Clearing Up Misconceptions about Google’s Ad Tech Business

By Daniel S. Bitton (Axinn Veltrop & Harkrider LLP) & Stephen Lewis (RBB Economics LLP)

The technologies that advertisers, website owners and app developers use to buy and sell advertising space online (“ad tech”) have attracted regulatory interest around the world.
Interest in this area is understandable. Ad tech tools help website owners and app developers (collectively, “publishers”) optimize their ad sales and thereby fund free original content. Advertisers similarly rely on such tools to optimize return on their digital ad spend.
However, it appears that scrutiny of ad tech is in part driven by fundamental misunderstandings about Google’s products and practices in that space.
In this paper, we explain how ad tech products operate in general, how Google’s ad tech products have evolved and work today and how ad tech fits into Google’s overall business model. We then address several mistaken propositions and theories advanced by two Google critics, Damien Geradin and Dimitrios Katsifis (G&K),2 which seem to have colored some of the regulatory interest in Google’s ad tech business. This paper is not a comprehensive economic and legal assessment of G&K’s antitrust theories. There are fundamental legal and economics deficiencies in their theories that are not addressed in this paper. Instead, while we follow a legal and economic antitrust framework, we focus primarily on how and why the facts, as we understand them, do not support G&K’s theories.G&K center their claims on Google’s popular Ad Manager product. This ad tech product helps publishers manage the sale and placement of ads on their websites and apps, and as part of that service, connects them with ad buyers through various mechanisms,4 including ad auctions. G&K claim that Google has designed Ad Manager to stifle competition by favoring its own ad auctions over those offered by competitors, and has been able to extract monopolistic rents. As we explain in this paper, their theories are unfounded. The paper is structured as follows:
In Section II, we describe ad tech concepts and terminology relevant to G&K’s theories, including Google’s products. We also explain how the particular ad tech concepts on which G&K are focused—open ad auctions operated by ad tech intermediaries—fit into the greater online advertising marketplace and represent a relatively small sales channel in that marketplace. Most advertiser spend on online display advertising does not involve such intermediated open ad auctions.
In Section III, we examine how Google’s business model as a search engine and vertically integrated ad tech provider affects its incentives, and the implications of that for G&K’s theories. Google makes the large majority of its ad revenue from Google Search, and search engines are more useful if there continues to be a wealth of free, original online content for which to search. That suggests that Google should have strong economic reasons to facilitate a competitive ad tech sector, because competitive and innovative ad tech supports publishers’ ability to fund free and original content. Trying to stifle competition in ad tech, on the other hand, would undercut publishers’ ability to fund free and original content and thus ultimately hurt Google’s search business. As a search engine and vertically integrated ad tech provider, Google also has incentives to balance the interests of all ecosystem participants—users, publishers, and advertisers—and promote the long-term viability of the open Internet. That includes incentives to solve market externalities or “tragedy of the commons” problems, such as when publishers adopt ad practices in search of incremental revenue for themselves, only to drive users to adopt ad blockers, which harms publishers and advertisers. G&K’s theories focus exclusively on the interests of publishers. As a result, they mistake conduct by Google that attempts to balance the interests of all ecosystem participants as anticompetitive.

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