National Post (National Edition)
Google strangling ad market, report says
Internet search giant Google Inc. could be vulnerable to an antitrust case in the United States due to its dominant grip on the digital advertising market, says a Yale professor who suggests the company’s power is similar in other jurisdictions, including Canada.
Fiona Scott Morton, who previously served as deputy assistant attorney general for economics in the antitrust division of the U.S. Department of Justice under former president Barack Obama, wrote a paper this month that suggests Google has used its strength in internet search to exert control over the adjacent digital advertising market — to the detriment of consumers, advertisers and publishers.
Among the report’s conclusions is that “virtually all roads lead through Google” in digital advertising, where the tech giant — through design and acquisition — performs every function that connects advertisers to publishers.
The tech giant’s strategy has made it “nearly impossible” for publishers and advertisers to do business with each other except through Google, the report says.
As a result, advertisers pay more than they would in a competitive environment, the cost of goods rises, and Google takes a large chunk of the money from advertising, meaning producers can’t produce as much or as high quality content.
“That’s a significant harm,” Scott Morton told the Post. “There’s not as much content on the internet as there would be in a competitive market.”
Her paper uses findings from a preliminary report by the Competition and Markets Authority in the United Kingdom, which is to be finalized in July. According to the report, Google’s market share of tools used by publishers to serve up advertisements — such as Google Ad Manager and Google DoubleClick for Publishers — is at least 90 per cent in the U.K. In addition, advertisers use demand-side platforms to bid for ads, and Google’s market share there is between 50 and 70 per cent. When it comes to supply-side platform used by publishers to accept bids, Google is there again, with a market share of between 40 per cent and 60 per cent.
In an interview, Scott Morton said the figures are relevant for the United States and other places Google operates, such as Canada.
“We know Google is a popular search engine in the U.S. and Canada (and there’s) no reason to believe it would be different,” she told the Post.
“The business model is the same around the world…. These markets are quite similar, likely, across jurisdictions.”
Her paper, published this month with co-author David C. Dinielli, is titled Roadmap for a Digital Advertising Monopolization Case Against Google, and appears to lay out a path for regulators probing anti-competitive behaviour.
“It is possible that the reason Google chose to occupy the entire value chain linking publishers and advertisers was to be able to design the sale of advertising to benefit itself at the expense of other parties,” wrote Scott Morton and Dinielli, who is a senior adviser at Omidyar Network, an organization with a mission that includes addressing unintended consequences or negative outcomes from technology platforms.
“It is unusual, to say the least, for a single company to represent both sellers and buyers in the same market, and also to set the rules for, and conduct, the auctions that determine the winners, losers, and prices in that market,” their report says.
Google did not respond to a request for comment by deadline.
The detailed paper on Google’s strong presence in the digital advertising market comes on the heels of a news report that U.S. authorities are ramping up probes into the search engine giant.
The Wall Street Journal reported last week that both the Justice Department and a group of state attorneys are preparing to file antitrust lawsuits against Google and parent company Alphabet Inc. The Journal said the DOJ could act as soon as this summer.
In Canada, meanwhile, the head of Canada’s competition watchdog, Matthew Boswell, pledged to crack down on anti-competitive behaviour in the digital economy.
Last fall, the Competition Bureau issued a call to market participants to inform the watchdog of any conduct in the digital economy that may be harmful to competition.
The bureau said it was examining “concerns that certain core digital markets, like online search, social media, display advertising and online marketplaces, have become increasingly concentrated, to the detriment of consumers and businesses.”
This isn’t the first time the Canadian watchdog has looked into such matters.
In April of 2016, the Competition Bureau discontinued what it described as an in-depth investigation into allegations Google engaged in anti-competitive business practices related to online search, search advertising and display advertising services in this country.
The investigation concluded that Google had used anti-competitive clauses in some terms and conditions in a way that was “intended to exclude rivals and negatively affected advertisers.” But the Bureau said the tech giant had “removed these clauses and … provided a commitment to the Commissioner not to reintroduce them (or others which have the same effect) for a period of five years.”
In that investigation, the bureau did not find sufficient evidence that Google engaged in any other conduct for an anti-competitive purpose, or that its practices resulted in a substantial lessening or prevention of competition in any relevant market.
Melanie Aitken, who was Commissioner of Canada’s Competition Bureau from 2009 to 2012, said the digital economy is clearly in the sights of Canada’s competition watchdog.
“They’ve made this a real focus for themselves,” she said in an interview from Washington, where she works as a partner at Toronto-based law firm Bennett Jones LLP.
Aitken noted that investigating suspected anti-competitive behaviours such as abuse of market dominance is challenging in the tech sector because so much is new, and it is constantly evolving. This makes such probes particularly tough for smaller regulators with limited resources.
Scott Morton, too, acknowledged an added layer of complexity in the tech industry, where untangling processes such as online bidding and auctions, and multiple acquisitions, can complicate an already time-consuming process.
It is a stark contrast to “easy to understand” antitrust issues such as price fixing in the beer market, she said.
“People pay more for beer. It’s very clear what the issues are there.”