Going once, going twice: Google’s millisecond ad auctions are the focus of monopoly claim

ALEXANDRIA, Va. — It happens in milliseconds, ideally, while you are surfing the web. Networks of computers and software analyze who you are, what you are looking at, and buy and sell the ads you see on web pages.

The company that most likely determines which ads you see and how much an advertiser paid to get them on your screen is Google.

The Justice Department and a coalition of states say Google’s dominance over the technology that controls the sale of billions of Internet ads a day is so thorough that it constitutes an illegal monopoly that must be broken.

A trial underway in a federal court in Alexandria, Virginia, will determine whether Google’s ad tech stack constitutes an illegal monopoly. The first week included a deep dive into exactly how Google’s products work together to conduct behind-the-scenes electronic auctions that place ads in front of consumers in the blink of an eye.

Online advertising has evolved rapidly. Fifteen years ago, if you saw an Internet display ad, chances were that it was people are dancing about their enthusiasm for low mortgage ratesand those ads were forced upon you whether you were searching for real estate or baseball scores.

Today, the algorithms that tailor ads to your interests are carefully calibrated, sometimes to an almost creepy degree.

Google says it has invested billions of dollars to improve the quality of ads consumers see and ensure advertisers can reach the consumers they are looking for.

The Justice Department alleges that Google also manipulated automated auctions for ad sales over the years to favor itself over other potential players in the industry, and deprived the publishing industry of hundreds of millions of dollars that it would have received if the auctions had been truly competitive.

Government witnesses at the Virginia trial provided extensive explanations of the auction process and how it evolved over the years.

In the government view, there are three different tools that work together to sell an advertisement and place it in front of a consumer. There are the ad servers that are used by publishers to sell space on their websites, specifically the rectangular ads that appear at the top and right of a web page. Ad networks are used by advertisers to purchase advertising space on a range of relevant websites.

And in between is the advertising exchange, which matches the website publisher with the potential advertiser by organizing a direct auction.

Publishers naturally want the highest possible price for their advertising space, but testimony during the trial showed that this did not always happen because of the rules imposed by Google.

For years, Google gave its ad exchange, called AdX, the first chance to match a publisher’s suggested minimum price. For example, if a publisher wanted to sell a specific ad impression for at least 50 cents, Google’s software would give its own ad exchange the first chance to buy. If Google’s ad exchange bid 50 cents, it won the auction, even if competing ad exchanges were later willing to pay more.

Google said the system was needed to ensure ads loaded quickly. If the computers were to accept bids from every ad exchange, it would take too long.

Publishers, unhappy with this system, found a way to keep the auctions out of Google’s reach, a process that became known as “header bidding.” Internal Google documents presented during the process described header bidding as an “existential threat” to Google’s market share.

Google’s response was based on its control over all three components of the process. If publishers held an auction outside of Google’s purview but still used Google’s publisher ad server, called DoubleClick For Publishers, that software would force the winning bid back to Google’s Ad Exchange. If Google was willing to match the price publishers had received under the header-bidding auction, Google would win the auction.

Professor Ramamoorthi Ravi, an expert at Carnegie Mellon University, said the rules Google imposed failed to maximize value for publishers and “appear designed to favor Google’s own products.”

Publishers could stop using Google’s ad exchange altogether, but they said in the lawsuit that they didn’t want to do that. They would also lose access to the vast, exclusive network of advertisers in the Google Ads network, which was only available through Google’s ad exchange.

Google, for its part, says it hasn’t run auctions this way since 2019, and that Google’s share of the display ad market has been declining over the past five years. The company says that bringing together its buy-side, sell-side and intermediary products helps make them seamless and fast, and minimizes fraudulent ads or malware risks.

Google also says its innovations over the past 15 years have fueled improvements in matching online ads to consumer interests. Google says it led the way in introducing “real-time bidding,” which allowed an advertiser selling shoes, for example, to be matched with a consumer whose online profile indicated they were interested in buying shoes.

According to Google, these innovations allowed publishers to sell their available advertising space at a higher price because the advertiser knew the ad would reach people who were interested in their product or service.

The Justice Department alleges that while Google no longer conducts its auctions in the manner described, it helped the company maintain its monopoly over the ad technology market in the years leading up to 2019. Moreover, the current monopoly allows Google to keep up to 36 cents on the dollar of every ad purchase it brokers, when the transaction flows across all of its various products.

The trial in Virginia comes just a month after a Washington judge ruled that Google’s search engine also constitutes an illegal monopolyNo decision has yet been taken in that case on what measures the court may impose.