Written by Daisuke Wakabayashi and Tiffany Hsu
In 2017, Facebook tested a new way of selling online advertising that would jeopardize Google’s control over the digital ad market. But less than two years later, Facebook made a U-turn, saying it was part of an alliance of companies supporting a similar effort by Google.
Facebook never said why it withdrew from its project, but evidence presented in an antitrust lawsuit filed by 10 attorneys general last month suggests that Google has expanded into Facebook, its closest rival for digital advertising dollars Treasury Agreement to become a partner.
Details of the agreement, based on documents uncovered by the Texas Attorney General as part of the lawsuit in several states, were edited in the complaint filed in Texas federal court last month. However, they were not hidden in a draft of the New York Times-examined complaint.
Executives from six of the alliance’s more than 20 partners told The Times that their agreements with Google did not include many of the generous terms Facebook had received, and that the search giant had given Facebook a significant advantage over the others.
The executives, who all spoke on condition of anonymity in order to avoid endangering their business relationships with Google, also said they did not know that Google gave Facebook such advantages.
Google and Facebook said that such deals are common in the digital advertising industry and will not frustrate competition.
Julie Tarallo McAlister, a Google spokeswoman, said the complaint “misrepresents this agreement as it affects many other aspects of our ad tech business.” She added that Facebook is one of many companies participating in the Google-led program and that Facebook is a partner in similar alliances with other companies.
Christopher Sgro, a Facebook spokesperson, said deals like the agreement with Google “help increase competition in ad auctions,” which benefits advertisers and publishers. “Any suggestion that these types of agreements harm competition is unfounded,” he said. Google and Facebook declined to go into the details of their business.
The Wall Street Journal had previously reported on aspects of the draft complaint.
The recent antitrust proceedings against Google and Facebook have put Big Tech’s lucrative businesses at the center. In October, the Justice Department sued Google and signed an agreement with Apple to use Google as the pre-selected search engine for iPhones and other devices.
“This idea of the big technology platforms competing against each other is very exaggerated,” said Sally Hubbard, a former assistant attorney general at the New York Anti-Trust Office who now works at the Open Markets Institute, a think tank. “In many ways they strengthen each other’s monopoly power.”
Google and Facebook accounted for more than half of all digital advertising spending in 2019. In addition to displaying advertisements on their own platforms like the Google search engine and the Facebook homepage, websites, app developers and publishers rely on the companies to secure advertising for their advertising pages.
The agreement between Facebook and Google, code-named “Jedi Blue” within Google, affects a growing segment of the online advertising market known as programmatic advertising. Online advertising generates hundreds of billions of dollars in global sales each year, and automated buying and selling of advertising space accounts for more than 60% of total sales, according to researchers.
In the milliseconds between when a user clicks a link to a web page and the ads load on the page, bids are placed behind the scenes for available ad space on marketplaces known as exchanges. The winning bid will be forwarded to an ad server. With both ad exchanges and Google’s ad server dominating, the company often led its own exchanges.
A method called header bidding was developed to reduce reliance on Google’s ad platforms. News agencies and other websites could collect offers from multiple exchanges at the same time, increasing competition and leading to better prices for publishers. According to one estimate, more than 70% of publishers had adopted the technology by 2016.
Google has developed an alternative called Open Bidding that supports an alliance of exchanges. While Open Bidding allows other exchanges to compete with Google at the same time, the search company charges a fee for each winning bid, and competitors say there is less transparency for publishers.
The threat posed by Facebook, one of the largest ad buyers on the internet that supports header bidding, has been a serious problem on Google. The Times-reviewed draft complaint quoted an email from a Google manager stating an “existential threat” that required an “all hands-on-deck approach”.
Facebook announced in March 2017 that it was testing header bids with publishers like The Washington Post, Forbes, and The Daily Mail. Facebook also gave Google a poke, saying the digital advertising industry has passed profits to “third-party middlemen who make the rules and cover up the truth.”
Before Google and Facebook signed the deal in September 2018, Facebook executives Mark Zuckerberg, its managing director, outlined the company’s options under the draft complaint: hire hundreds more engineers and spend billions of dollars to take on Google . quit business; or do the deal.
For many in the advertising industry, Facebook’s entry into the Google alliance was a reversal of header commandments. An open bidding partner said it was excited to discuss setting up an alternative to the Google alliance with Facebook, only to abruptly halt talks in 2018.
Facebook announced in a December 2018 blog post that it had joined the Google program on one line. However, it did not show that, according to the draft complaint, Google provided Facebook with specific information and speed benefits to help the company succeed in auctions it did not offer to other partners – even with a guaranteed “win rate”.
In this market where fractions of a second count, a speed advantage was crucial. According to court documents, Facebook had 300 milliseconds to bid for ads. However, executives at Google’s partner companies stated that they typically only had 160 milliseconds or less to bid.
Facebook also had another benefit: direct billing relationships with the sites that advertised, according to court documents. For most of the other partners, Google controlled pricing information, effectively putting up a wall between open bidding participants and website owners, and hiding how many of the winning bids websites get, other company executives said.
Google agreed to help Facebook better understand who would get the ads by helping the company identify 80% of mobile users and 60% of web users. But several other partners said they had little help understanding who was showing ads to.
Adam Heimlich, managing director of Chalice Custom Algorithms, a marketing and data science consultancy, said the deal gave Facebook so many advantages that it was like the social network “starting every tournament in the finals.”
Facebook pledged to bid on at least 90% of the auctions if it could identify the end user and pledged to spend up to $ 500 million per year through the fourth year of the deal, the complaint said. Facebook also demanded that data about its bids not be used by Google to manipulate auctions in its favor. This is a level playing field that other Open Bidding partners were not expressly promised.
Perhaps the most serious allegation in the draft complaint was that the two companies had predetermined that Facebook would win a fixed percentage of the auctions it bids on.
“Unknown to other market participants, no matter how high others bid, the parties have agreed that the hammer will fall several times in favor of Facebook,” says the draft complaint. A Google spokesman said Facebook would have to bid the highest to win an auction, just like its other exchange and advertising network partners.
While both companies said the deal is not an antitrust matter, they have included a clause in the agreement requiring the parties to “work together and support one another” when investigating for competition concerns regarding the partnership.
“The word” antitrust law “is mentioned at least 20 times throughout the agreement,” the draft complaint said.