Both Google and the U.S. Department of Justice believe the other wants too much of one thing: control.
“Control is the defining characteristic of a monopolist,” said Attorney General Julia Tarver Wood in her opening statement in the federal government's second antitrust case against the search engine giant, which began Monday in Alexandria, Virginia. From the government's perspective, Google exerts too much control over every step of how publishers sell advertising space online and how advertisers buy it, resulting in a system that favors Google at the expense of nearly everyone else.
“Control is the defining characteristic of a monopolist”
From Google's perspective, the government is trying to gain control of a successful company by imposing more favorable terms on the company's business relationships with competitors, ignoring the value of the company's investments in technology and the unique efficiency of its integrated tools.
At the end of the trial, which is expected to last several weeks, US District Judge Leonie Brinkema will have to decide which side exercises too much control – and ultimately whether Google has illegally monopolized the advertising technology market.
Markets is a key word, since one of the questions raised on day one is how many monopolies Google might actually have. (A federal court in Washington, DC, says there is at least one, since it recently found Google to be a monopolist in search.) The Justice Department argues that Google has a monopoly in three different advertising-related markets: the markets for publisher ad servers (where websites offer ad space for sale), ad exchanges (which facilitate ad transactions), and advertiser ad networks (where advertisers buy ad space). They also argue that Google illegally linked its publisher ad server to its ad exchange to maintain its monopoly position.
“One monopoly is bad enough,” Wood said in his opening speech. “But we have a trio of monopolies here.”
“We have a triple combination of monopolies here”
Google claims it is not a monopolist and that there is actually only one market: a two-sided market made up of buyers and sellers of online advertising inventory. In opening arguments, its lawyer said the government is ignoring relevant Supreme Court precedent that this is the best way to look at such a market. The company also argues that regulators are dividing the field with terms like “open web display advertising,” which Google says are contrived. What the government really wants here, Google claims, is to force the company to deal with its competitors — something the Supreme Court says is not really the job of the judicial system.
After opening arguments, the Justice Department began questioning its first witnesses, focusing on the tools publishers use to monetize display advertising. These are the ads that typically appear at the top or side of news websites and blogs, and are populated through super-fast auctions that run while the page is loading. During the auction, an ad exchange helps match publishers and advertisers based on factors like topic and price, without the active intervention of a human. The process is called programmatic advertising, and is run by The Verge website parent company Vox Media and many others. (Ryan Pauley, president of revenue and growth at Vox Media, is on the list of possible witnesses but was not called today.)
Google's tools play a crucial role in this process, with some of them holding around 90 percent of the market, according to government figures. Google has a publisher ad server called Google Ad Manager (formerly DoubleClick for Publishers, or DFP) that helps publishers sell ad space. Google operates an ad exchange called AdX that facilitates transactions. And Google has an ad network for advertisers, completing its trifecta of key products in various areas of the advertising world.
Four industry representatives testified on Monday. They represented a publisher (Tim Wolfe, SVP of Revenue at Gannett), an advertising exchange (Andrew Casale, President and CEO of Index Exchange), a marketer (Joshua Lowcock, media president at Quad) and a publisher ad network (James Avery, founder and CEO of Kevel). In the testimony, the government tried to prove that programmatic display advertising is not something publishers can simply replace with other types of advertising, including direct contracts with advertisers or ads on social media sites. And it introduced the idea that switching Google tools is not such a simple decision, even if there might be a reason for it.
For example, in their testimony, Wolfe and Avery made it clear that publishers are unlikely to move away from Google Ad Manager. They said this is because Google bundles Ad Manager with access to AdX, and losing that package would mean losing out on a lot of revenue – even if competitors take a much smaller share for each ad sale. Wolfe testified that when Gannett received such an offer, the reduced take rate made no difference because it did not outweigh the benefits of AdX.
Ad server company Kevel initially targeted traditional publishers, but Avery said competing with Google proved impossible. He recalls publishers asking how his company could replace revenue from AdX, which Kevel simply couldn't do. After trying twice to contact Google to find ways to connect Kevel's ad server to AdX, his efforts were rebuffed, Avery testified. Kevel instead focused on enabling things like sponsored listings for retailers.
From the ad exchange perspective, Casale said that switching ad servers is very challenging on a technical level, which is why publishers rarely do it. Building a new server is “very complex and expensive.” In the ad exchange market, competing with Google's AdX is “very challenging,” Casale said, and in experiments, reducing fees has had little “nominal” impact on the ability to win more business.. Given the enormous network effects required to build an exchange and the fact that it only gets visibility into the ad impressions it wins, “I can't imagine anyone starting a new exchange today,” he said.
Google's lawyers seized on the witnesses' arguments and credibility during cross-examination, pointing out how actors like Avery would benefit if the court forced Google to release access to its tools. Google will call its own witnesses later in the trial to counter the Justice Department.
“I can’t imagine anyone opening a new stock exchange today”
This trial covers very different terrain than the antitrust battle in the District of Columbia last year. But on the first day of the trial, both sides alluded to their previous fight. The Justice Department mentioned in its opening statements that another court had already ruled on the issue of Google's search monopoly, pointing to a ruling issued by Judge Amit Mehta just over a month ago. And while Mehta largely ruled against Google, the tech giant relied on a portion of the ruling that went in its favor. The issue? A Justice Department argument that Mehta interpreted as a requirement for Google to do business with competitors – and which was accordingly dismissed.