Google is the media monopoly that advertisers want

Opinion: 100% Media 0% Nonsense

You can rightly complain about online monopolies like Google. But when you really think about what advertising wants from media, it’s not more competition.

“Competition is for losers,” wrote PayPal co-founder and Mark Zuckerberg ally Peter Thiel nine years ago.

Thiel’s argument is that monopolies are more stable, long-term businesses, and they have more capital. And, if you get a creative monopoly for inventing something new, it means you’ve created something really valuable.

The problem is, according to Thiel, monopolies tend to lie. They don’t want the government to regulate them, so they won’t call themselves a monopoly.

So if you’re Google, which enjoys an 89% share of the worldwide market for search, you’re better off not calling yourself a search engine anymore. Instead, Google sometimes refers to itself as an “advertising company” (which it is) and sometimes refers to itself as a “tech company” (which it is). I’m sure we’ll be expected to call it an “AI company,” too, before long.

This constant reframing allows a monopoly to portray itself as having lots of competitors. Google “competes” with Apple on TVs and smartphones and “competes” with Microsoft on office applications and “competes” with Amazon on cloud storage services. See? There’s competition everywhere!

As usual, we misunderstand what’s really going on when we focus too much on what people say instead of what people actually do. And there are people who work in media that seem to be shocked by what Google actually does behind the scenes when it comes to search advertising, of which it just happens to be the seller of ads and also the auctioneer. What could possibly go wrong?

Shaking the cushions

“Google has tweaked its advertising auctions to ensure it meets revenue targets, sometimes increasing ad prices by as much as 5%, an executive for the company testified,” Bloomberg News reported last week at the beginning of a federal antitrust trial in the US.

The Justice Department alleges that Google has illegally maintained a monopoly over online search by paying billions of pounds to web browsers and smartphone manufacturers to ensure it is the default option for users accessing the web. As part of those deals, Google pays Apple, Samsung, and others a share of the revenue it earns from search advertising. In 2020, that was more than £100bn — about two-thirds the market capitalisation of Disney today, or roughly 12 times the size of WPP.

“We tend not to tell advertisers about pricing changes,” Jerry Dischler, vice president for Google’s advertising products was quoted as saying during the trial. Apparently, the company “frequently” makes changes to the auctions it uses to sell search ads. In one May 2019 email, Dischler and his team discussed how they were “shaking the cushions” to find potential changes to the ad auctions that would ensure Google met the revenue targets that chief financial officer Ruth Porat had conveyed to Wall Street for the quarter.

This is “absolutely shocking,” according to one executive at a major media-buying network in the UK. Google has become so influential and powerful in UK advertising that trying to get anyone to say anything about it on the record is almost impossible. That’s another thing about monopolies: they tend to stifle freedom of speech.

“Auction floors have always been opaque, but no one imagined they might be moving that much,” the exec tells me. “And the thing about putting the auction runner up second to grow revenue is incredible. It’s supposed to be a foundational principle of performance media that if you win the auction, you win the ad slot.”

Google was not raising all bids across all auctions. It was raising the bid floors, which are only used in some auctions. Reserve prices are effectively a hidden minimum bid used in auctions that have low volume or low-quality competition. “If your ad is the only one that’s eligible to show, you’ll pay the reserve price,” Google itself says. “This means that your ad could be relatively expensive, even when no ads show immediately below it.”

Don’t hate the player…

At this point, we have to remember that Google is a publicly-traded company that has an obligation to make as much money as it can for its shareholders. If it is doing nothing illegal, why wouldn’t it act in this way? As a seller of online ads, it has the right to set minimum prices however it wants. Prices should increase over time in response to inflation or an increase in advertiser demand as more media activity migrates online. You can also argue that it doesn’t need to be transparent about these prices because that would effectively warp the auction process for bidding on search ads.

The problem, it seems, is that Google is running an auction in the first place. In any market, there needs to be three independent actors whose interests are separate in order to ensure we can trade effectively: a buyer, a seller, and a marketplace host.

Think about how dangerous drug dealing is. It’s quite a simple transaction: person A wants to buy drugs from person B, who wants to sell drugs. But without a marketplace host that can ensure certain conditions, this transaction becomes incredibly dangerous. The host must referee the transaction to ensure the terms of trade are met safely; otherwise, it’s not really taking place in a market.

The problem is: how else can you buy ads on Google, Facebook, Amazon, Apple’s App Store, or any other “platform” where the digital inventory and the mechanism to buy are owned by the same company? Do we have to create a world in which governments have to create special licences to sell online ads and stipulate that platforms must use licenced auctioneers that have no vested interest in the transaction?

‘Break them up’ is a fantasy

Media analyst Ian Whittaker argues that the FTC’s case against Google is built on “the wrong premise”.

“Google’s Search business is a natural monopoly because of the double reinforcing nature of its business, namely advertisers want the site with the most number of customers and the customers want the site with the most number of advertisers… The closest comparable here to Google [is] Yellow Pages, [which] had exactly the same effects. So I would argue Google should not be broken up. Instead, use modified versions of the remedies for Google now that were used for classified directories then.”

On that analysis, it would seem that Thiel is as right today as he was nine years ago: advertisers and media professionals would rather have a huge and dominant Google than a set of competing online search platforms. The same is probably true of social media, which by virtue of forcing users to have distinct profiles and separate groups of friends, can tend to be mini-monopolies depending on their platform specialty.

And before we assume the internet is to blame, the offline channels built last century are hardly awash with multiple sellers either, whether it’s TV (dominated by three sales houses, Sky, ITV and Channel 4), radio (dominated by Global and Bauer Media), or outdoor (each billboard is effectively its own micro-monopoly because they have one owner and/or one company with exclusive rights to sell ads on it).

There will likely be many more eye-opening revelations to come from the FTC’s case against Google. Perhaps there will be instances where something unethical or even illegal has taken place.

But in terms of whether Google should or will be broken up? It’s never going to happen.

Because when you really think about what advertising wants from media, it’s not more competition. It’s more audience. It’s always more audience. If advertisers had their way, they’d have one agency to help them buy ads, one media company to sell them ads, and trillions of customers all consuming their ads on the same company.

Of course, everyone would prefer to pay lower prices, which competition generally brings. But if advertising works (which it does), and you’re guaranteed to generate more sales even when the prices of ads go up, what do you care? After all, it’s your company’s marketing budget, not your own.