Wednesday, January 26, 2022

Google’s alleged plan to corner the online advertising market

In 2010, a A Google product manager named Scott Spencer gave an interview explaining Google’s use of “second value” auctions to advertise across the web. In a second price auction, the highest bidder wins, but is to pay only what second was the highest bid. Economists love this setup—the man who theorized it won the Nobel Prize—because it encourages participants to bid for whatever item is actually worth them without worrying about overpaying. As Spencer explained, “It obviates the need to ‘game’ the system.”

But what if Google was the only gaming system?

The allegation comes in an antitrust lawsuit brought by a coalition of states led by Texas Attorney General Ken Paxton. On Friday morning, a federal judge issued an unchanged version of the most recent complaint in the case, first filed in 2020. The document provides unprecedented insight into how Google misled advertisers and publishers for years by allegedly manipulating auctions in their favor. inside information. As one employee put it in a newly disclosed internal document, Google’s public claim about the second price auction was “untrue.”

The Texas case, facing one of several companies aimed at Google’s control of the auction-driven display advertising market. Google completely dominates every link in the chain between the advertiser and the audience. It owns the largest buyer platform, largest ad exchange and largest publisher platform. So when you see an ad on a website, it’s a good bet that the advertiser used Google to place it, Google’s exchange submitted it to the site, and the site used Google to provide the location. Did. In other words, Google runs the auction, representing both buyers and sellers in that auction.

This presents a clear conflict of interest. As one employee said, quoted in an earlier unsealed version of the lawsuit, “the analogy would be if Goldman or Citibank owned the NYSE.” According to Texas, Google has failed to resist the temptation to use its control of the market to its advantage. The lawsuit accuses him of secretly deploying at least three programs designed to distort alleged second-price auctions. While the existence of those programs was already public, the new unproven complaint provides new details of how they allegedly work.

The first program, launched in 2013, was the oddly named Project Bernanke, as in former Federal Reserve Chairman Ben Bernanke. According to Texas’ description of Google’s internal docs, here’s how it works. Let’s say the highest bid placed through Google’s ad exchange, AdX, was $10, and the second highest bid was $8. In that case, the advertiser who bids $10 should win the auction and pay $8 to the publisher. However, under Project Bernanke, Google will reportedly pay the publisher whatever third-The highest bid was—let’s say $5—while still charging the advertiser the full $8.

What happened to the difference of 3 dollars? According to the complaint, Google will move this to a “burning pool,” which it used to leverage its own ad-buying tool, Google Ads. The filing quotes an internal 2014 document in which a Google employee describes the need to reverse “a worrying 2013 trend”: Rival ad-buying platform AdX was winning too many auctions. According to the complaint, Google used the money in the pool to promote bids that would otherwise be lower than those placed through other platforms. (This may explain why the program is named after Bernanke, who promoted “quantitative easing”—pushing money into the economy—to counter the Great Recession. An internal Google Slides uses the phrase quantitative easing. First, Google tracked how it was withholding a lot of money from publishers and eventually paying them back. But, according to the complaint, later versions of the program stopped doing this as well.

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