Google charges more than twice its rivals in ad deals, unredacted suit says

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According to the suit, a senior Google employee said that ‘parity would be if Goldman or Citibank had the NYSE’.

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Google cuts US ad spending via its system from 22% to 42%, according to a newly unpublished lawsuit by the state attorney general, shedding new light on how from its commanding position in the Internet economy. Makes huge profits.

Alphabet Inc. GOOG -2.91% of the subsidiary’s share of every advertising transaction on its exchange — a marketplace for ad buyers and sellers — is typically two to four times higher than the fees charged by rival digital ad exchanges, according to the suit, which is led by Texas. Has been doing.

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The unread filing Friday in the US District Court for the Southern District of New York comes after a federal judge ruled last week that most antitrust suits could be dropped.[T]That analogy would be if Goldman or Citibank owned the NYSE,” a senior Google employee quoted in the suit, referring to the New York Stock Exchange.

Google has called the lawsuit flawed. “This lawsuit is riddled with inaccuracies and our advertising technology fees are actually lower than the reported industry average,” said Google spokesman Peter Schottenfels.

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The suit alleges that the company has deployed strategies to “lock in” publishers and advertisers and help the company’s ad-buying tool win more than 80% of auctions on its exchange, a new disclosure has revealed. The figure happened This gives Google a window into the overwhelming dominance of ads, citing Google documents that say the company served 75% of all online ad impressions in the US during the third quarter of 2018. The suit cites programs with code names like Bell, Elmo and the like. Poirot, which helped Google generate over $1 billion in sales.

The case argues that Google’s business practices inflate the advertising costs that brands pass on to consumers in higher-value products. It also alleges that Google suppresses competition from rival exchanges and limits websites’ options for ad delivery.

Led by Texas Attorney General Ken Paxton and joined by 15 states, the lawsuit was filed by the U.S. Department of Justice and 38 state attorneys general in a separate antitrust case focused on Google’s search services as well as Utah targeting Google’s Play app store. Supplements led by litigation. Hearing of those cases is scheduled for 2023 or later. The Justice Department is looking into a separate lawsuit against Google’s advertising business.

Lawyers for the group of states in the Texas-led lawsuit focused on the role of Google’s ad exchange, called AdX, which they say accounts for between 19% and 22% of the prices advertisers pay on the exchange. fee is charged. That’s double to quadruple the fees charged by AdX’s closest competitors, according to the publisher’s suit.

The company’s commanding market share in advertising helped it secure those large fees, according to the suit.

Smaller advertisers charge even more. Transacting on a separate system called the Google Display Network, they pay fees ranging from 32% to 40% to Google. The rates are in line with Google’s public statements that publishers get 68% of their revenue from AdSense, a tool for advertising on smaller websites.

In an internal discussion about the Google Display Network, executives said the company’s ad network makes “a lot of money” in commissions because “we can,” according to the suit. “Small pubs don’t have alternative revenue sources,” said a Google employee.

When a system called header bidding opened Google’s ad auctions to rival exchanges nearly five years ago, a change that followed accusations that the tech giant’s systems were antithetical, a Google executive wrote in an email that the system had failed. “A clear dilemma” could reduce Google’s profit margin to “about 5 percent,” according to the suit without action.

The company considered the threat of header bidding to exist because the system would bypass Google’s tools. In 2016, an employee worried that competition from rival exchanges would show that the 20% fee Google charged for its exchange was “not fair,” according to the suit. Others employ a strategy to “kill” it.

“AdX is the lifeblood of our programmatic business,” a company executive wrote in an email in 2017. “What do we do?”

The suit says the search giant tried to undermine header bidding through partnerships and software that protects its position. Google offered the option of header bidding that appeared to be a concession to competitive pressure, but the suit says it secretly developed a program called “JD” to ensure that Google’s exchange won the auction. Is.

Google employees speculated that the Jedi program could cause shock from customers and the public, saying it “produces serious risks of suboptimal yields and negative media coverage for publishers, if exposed externally.” is,” according to the new unreleased content.

Company employees also discussed playing a “Jedi mind trick” on the industry to “come up with publishers” with the idea of ​​delisting rival exchanges “on their own” – primarily fueling concerns that header bidding was going on. would affect the publisher’s servers, the suit says.

In 2018, Google code-named a previously reported deal with Facebook as “Jedi Blue”. The complaint alleges that Facebook engaged in an “18-month header bidding strategy” to increase its profits in such a deal.

The complaint alleges that Google also developed Accelerated Mobile Pages, or AMP, a version of a website hosted on Google’s servers, designed to load quickly on mobile phones, that Header is there as a way to deal with bidding. Google explicitly designed AMP pages to not work well with header bidding, the suit alleges, and intentionally created ads that didn’t use AMP load, delaying AMP by one second. With what Google called “a nice comparative boost”.

Publicly, Google claimed that AMP sites load up to four times faster than non-AMP pages. But internally, Google employees said they were being asked to “justify” the system that actually made websites “slow,” according to the complaint.

Google’s internal documents show that publishers received 40% less revenue from AMP pages, according to the unpublished sections of the suit.

Mr Schottenfels, a Google spokesman, said the lawsuit’s claims about AMP are false and reiterated that its engineers designed the system to make webpages load faster, not to damage header bidding. He also noted that header bidding has technical drawbacks, including that it requires equipment to use more data. He said that publishers had the option of using header bidding if they wished.

Texas Attorney General Paxton said Google’s internal communications showed it could not justify its advertising charges. “Only a monopolist can charge rates twice the rates of its competitors and still increase its market share,” Mr. Paxton said.

The lawsuit also highlights that Google speaks differently about customer privacy internally than it does externally. According to the complaint, ahead of its 2019 meeting with Facebook, Apple and Microsoft, Google took credit for being “successful in slowing down and delaying” European privacy regulations.

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Google employees also expressed disappointment over Facebook’s position on privacy, saying it “prioritises victory over reputation over its business interest,” the suit says. Employees also expressed frustration with Microsoft over child privacy issues.

“We are clear about our support for consistent privacy regulations around the world,” Schottenfels said, adding that the company has encouraged Congress to pass federal privacy laws over the years.


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