Advertisers’ Missing Perspective in the Google Antitrust Hearing

This week Google ex-CEO Eric Schmidt will testify at a Senate Antitrust Subcommittee hearing that investigates persistent allegations of Google abusing its market power. Other witnesses include Jeff Katz, CEO of Nextag, and Jeremy Stoppelman, CEO of Yelp — ably representing the publishers whose sites are pushed lower in search listings as Google gives its own services preferred placement. But who will speak for advertisers’ interests?

Each year Google bills advertisers some $30+ billion; advertisers quite literally pay the bill for Google’s market dominance. Yet advertisers seeking search traffic have little alternative to the prices and terms Google demands. Consider some of Google’s particularly onerous terms:

  • All-or-nothing placements. An advertiser wishing to appear in the Google Search Network must accept placement on the entirety of Search Network, in whatever proportion Google elects to provide. Some Google Search Network properties are excellent, like AOL and New York Times. Others are dubious, like typosquatting sites, adware, and pop-up ads. A competitive marketplace would push Google to offer advertisers a meaningful choice of advertising venues, and advertisers could choose which placements they want. Instead, Google bundles placements in a way that compels advertisers to buy worthless traffic they don’t want yet can’t avoid.
  • Low-quality search partners. Far from a good-faith effort to rid its network of low-quality partners, Google has retained placements through InfoSpace, a traffic syndicator whose undesirable traffic sources are well-known, amply documented (1, 2, 3), and ongoing. In a competitive marketplace, Google would have to offer advertisers high-quality, trustworthy traffic. But in current conditions, Google knows advertisers will accept Google’s traffic even if Google mixes in low-quality traffic advertisers do not want.
  • Opaque ranking and pricing. Google selects, orders, and prices advertisements using algorithms that only Google knows. As a result, advertisers struggle to understand why their ads appear in unfavorable positions or not at all: Is a competitor bidding more? Has Google assessed a competitor’s ads more favorably? (If so, is such assessment accurate or a system malfunction?) Or has Google quietly penalized an advertiser for taking actions adverse to Google, perhaps speaking to a journalist or complaining to a regulator?

    Google tells advertisers nothing about others’ bids, and Google provides only ambiguous information about its assessments of advertisers’ ads. So advertisers are left to wonder "have I been penalized?" without rigorous methods to answer that question. Advertisers would flock to a viable alternative search engine that treated them fairly and predictably while offering high-volume search traffic. But Google’s market power makes any such switch unrealistic.

  • Harsh contract terms. Google’s US Advertising Program Terms purport to let Google place ads "on any content or property provided by Google … or … provided by a third party upon which Google places ads" (clause 2.(y)-(z)) — a circular "definition" that sounds more like a Dr. Seuss tale than a formal contract. If Google does provide information about the sites where it places ads, Google disavows the accuracy of that information (no warranty or guarantee as to "reach, size of audience, demographics , or other purported characteristics of audience" (clause 5.(vi))). Google also "disclaims all warranties [and] guarantees regarding positioning, levels [or] quality … of costs per click, click through rates, … conversions or other results for any ads" (clause 5.(i)-(v)). Furthermore, even if an advertiser proves a violation, Google claims that "any refunds for suspected invalid impressions or clicks are within Google’s sole discretion" (clause 5).

    Even Google’s notification provisions are one-sided: An advertiser with a complaint to Google must sent it by "first class mail or air mail or overnight courier" with a copy by "confirmed facsimile." (Despite my best efforts, I still don’t know how a "confirmed" facsimile differs from a regular fax.) Meanwhile, Google may send messages to an advertiser merely by "sending an email to the email address specified in [the advertiser’s] account" (clause 9).

    These terms smack of market power: Rare is the advertiser who would accept such terms if reasonable choices were available.

  • Banning tools to help advertisers move elsewhere. Savvy advertisers seek to buy placements through Google as well as competing search engines such as Yahoo and Bing. But Google builds roadblocks to hinder advertisers’ efforts. Certainly any advertiser wanting to run a large campaign on multiple search engines needs tools to help — to make the first copy from Google to competitors, and to perform ongoing sync’s and updates. But Google’s AdWords API brazenly prohibits tool-makers from offering these services — leaving advertisers either to do the work manually (unreasonably slow and costly) or to write their own tools by hand (infeasible for all but the largest advertisers).

    Google has never offered any pro-competitive or competitively-neutral explanation for restricting how advertisers copy their own ad campaigns. In a rare moment of frankness, one Google executive once told me "we don’t have to make it easy" for advertisers to use competitors’ services. That argument might have passed muster a decade ago, but Google’s dominance puts such tactics in a new light.

Google likes to argue that "competition is one click away." First, I question whether users can actually leave as easily as Google suggests: Popular web browsers Firefox and Chrome strongly favor Google, as Google CFO Patrick Pichette recently admitted ("everybody that uses Chrome is a guaranteed locked-in user for us"). In the mobile context, Android offers Google similar lock-in. And even on non-Google mobile platforms, Google serves fully 95% of searches thanks to defaults that systematically direct users to Google. Meanwhile, syndication contracts assure Google exclusive long-term placement on most top web sites. Against this backdrop, users are bound to flow to Google. Then advertisers must go where the users are. Whatever choice users have, advertisers end up with much less.

In the last ten years, Google grew from 12% to well over 80% worldwide. In that time, Google moved from zero ads to a dozen or more per page; from placing ads only on its own site to requiring advertisers to purchase ads with thousands of partners of dubious or unknown quality; from hustling to convince advertisers to buy its novel offering, to compelling advertisers to accept the industry’s most opaque pricing and most onerous terms. At the start of a new decade, Google is stronger than ever, enjoying unrivaled ability to make advertisers do as Google’s specifies. It’s time for advertisers — and the regulators who protect them — to put a check on Google’s exploitation of its market power.