Thread by @leah_nylen

New Google complaint is up!! courtlistener.com/docket/6014906…

First key stat unsealed: "Google’s exchange processes about 11 billion online ad spaces each day."

"Google owns the largest buy-side and sell-side brokers. As one senior Google employee admitted, '[t]he analogy would be if Goldman or Citibank owned the NYSE.'"

Google's exchange requires a cut of "19 to 22 percent" on all advertising transactions, the states allege

Google publicly said that header bidding -- a technique that websites adopted where they simultaneously used several advertising exchanges -- not a threat to its business. Internally, though, it described header bidding as an “existential threat.”

In response to header bidding, Google created a new project, code-named Jedi. "In Google’s words,
the Jedi program 'generates suboptimal yields for publishers and serious risks of negative media
coverage if exposed externally.'"

Facebook had suggested publicly that it might adopt header bidding, which led Google to approach the social network about a deal. As Facebook executives described it internally: “they [Google] want this deal to kill header bidding.”

In its own internal documents, Google said that "if it could not 'avoid competing with FAN [Facebook Audience Network],' then it wanted to collaborate with Facebook to 'build a moat,'" the states allege

The two companies reached an agreement nicknamed "Jedi Blue." Facebook would get "information, speed, and other advantages in the ~43 billion auctions Google runs for publishers’ mobile app advertising inventory each month" in exchange for abandoning header bidding.

The states estimate that somewhere between "22 to 42 percent of the ad dollars" spent on online display ads go to Google.

Not all website ads are created equal. The ones that are considered "high value" are those ads targeted at users who are viewed as likely to make a purchase. Website publishers actually make more of their money (upwards of 80%) from these "high value" ads (~20%)

Ad exchanges usually charge between 5-20% of the clearing price. Google, by contrast, charges 19-22%, double to quadruple what other exchanges charge, the states alleges. So if Google sells $100K in ads for a website, it takes at least $19K of that.

That's all on Google's Adx exchange, which is used by big players, the states say. Google also operates the Google Display Network, which is used by smaller websites. There Google charges between 32 to 40 percent of each transaction.

Google also owns Admob, which sells mobile app ads. It's biggest competitor in this market is Facebook. Google estimates its market share in this market to be 8x as high as Facebook's.

That was sell-side, ie websites selling ads. Google also has tools for advertisers, those who want to buy online advertising. A big advertiser (Toyota, Nestle) uses a Google product called DV360, which charges advertisers 8-9% for buying ads.

Smaller advertisers -- Google refers to them internally as “smaller, less sophisticated advertisers” -- use Google Ads, which charges a 15% commission on buying ads.

Google's ad exchanges give its ad-buying tools (Google Ads, DV360) information and speed advantages in the auctions, which the states allege is why Google's ad buying tools win 80% of the auctions in Adx.

There's another thing called a publisher ad server. If you're a big website, (ESPN, the Weather Channel), you don't keep the ads on the same server the rest of your website. Instead you have a publisher ad serve to store ads

Most people don't do this themselves, but instead pay a third-party to host their publisher ad server. You know who the biggest provider of publish ad servers is? (Hint: it starts with a G)

Google Ad Manager is the publisher ad server for 90 percent of the largest advertisers. In 3Q 2018, GAM served 75% of all U.S. online display ads, the states say

If a publisher wants to send its ads to a non-Google exchange, there's a 5% on all gross spending. If the ads are being sent to a non-Google ad network there's also a 10% fee. (This is part of the reason publishers used header bidding; it allowed them to avoid these fees)

The states allege that Adx has been the dominant ad exchange in the U.S. since 2013. In Oct. 2019, it transacted more than 60% of display ad inventory sold on ad exchanges and that share is increasing

(Pausing to do a call. Back later with more newly unredacted details)

Back now. In comparison to Google AdX, which has more than 60% display ads, its rivals -- which Magnite, AT&T’s Xandr, and Index Exchange -- have no more than 5-6% of exchange impressions. Those rivals charge a lot less, generally between 5-15%

On Google Display Network (this is the exchange used by smaller publishers) Google execs said in a 2016 discussion that the network makes "a LOT of money" because“we can.” “Smaller pubs don’t have alternative revenue sources.”

YouTube accounts for 43% of the online video advertising market. Because so many people use YouTube, advertisers consider it a "must have." Google thinks of YouTube as the "strategic anchor" for its DV360 ad buying tool since it is the only place where advertisers can buy YT ads

Google's NY quants created a system called Reserve Price Optimization (“RPO”). The program uses a website publishers ID to set its own floor in Google's exchange with what Google thinks a buyer would be willing to pay.

Say for example a website says wants the floor to be $10. Google's program would set the floor higher -- say $14.50 -- based on their analysis of an advertisers willingness of pay. This would increase the prices to advertisers, without their knowledge.

The quants created a second system called Dynamic Revenue Share (DRS). If Google's exchange wouldn't win a bid because of the rate Google charges, it would automatically lower Google's rate so the company would still win.

They also undertook another project, nicknamed Project Bernanke after former Fed Chair Ben Bernanke. It allegedly used privileged information about advertisers' historic buying practices to manipulate the auctions to ensure Google would benefit.

The states give an example of Bernanke: a doctor uses Google Adwords to bid $10 for a USAToday ad targeted to a particular person. Ford uses a rival's ad buying tool to bid $12 for the same impression. Both are sent to Google's exchange.

Normally Ford would win because it's bidding more. Project Bernanke manipulates the doctor's bid to ensure that it wins in Google's exchange, so that the company gets both the fee for using the exchange and the fee for using its ad buying tool.

The Bernanke program increased Google's ad buying tool wins by more than 20%, leading to $230 million annual increase in revenue, the states allege.

There are two other programs created by the same quant team labelled Bell and Elmo that the complaint doesn't go into detail about. But all the auction programs increased Google's revenues: RPO ($250M); DRS ($250M); Bernanke ($230M); Bell ($140M); Elmo ($220M).

👀👀On August 6, 2019, Google, Facebook, Apple, Microsoft had a meeting in which they discussed "forestalling consumer privacy efforts," the states allege.

“We have been successful in slowing down and delaying the [ePrivacy Regulation] process and have been working behind the scenes hand in hand with the other companies,” Google wrote in a memo before the meeting.

Google hoped to “find areas of alignment and narrow gaps in our positions and priorities on child privacy and safety” related to an FTC rulemaking on Children's Online Privacy Protection Act and a bill introduced by Sens. Markey and Hawley to update that law.

In particular, Google did not like Microsoft's position, according to the states "Whether at this meeting or at another forum, we may want to reinforce that this is an area of particular importance to have a coordinated approach,” the memo said.

Google was also annoyed with Facebook. “We’ve had
difficulty getting FB to align on our privacy goals and strategy, as they have at time[s] prioritized winning on reputation over its business interest in legislative debates,” the memo said.

Google also wanted Microsoft to stop its “subtle privacy attacks.”“We have direction from Kent [Walker] to find alignment with MSFT where we can but should be wary of their activity [in promoting privacy] and seek to gain as much intel as possible,” the memo said.

The memo said Google also wanted to discuss “competition” and “ways we can work together” with the other companies.

(Interjecting here: companies can get together and discuss joint lobbying. It's considered First Amdt activity and protected from antitrust scrutiny under something called Noerr-Pennington immunity.

BUT Noerr only applies to petitioning and wouldn't cover any anticompetitive activity that also resulted from a meeting like this.)

Back to header bidding, where websites pit ad exchanges against each other in real time to get the best prices on ads. Internally, Google acknowledged that “pitting multiple exchanges against one another fostered price competition, which was good for [publishers’] business.”

Google, however, didn't like it because it caused fewer websites to use their exchange. For example, Weather.com used to use Google exclusively, but stopped once it realized header bidding increased their ad revenues by 30%

Also header bidding lessened Google's data advantage. Internally, Google said HB caused it to "'lose[] visibility' into the 'prices on a per-competitor basis,' which are 'important data pieces of our own optimization.'"

Google executives described finding a way around header bidding as the "holy grail."

This became particularly important when Facebook began signalling it would adopt header bidding. One Google executive said a top priority for the company in 2017 was to stop FB from supporting header bidding.

In a presentation outlining “top priorities” for 2017, exec wrote, “Need to fight off the existential threat posed by Header Bidding and FAN. This is my personal #1 priority. If we do nothing else, this need[s] to [be] an all hand[s]
on deck approach.”

Meanwhile at FB, executives said they intended "to signal Facebook’s willingness to compete with Google in
the markets for publisher ad servers and ad networks. Facebook knew that Google would see its participation in header bidding as a major threat."

Google first approached FB in June 2016. Negotiations would then go on for another 18 months. In one internal Google presentation, the company said their goal w/ FB was to “collaborate when necessary to maintain status quo.”

In another Aug 2018 presentation, Google said if it could not “avoid competing with FAN [Facebook Audience Network],” then it would instead collaborate with Facebook to “build a moat.”

For its part, Facebook said internally that it “believed strongly” that partnering with Google was “relatively cheap compared to build/buy and compete in zero-sum ad tech game,” the states allege citing internal presentations.

Top Facebook executives said in emails the Google deal was “a big deal strategically.” Facebook presentations said the options were: "'invest hundreds more engineers' and spend billions of dollars to lock up inventory to compete, exit the business, or do the deal with Google."

The Facebook-Google deal was ultimately signed in Nov 2018 by agreement signed by Philipp Schindler, the head of Google advertising sales, and at least two FB execs, including someone on the board (FB persuaded the court to keep its employee names redacted)

In an internal Google memo, Google said Facebook “requires special deal terms, but it is worth it to cement our value.” The deal lets Facebook "circumvent exchanges and bid directly into Google’s ad server."

The deal also gives FB a discount. Facebook get a lower 5-10% fee but isn't allowed to talk publicly about its special, lower pricing terms.

Facebook also gets a special speed advantage. Everyone else has a 160 millisecond timeout. Facebook gets 300 milliseconds, which allows it to win more auctions.

Facebook is also allowed direct billing and contractual relationships with websites, and Google informs Facebook which impressions it believes are likely targeted to spam (e.g., impressions targeted to bots, rather than humans) so that FB can avoid those.

Google and Facebook "have integrated their software development kits (SDKs) so that Google can pass Facebook data for user ID cookie matching."

The companies have also been working together to help identify users that have "browsers with blocked cookies, on Apple devices, and on Apple’s Safari browser, thereby circumventing one Big Tech company’s efforts to compete by offering users better privacy."

As part of the deal CEO Mark Zuckerberg demanded that Google not use Facebook’s bid data for the purpose of advantaging itself.

As a Facebook exec said in an email to MZ, FB “exerted pressure on Google to change their auction so that Google is no longer able to advantage their own demand. With these changes, we will be able to bid on publisher inventory served by Google on a level playing field.”

For its part of the deal, Facebook pledged to use “commercially reasonable efforts” to bid on at least 90% of auctions where the company could identify the end user and spend at least $500M a year in Google's exchanges.

They also agreed that Facebook would have a "win rate" of at least 10 % -- meaning FB would be guaranteed to win at least 10 out of every 100 auctions where it competes.

In 2019, the Jedi Blue agreement helped Facebook win about 81% of Google AdMob auctions for U.S. mobile app inventory, and about 71% of Google ad server auctions for mobile inventory

The word "antitrust" is mentioned 20 times in the Jedi Blue agreement, and both Google and Facebook must inform each other if any government begins an investigation of the deal.

Another pause for more calls.

AMP = accelerated mobile pages. These are websites cached on Google servers so they can more quickly be served to customers on mobile. Google claims that AMP is open source, but the states allege that it is a "Google-controlled initiative"

Google has transferred control over AMP to a foundation, but the states say that internally Google sometimes debates "whether AMP communications should come from Google or the Google-controlled AMP board."

Google intentionally made AMP incompatible with header bidding and "throttles the load time of non-AMP ads by giving them artificial one-second delays in order to give Google AMP a 'nice comparative boost.'"

Google also uses its control over search to "punish" publishers who don't use AMP, the states allege. Google Search ranks non-AMP pages lower in results and reserves the top placements with pictures for publishers using AMP.

Google isn't transparent in its pricing on either side of the market, on purpose, the states say. As a senior Google exec said: “[b]y charging non-transparently on both sides, we give ourselves some flexibility to react and counteract market changes."

In 2019, Google introduced a Unified Pricing Policy that prohibits advertisers on its buying tools from setting different price floors with different exchanges. Before an advertiser might say the minimum for an ad sold through Google was $10 but the minimum for another was $8.

The results? Some publishers found this "caused their Google ad server to sell twice as much of their inventory to Google’s exchange for half as much as what Google’s exchange historically paid."

In a May 2019 conversation between Google and Facebook, FB said it would rather website publishers not have the ability to set price floors.

That pushed Google to adopt its new policy, the states allege. UPP was “extremely self-serving,” Google said internally, and the true objective was to let “Google buyside and Facebook (after FAN integrates through Open Bidding) get access to the same 1st Price auction dynamics.”

And that is the end of the new stuff. The suit now has 16 states + Puerto Rico. Google plans to file a motion to dismiss the allegations and it will get hashed out in NY federal court over the next several months.

Last thought: @JusticeATR has now been looking at this same stuff since at least September 2019. Barr's team decided to prioritize filing on search for various reasons. If DOJ files a complaint on ad tech, which parts of this they repeat vs leave out will be 👀