Google is facing a legal case that can change the online advertising marketing industry. It’s alleged that Google has monopolistic power in online advertising. The DOJ claims Google uses an anti-competitive strategy that makes it harder for thousands of businesses to grow. This isn’t the U.S. government’s first attempt to take on a giant corporation.
AT&T is one of the largest telecommunication companies in the world and was involved in one of the biggest antitrust cases in U.S history. Smaller companies alleged that AT&T was monopolizing the market, by price gauging the market and buying up smaller companies in different regions in the country. In 1974 after the Attorney General filed suit against the company. It would take seven years and four Attorney Generals to complete the settlement of the case. AT&T agreed to be broken into seven different companies that would each be responsible for serving a different region of the country. Over time, five of these companies merged into AT&T incorporated while the other two are currently Verizon and Qwest.
Standard Oil was one of the biggest corporations in the world. In 1911 it was found that the company was guilty of monopolizing the oil industry. The Supreme Court claimed that Standard Oil used anticompetitive actions in their business. The results of this case had drastic ramifications as the company was separated into 34 companies.
In the 1990s, the U.S. government sued Microsoft for trying to monopolize the personal computer market. The case was about how Microsoft would make it difficult to install certain programs like Netscape into their computers. But Microsoft would have the program Internet Explore to be a free program that was already installed. This made the computer market unfair and the government took on Microsoft and won.
This brings us to the biggest antitrust case in the country currently with Google.
Details of the case
The DOJ alleges that Google uses its monopoly power in online advertisement. The tech giant creates and maintains its power by locking in publishers’ and advertisers’ products:
Google required advertisers to use AdX to access Google Ads and required publishers to use AdX to access DFP.
Google configured Google Ads to bid on AdX in a way that increased the price of advertising, to the financial benefit of publishers and Google, which collected a transaction fee as the operator of the ad exchange.
The company manipulates auctions on AdX so that Google would have the exclusive opportunity to buy publisher inventory before it was offered to any other ad exchange, often at artificially low prices.
These artificially priced might not hurt companies with big advertising budgets, but for small companies trying to grow in the online space, this can be devastating.
In 2013, Google launched a project to manipulate bids that Google Ads submitted into AdX in order to win more competitive transactions relative to its rival ad exchanges.
Between 2012 and 2013, market participants began engaging in “header bidding,” essentially a workaround to Google’s ad tech restrictions to allow publishers to use non-Google ad exchanges. In response, Google began a program titled “Open Bidding” through which Google would purposefully bid lower on header bidding queries to divert transactions away from rivals’ ad exchanges that might deploy header bidding.
The DOJ alleges that Google’s conduct resulted in higher prices and margins for Google at the expense of all other participants in the ad tech stack. (Barakat 2023)
Google charges revenue share fees for every transaction flowing through its ad tech stack directly from advertisers’ advertising budgets and publishers’ bottom-line revenues. Google’s internal documents estimate that the company keeps about 35% of every dollar spent on digital advertising. As a result, publishers earn less for ad campaigns, advertisers pay more than they otherwise would in a market where competitors could assert pricing pressure on Google, and online consumers have fewer options for internet content without subscriptions, paywalls, or alternative forms of monetization.
If the DOJ wins the case this can set a new precedent where there will be a competitive balance on online advertising.
Barakat, M. 2023, April 29 . Judge rules against Google, allows the antitrust case to proceed. Time.