By Keach Hagey and Vivien Ngo
Nexstar Media Group Inc., the largest local news company in the
U.S., recently tested what would happen if it stopped using
Google's technology to place ads on its websites.
Over several days, the company's video ad sales plummeted.
"That's a huge revenue hit," said Tony Katsur, senior vice
president at Nexstar. After its brief test, Nexstar switched back
to Google.
Alphabet Inc.'s Google is under fire for its dominance in
digital advertising, in part because of issues like this. The U.S.
Justice Department and state attorneys general are investigating
whether Google is abusing its power, including as the dominant
broker of digital ad sales across the web. Most of the nearly 130
questions the states asked in a September subpoena were about the
inner workings of Google's ad products and how they interact.
We dug into Google's vast, opaque ad machine, and in a series of
graphics below, show you how it all works -- and why publishers and
rivals have had so many complaints about it.
Much of Google's power as an ad broker stems from acquisitions
of ad-technology companies, especially its 2008 purchase of
DoubleClick. Regulators who approved that $3.1 billion deal warned
they would step in if the company tied together its offerings in
anticompetitive ways.
In interviews, dozens of publishing and advertising executives
said Google is doing just that with an array of interwoven
products. Google operates the leading selling and buying tools, and
the biggest marketplace where online ad deals happen.
When Nexstar didn't use Google's selling tool, it missed out on
a huge amount of demand that comes through its buying tools, Mr.
Katsur said: "They want you locked in."
The first step is to understand how online ads are typically
bought and sold, and where Google fits in. Here's how it works --
and it all happens in an instant:
Google's role as both the primary auction house for selling
digital ads and an auction participant has led to calls for
regulatory action. Presidential contender Elizabeth Warren has
proposed unwinding the Google-DoubleClick merger.
Google says that the way its ad products work together is one of
the primary attractions for publishers, advertisers and other tech
companies. "Publishers use our technology to access demand from
over 700 partners, of which Google is just one source," a Google
spokesman said in a written statement. "Advertisers use our
technology to buy inventory on over 80 exchanges. Interoperability
across the ad tech landscape allows publishers and advertisers to
mix and match technology partners to meet their different
needs."
Locked to Google
More than 90% of large publishers use the Google ad server,
DoubleClick for Publishers, according to interviews with dozens of
publishing and ad executives.
Using Google's DoubleClick for Publishers is the only way to get
full access to Google's AdX exchange, publishers say. Why is AdX
special among major exchanges? One reason is that it connects to
yet another powerful Google product, AdWords, which draws on the
company's dominance in search. Sounds complicated, but here is a
simple view of how the various components lock together:
For many years, Google's AdX was the only ad exchange that had
access to this fire hose of ad dollars. Google now opens up some
AdWords demand to rival exchanges, but AdX continues to receive the
majority of demand, according to people familiar with Google's ad
products.
Media companies are so reliant on the proprietary advertising
demand flowing through Google's AdWords that one executive at a
major publisher referred to it as "crack."
Wall Street Journal parent News Corp, a longtime Google critic
and active complainant against the company with Australia's
antitrust authority, considered switching its ad-serving business
over from Google to rival AppNexus, in which it had invested, but
ultimately felt it would endanger the 40% to 60% of advertising
demand its gets from Google's ad marketplaces, according to people
familiar with the matter. News Corp has invested in several
advertising-technology rivals to Google.
In Australia, Fairfax Media Limited, the publisher of The Sydney
Morning Herald, left Google's ad server for AppNexus in 2016 but
returned the following year. The most prominent publisher to have
moved off Google's ad server to AppNexus is German publisher Axel
Springer SE -- but its biggest American subsidiary, Business
Insider, stayed on Google.
One point of tension for publishers: Google's own properties,
along with those of Facebook Inc. and Amazon.com Inc., are
competing with them for digital ad spending -- and winning.
Collectively, the tech giants will take in 68% of the roughly $130
billion in U.S. digital ad spending this year, according to
eMarketer.
Overall, Google made $116 billion in advertising revenue last
year, a 22% rise from the previous year and 85% of the company's
total revenue. Most of that ad revenue came from Google's own
properties, but the company's vast role in brokering online ad
sales off its own platforms gives it an added level of
dominance.
Google has, at times, provided incentives to use its products in
tandem. A few years ago, Google waived certain fees for DoubleClick
for Publishers if an ad sale was made through its AdX exchange,
according to a contract reviewed by The Wall Street Journal.
Last year, Google merged those two products -- DoubleClick for
Publishers and AdX -- into a single product called Google Ad
Manager, making it plain to the industry that they are indeed
linked, ad and publishing executives say.
Auction battles
Websites put their ad space up for sale in exchanges, where
auctions happen. But there are several major exchanges -- how do
publishers decide which one should sell their ad space? Google's
rivals and critics have accused the company over the years of
tilting the process in ways that hurt publishers and help its AdX
exchange. Here's a look at how that fight has played out:
Google is now rolling out additional changes that it says will
eliminate any advantage it ever had. But it will come with other
changes that publishers fear will reduce control over how they sell
advertising.
Ad-Tech 'Cemetery'
Google's tightening of the screws over the years hasn't just
hurt publishers, but also competing ad tech companies.
Several rivals to DoubleClick for Publishers have left the
ad-serving business in recent years, including OpenX, Facebook and
Verizon Communications Inc.
"The ad-tech industry is like a cemetery," said Damien Geradin,
an antitrust lawyer and professor of competition law and economics
at Tilberg University in the Netherlands.
At the start of 2016, Google began requiring ad buyers to use
Google's tools for purchasing video ads on YouTube, by far the most
trafficked video site on the web. Previously, advertisers could use
various third-party buying tools to purchase ads on YouTube.
"That was in many ways the beginning of the end," said Brian
O'Kelley, the co-founder of AppNexus, which sold to AT&T Inc.
last year for around $1.6 billion after its revenue growth stalled.
Mr. Kelley had previously acknowledged that AppNexus, like others
in the industry, was also battling to root out fraud in its
system.
"Google used its monopoly on YouTube to put its hand on the
scale," said Ari Paparo, who today runs Beeswax.io Corp., an
ad-buying specialist that competes with Google.
Also in 2016, Google began allowing data it gathered from
services like Gmail and Google maps, such as users' locations and
email addresses, to be used in DoubleClick's ad-targeting system --
but only for customers of its ad-buying tool DV360. Google said it
anonymizes and aggregates this data into audience segments.
Rival ad-buying companies say when they asked to access the
data, Google refused, citing privacy concerns. "We offered to sign
a privacy assurance, and they said no," Rajeev Goel, chief
executive of rival ad-tech firm PubMatic Inc., said.
One former senior Federal Trade Commission official who
supported the DoubleClick deal in 2008 now regrets it. "At the
time, it seemed like the right decision, but things changed a lot
in the last dozen years," the official said.
--Patience Haggin and Elbert Wang contributed to this
article.
Write to Keach Hagey at keach.hagey@wsj.com
(END) Dow Jones Newswires
November 07, 2019 11:09 ET (16:09 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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