Going once, going twice: Google's millisecond ad auctions are the focus of monopoly claim

It happens in milliseconds, ideally, as you browse the web. Networks of computers and software analyze who you are, what you are looking at and buy and sell the advertisements you see on web pages.

The company that most likely determines which ads you get, and how much an advertiser paid to get on your screen, is Google.

In fact, the Justice Department and a coalition of states say Google's dominance over the technology that controls the sale of billions of Internet display ads every day is so thorough that it constitutes an illegal monopoly that should be broken up.

A trial under way in federal court in Alexandria, Virginia, will determine if Google's ad tech stack constitutes an illegal monopoly. The first week has included a deep dive into exactly how Google's products work together to conduct behind-the-scenes electronic auctions that place ads in front of consumers in the blink of an eye.

Online advertising has rapidly evolved. Fifteen or so years ago, if you saw an internet display ad, there was a pretty good chance it featured people dancing over their enthusiasm for low mortgage rates, and those ads were foisted on you whether you were looking at real estate or searching for baseball scores.

Now, the algorithms that match ads to your interests are carefully calibrated, sometimes to an almost creepy extent.

Google, for its part, says it has invested billions of dollars to improve the quality of ads that consumers see, and ensure that advertisers can reach the consumers they're seeking.

The Justice Department contends that what Google has also done over the years is rig the automated auctions of ad sales to favor itself over other would-be players in the industry, and also deprived the publishing industry of hundreds of millions of dollars it would have received if the auctions were truly competitive.

Government witnesses have explained the auction process and how it has evolved over the years in detail at the Virginia trial.

In the government’s depiction, there are three distinct tools that interact to sell an ad and place it in front of a consumer. There’s the ad servers used by publishers to sell space on their websites, particularly the rectangular ads that appear on the top and right-hand side of a web page. Ad networks are used by advertisers to buy ad space across an array of relevant websites.

And in between is the ad exchange, which matches the website publisher to the would-be advertiser by hosting an instant auction.

Publishers naturally want to receive as high a price as possible for their ad space, but testimony at trial has shown that didn't always happen due to the rules Google imposed.

For years, Google gave its ad exchange, called AdX, the first chance to match a publisher's proposed floor price. For instance, if a publisher wanted to sell a specific ad impression for a minimum of 50 cents, Google's software would give its own ad exchange the first chance to purchase. If Google's ad exchange bid 50 cents, it would win the auction, even if competing ad exchanges down the line were willing to pay more.

Google said the system was necessary to ensure ads loaded quickly. If the computers entertained bids from every ad exchange, it would take too long.

Publishers, dissatisfied with this system, found a workaround to conduct the auctions outside of Google's purview, a process that became known as “header bidding.” Internal Google documents introduced at trial described header bidding as an “existential threat” to Google's market share.

Google's response relied on its control of all three components of the process. If publishers conducted an auction outside Google's purview but they still used Google's publisher ad server, called DoubleClick For Publishers, that software forced the winning bid back into Google's Ad Exchange. If Google was willing to match the price that publishers had received under the header-bidding auction, Google would win the auction.

Professor Ramamoorthi Ravi, an expert at Carnegie Mellon University, said rules imposed by Google failed to maximize value for publishers and “seem to have been designed to advantage Google's own products.”

Publishers could stop using Google's ad exchange entirely, but at trial said they were reluctant to do so because then they would also lose access to Google's huge, exclusive cache of advertisers in its Google Ads network, which was only available through Google's ad exchange.

Google, for its part, says it hasn't run auctions this way since 2019, and that in the last five years Google's share of the display ad market has begun to erode. It says that tying its buy side, sell side and middleman products together helps them run seamlessly and quickly, and minimizes fraudulent ads or malware risks.

Google also says its innovations over the last 15 years fueled the improvements in matching online ads to consumer interests. Google says it was at the forefront of introducing “real-time bidding,” which allowed an advertiser selling shoes, for instance, to be paired up with a consumer whose online profile indicated an interest in purchasing shoes.

Those innovations, according to Google, allowed publishers to sell their available ad space at a premium because the advertiser would know that the ad was going to the eyeballs of someone interested in their product or service.

The Justice Department says that even though Google no longer runs its auctions in the ways described, it helped Google maintain its monopoly in the ad tech market in the years leading up to 2019, and that its existing monopoly allows Google to keep up to 36 cents on the dollar of every ad purchase it brokers when the transaction runs through all of its various products.

The Virginia trial comes just a month after a judge in Washington ruling that Google's search engine also constitutes an illegal monopoly. No decision in that case has been made on what, if any, remedies the judge will impose.