The Wall Street Journal - 08.11.2019

A6| Friday, November 8, 2019 THE WALL STREET JOURNAL.

How Google Edged Out Rivals and Built

The World’s Dominant Ad Machine

Nexstar Media Group Inc., the largest local

news company in the U.S., recently tested what

would happen if it stopped using Google’s tech-

nology to place ads on its websites.

Over several days, the company’s video ad sales

plummeted. “That’s a huge revenue hit,” said Tony

Katsur, senior vice president at Nexstar. After its

brief test, Nexstar switched back to Google.

Alphabet Inc.’s Google is under fire for its

dominance in digital advertising, in part because

of issues like this. The U.S. Justice Department

and state attorneys general are investigating

whether Google is abusing its power, including as

the dominant broker of digital ad sales across the

web. Most of the nearly 130 questions the states

asked in a September subpoena were about the

inner workings of Google’s ad products and how

they interact.

Much of Google’s power as an ad broker stems

from acquisitions of ad-technology companies, es-

pecially its 2008 purchase of DoubleClick. Regula-

tors who approved that $3.1 billion deal warned

they would step in if the company tied together

its offerings in anticompetitive ways.

In interviews, dozens of publishing and advertis-

ing executives said Google is doing just that with an

array of interwoven products. Google operates the

leading selling and buying tools, and the biggest

marketplace where online ad deals happen.

When Nexstar didn’t use Google’s selling tool,

it missed out on a huge amount of demand that

comes through its buying tools, Mr. Katsur said:

“They want you locked in.”

Online ads are typically sold in auctions that

happen in an instant, when a user’s web page is

loading. Google dominates at virtually every step

of the process. Here’s how it works:

BYKEACHHAGEY ANDVIVIENNGO

More than 90% of large publish-
ers use the Google ad server, Dou-
bleClick for Publishers, according
to interviews with dozens of pub-
lishing and ad executives.
Using Google’s DoubleClick for
Publishers, media executives say,
is the only way to get full access
to Google’s AdX exchange, where
ad space is sold in real-time auc-
tions. One of AdX’s advantages
over competing exchanges is that
it can connect into yet another
powerful Google product, Ad-
Words, which draws on the com-
pany’s dominance in search.
Advertisers use AdWords to bid
on keywords related to search
terms. When a user searches for,
say, “home loans,” the ads in the
search results are from the winners
of the AdWords keywords auction.
But AdWords does much more than
that. Among other things, it also al-
lows advertisers to purchase dis-
play ads around the web.
For many years, Google’s AdX

was the only ad exchange that had

access to this fire hose of ad dol-

lars. Google now opens up some

AdWords demand to rival ex-

changes, but AdX continues to re-

ceive the majority of demand, ac-

cording to people familiar with

Google’s ad products.

Media companies are so reliant

on the proprietary advertising de-

mand flowing through Google’s Ad-

Words that one executive at a major

publisher referred to it as “crack.”

Wall Street Journal parent News

Corp, a longtime Google critic and

active complainant against the

company with Australia’s antitrust

authority, considered switching its

ad-serving business over from

Google to rival AppNexus, in which

it had invested, but ultimately felt

it would endanger the 40% to 60%

of advertising demand it gets from

Google’s ad marketplaces, accord-

ing to people familiar with the

matter. News Corp has invested in

several advertising-technology ri-

vals to Google.

In Australia, Fairfax Media Lim-

ited, the publisher of The Sydney

Morning Herald, left Google’s ad

server for AppNexus in 2016 but

returned the following year. The

most prominent publisher to have

moved off Google’s ad server to

AppNexus is German publisher

Axel Springer SE—but its biggest

American subsidiary, Business In-

sider, stayed on Google.

One point of tension for publish-

ers: Google’s own properties, along

with those of Facebook Inc. and Am-

azon.com Inc., are competing with

them for digital ad spending—and

winning. Collectively, the tech giants

will take in 68% of the roughly $

billion in U.S. digital ad spending

this year, according to eMarketer.

Overall, Google made $116 bil-

lion in advertising revenue last

year, a 22% rise from the previous

year and 85% of the company’s to-

tal revenue. Most of that ad reve-

nue came from Google’s own prop-

erties, but the company’s vast role

in brokering online ad sales off its

own platforms gives it an added

level of dominance.

Google has, at times, provided

incentives to use its products in

tandem. A few years ago, Google

waived certain fees for Double-

Click for Publishers if an ad sale

was made through its AdX ex-

change, according to a contract re-

viewed by The Wall Street Journal.

Last year, Google merged those

two products—DoubleClick for

Publishers and AdX—into a single

product called Google Ad Manager,

making it plain to the industry

that they are indeed linked, ad and

publishing executives say.

The basics of a typical digital ad-

vertising sale aren’t too compli-

cated, with transactions happening

in ad exchanges. But there are sev-

eral major ad exchanges—how do

publishers determine which one

should sell their ad space? That’s

where it gets more complex.

Google’s rivals and critics have ac-

cused the company of tilting the

process in ways that hurt publish-

ers and help its own AdX exchange.

For years, Google’s DoubleClick

for Publishers offered up ad space

to the ad exchange that had histori-

cally delivered the highest prices.

Publishers felt they were leaving

money on the table, because the ex-

change ranked first based on histor-

ical prices wasn’t always the highest

bidder in that particular moment.

In certain cases, AdX automati-

cally got first crack at ad space,

ahead of all other exchanges, and

it used the data that publishers

had entered into DoubleClick for

Publishers to its advantage. In

those cases, if AdX could find an

advertiser in its auction willing to

pay more than DoubleClick’s esti-

mate for what other exchanges

might pay, it would be awarded

the ad deal.

Then the industry came up with

a new idea.

Google’s tightening of the
screws over the years hasn’t just
hurt publishers, but also compet-
ing ad tech companies.
Several rivals to DoubleClick for
Publishers have left the ad-serving
business in recent years, including
OpenX, Facebook and Verizon
Communications Inc.
“The ad-tech industry is like a
cemetery,” said Damien Geradin,
an antitrust lawyer and professor
of competition law and economics
at Tilberg University in the Neth-

erlands.

At the start of 2016, Google be-

gan requiring ad buyers to use

Google’s tools for purchasing video

ads on YouTube, by far the most

trafficked video site on the web.

Previously, advertisers could use

various third-party buying tools to

purchase ads on YouTube.

“That was in many ways the be-

ginning of the end,” said Brian

O’Kelley, the co-founder of AppN-

exus, which sold to AT&T Inc. last

year for around $1.6 billion after

its revenue growth stalled. Mr.

Kelley had previously acknowl-

edged that AppNexus, like others

in the industry, was also battling

to root out fraud in its system.

“Google used its monopoly on

YouTube to put its hand on the

scale,” said Ari Paparo, who today

runs Beeswax.io Corp., an ad-buy-

ing specialist that competes with

Google.

Also in 2016, Google began al-

lowing data it gathered from ser-

vices like Gmail and Google maps,

such as users’ locations and email

addresses, to be used in Double-

Click’s ad-targeting system—but

only for customers of its ad-buying

tool DV360.

Google said it anonymizes and

aggregates this data into audience

segments, and stopped using

Gmail data for ad personalization

in 2017.

Rival ad-buying companies say

when they asked to access the

data, Google refused, citing pri-

vacy concerns.

“We offered to sign a privacy

assurance, and they said no,” Ra-

jeev Goel, chief executive of rival

ad-tech firm PubMatic Inc., said.

One former senior Federal

Trade Commission official who

supported the DoubleClick deal in

2008 now regrets it.

“At the time, it seemed like the

right decision, but things changed

alot in the last dozen years,” the

official said.

—Patience Haggin and Elbert

Wang contributed to this article.

U.S. NEWS

Auctionbattles

TofightbackagainstGoogle,theindustryinventedatechnologycalled“headerbidding.”

ThisessentiallycontinuedGoogle'sadvantage.

Googleisnowrollingoutadditionalchanges

thatitsayswilleliminateanyadvantageitever

had.Butitwillcomewithotherchangesthat

publishersfearwillreducecontroloverhow

theyselladvertising.

Instead,thewinneroftheheader

auctionwentupagainstAdX,

whichgotachancetomakea

toppingbid.Itwasasiftherewas

atournament,butGooglewas

alreadyslottedtobeinthefinals

beforeitevenbegan.

vs.

Inthisnewsystem,multiple

exchangescompetedforadspace

inareal-timeauction.

However,headerbiddingdidnot

completelygetridofGoogle’s

advantage,becauseGoogle

refusedtohaveAdXparticipate.

THESELLSIDE:PUBLISHERS

Whenauservisitsalargeonlinepublisher’s

websiteorapp,thepublisherusesanadserver

toselladspaceonitspages.

Adspace

forsale

Onceamatchismade

ontheexchange,an

adpopsuponusers’

screens.

Thepublisheralso

givestheexchange

informationaboutthe

reader—theirage,income,

browsinghistoryand

interests,forexample.

Thetoolputsthepublisher’s

adspaceupforsaleon

exchanges,marketplaceswhere

transactionshappeninreal-time

betweensellers(publishers)

andbuyers(advertisers).

THEBUYSIDE:ADVERTISERS

Togetitsadinfront

oftheuser,theadvertiser

placesbidsintheauction

marketplace—thehighest

bidderwins.

Theadvertisercanspecifythetypes

ofaudiencesitwantstotarget—

suchaslocation,genderorageof

user—andthepriceoftheiroffer.

Anadvertiser,representingitsclients’products,
usessophisticatedbuyingtoolstopurchaseads.

Inthisexample,thepublisheruses

Google’sDoubleClickforPublishers,

theleadingad-servingtool.

Google’s role as both the primary auction house for
selling digital ads and an auction participant has led to
calls for regulatory action. Presidential contender
Elizabeth Warren has proposed unwinding the
Google-DoubleClick merger.
Google says that the way its ad products work together is one
of the primary attractions for publishers, advertisers and other tech
companies. “Publishers use our technology to access demand from over
700 partners, of which Google is just one source,” a Google spokesman
said in a written statement. “Advertisers use our technology to buy
inventory on over 80 exchanges. Interoperability across the ad tech
landscape allows publishers and advertisers to mix and match
technology partners to meet their different needs.”

Inthisexample,anadvertiser

usesGoogle’sbuyingtool,

DV360,theindustryleader.

Googlehasthelargestsuch

marketplace,theDoubleClick

AdExchange,orAdX.

REAL-TIMEAUCTIONHOUSES