral platform like the NYSE.” Instead, Google chose to craft a rigged exchange to benefit its own ad buying tools. In other words, Google chose to “stack the deck in favor of Google [demand].” As a result, Google’s exchange suppresses competition in its auction, permitting Google’s ad buying tools (Google Ads and DV360) to win over 80 percent of the auctions in Google’s exchange.

The document also portrays Google’s current moves to end third party cookies as entirely self-interested - “a ruse”:

To summarize, Google’s upcoming cookie changes in the name of privacy are a ruse to further Google’s longstanding plan to advantage itself by creating a closed ecosystem out of the open web. Google’s aim is to further squeeze competition in the exchange and ad buying tool markets by restricting competitors’ ability
to track users and target ads.

At the same time, Google is trying to hide its true intentions behind a pretext of privacy. Google does not actually put a stop to user profiling or targeted advertising—it puts Google’s Chrome browser at the center of tracking and targeting. Google does not put a stop to Google’s tracking of users on Chrome; it does not put a stop to Google’s tracking of users through cookie workarounds; it does not put a stop to Google’s tracking of users across the largest sites in the world.

There’s a lot more in the document’s 168 pages, and the detail of it will gradually come out in court. Last month, the ACCC published what it said would be its final report on its investigation into the digital advertising market. With the new detail available in this court case, I wonder if there might yet be another chapter.

About this time tomorrow, Alphabet is due to release its quarterly earnings update. The stock market still loves Google. The company currently has a market capitalisation of a trillion dollars. That’s doubled since the court case was filed. Shareholders often do well out of breakups.

It’s going to be a hell of a court case.

Letters: ABC trust

Yesterday I wrote about the ABC’s apparent siege mentality.

Unmade - by Tim Burrowes
Starting the week: ABC under scrutiny; Coles most green?; Heart Foundation fades; ad tracking apocalypse
Welcome to Unmade, written on a crisp, cloudless blue morning at Sisters Beach, Tasmania. Today’s writing soundtrack: Loving in Stereo by Jungle. It’s optimistic, genre-mashing stuff. Thanks for the top tip, Chris. Happy Accounting Day. As somebody starting to think about company accounts, I’m suddenly all the more appreciative. Sense check: Xero is the b…
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(Another) Tim writes:

Hi Tim,

Pretty concerning that you decided to link to a piece on the Spectator by an IPA staffer on discussing the ABC's drop in trust, given the IPA's long ideological war against the public broadcaster. Not doubting the Roy Morgan research in any way but it would be interesting to see if other media companies also saw a drop in trust during Covid? It's hard to make any intelligent analysis of this with one media organisation being assessed in isolation. It's made even worse by ideologs on your link conflating the result with their own culture wars. Pretty disappointing.

Thanks for the comment, Tim. I see where you’re coming from regarding the link to The Spectator. (The weakness of the Australian product compared to its UK parent is one for another day). If that particular piece of Roy Morgan data had been available directly, I would have linked to it. In this case, the author of the piece had taken a screen shot of a Roy Morgan webinar slide. It seemed better to link to the source, than not. And the link was for the information, not the argument.

As ever, I welcome your thoughts to, or via the comment button.

Leave a comment

And thank you for your letters and advice yesterday on accounting software. The consensus certainly seems to be that Xero is the way to go.

As I write 40 minutes before sending this, News Corporation;’s annual report has just dropped. If there’s anything interesting in it, I may cover it in tomorrow’s email

Have a great day.


Tim Burrowes

Proprietor - Unmade