You are here

How the Google-Facebook Ad Cartel Harms Advertisers, Publishers & Consumers

How much smoke and fire must there be, and how many people must get burned, before the fire department will investigate and put out a forest fire?

Apparently, a lot, if the forest fire is in the digital ad market that Google and Facebook dominate, and U.S. antitrust authorities are the firefighters.

Where’s the fire here?

Google and Facebook, which don’t directly compete in search and social, together dominate over 70% of the digital advertising market. They also dominate about 80% of online referral traffic, the online oxygen upon which every Internet publisher depends for survival.

After fiercely competing directly with each other in search and social in 2013 and 2014, Google and Facebook abruptly and quietly stopped competing against each other in 2014 with no explanation.

Since then, Google and Facebook have accelerated their capture of almost all digital ad revenue growth and profitability, exposing that Google and Facebook have become a de facto cartel that has illegally divided up the digital advertising space.

In 2014, Google and Facebook apparently decided they could each optimize their growth and profitability by colluding as dominant market complements to each other, rather than competing head-to-head as less efficient search-social competitors.

The economic motivation behind Google and Facebook’s apparent illegal market division is this.

Google takes more share of advertiser demand for lead generation and local business visibility – Google’s special dominance. And Facebook takes more share of advertiser demand for brand awareness and interactivity with consumers – Facebook’s special dominance.

The consumer specialization rationale behind Google and Facebook’s apparent illegal customer allocation is this.

Google takes more share of consumer demand focused on search for local, state, and national news, and the news verticals for business, technology, and job postings. Meanwhile Facebook takes more share of the news and content focused on social subjects like entertainment and lifestyle.

What’s the harm in Google and Facebook efficiently dividing up their markets and allocating customers -- besides being per se illegal under antitrust laws?

Let’s connect the dots of how advertisers, publishers, and consumers, all the key constituencies of this market, are now all being harmed substantially and demonstrably in the digital ad market.

We’ll start with the substantial harm to advertisers -- Google and Facebook’s customers.

Procter & Gamble’s Chief Marketing Officer, Marc Pritchard, succinctly summarized advertisers’ complaints about the online ad industry that Google and Facebook increasingly dominate, in an April New York Times interview.

NYT: “What’s the biggest problem here?”

P&G’s CMO: “The entire murky, non-transparent, and in some cases fraudulent supply chain is the problem. It’s a bigger problem than any one thing. There’s too much we don’t know and we don’t have validated.”

“Ads showing up on objectionable sites, that’s bad. Ads showing up to bots through searching that’s bad. Ads that you place that don’t really get measured by a third party that validates what’s right – that’s not so good either.”

“All we’re really asking for, is here’s what we are paying for, validate that we are getting it, so we can evaluate whether it is a good deal.”

Perversely, the world’s most valuable brands now must worry about ‘brand safety,’ because Google and Facebook have been allowing top brands’ ads to run next to hate speech, extremist propaganda, and other deplorable, brand-defiling, content.

The advertising industry understands the totality of the above critique by a top and seasoned CMO. Digital advertising is in a state of market failure. No other advertising segment has ever been able to get away with so disserving their customers’ best interests.

Think about it. Unlike normal businesses where “the customer is always right,” in digital advertising Google and Facebook apparently consider their advertiser customers mostly wrong.

Grumbling the customer eats what the Google-Facebook cartel feeds them because they don’t have any other viable competitive choice to reach the largest audiences on the planet with their advertising.

Google and Facebook’s web publisher suppliers are being harmed substantially too.

Just last week, the News Media Alliance said that because U.S. antitrust enforcers have not applied existing antitrust laws to Google and Facebook, they are forced effectively to ask Congress for a narrow antitrust exemption in law to negotiate a fair deal collectively with the dominant online platforms.

Since the FTC enabled Google and Facebook to become search and social monopolies with roughly 90% market shares respectively, illegally by acquisition, (Google buying #1 ad server DoubleClick and #1 mobile advertiser AdMob; and Facebook buying #1 photo sharer Instagram and #1 standalone messaging service WhatsApp), and since the FTC does not have the antitrust authority to investigate cartel behavior like the DOJ does, competitors and suppliers like newspapers and other content suppliers, are stuck coping with an untenable situation – obvious FTC antitrust enforcement failure.

Newspapers would never have to propose a longshot option, a new law and special antitrust exemption, if the DOJ/FTC simply had enforced antitrust law over the last four and a half years.

Returning to the initial forest fire metaphor, newspapers are having to ask the government for special permission to organize as a private firefighting force to defend their properties from forest fires set and fanned by an arson gang, that another arm of government – firefighters -- won’t investigate or prosecute for reasons unknown.

Consumers are being harmed substantially as well.

Last year the American people were burned by widespread fake news from all sides during the election process, because Google and Facebook profited most from the super-viral nature of “click-bait” content or “fake news.”

After the November election, Google and Facebook had to substantially tighten their advertising standards after widespread criticism of their platforms’ central distribution roles in systemically misleading and deceiving the public.

Last week we learned of more deception. A Wall Street Journal expose catalogued how Google is paying academics to help defend Google against regulatory challenges of its market dominance.

More and more consumers have figured out that they aren’t Google and Facebook’s customer, but the product that Google and Facebook sell to advertisers.

PageFair estimates that almost 20% of U.S. consumers use adblockers, and PageFair’s user survey indicates the top reasons are security (fear of ad-borne viruses and malware), interruption, slow content serving, too many ads, and lost privacy.

This is more obvious evidence of serious market failure.

Since Google and Facebook provide users no choice to pay for their services as a subscription, so the user can become the customer and treated as a customer and not a product, users are having to take matters into their own hands and sub-optimally blocking ads and losing part of the value of Google and Facebook’s services.

In short, connect the dots.

Google and Facebook are 90% dominant in search and social advertising respectively. They used to fiercely compete, but abruptly stopped. Right then their market shares quickly accelerated. All three main digital advertising constituencies are getting seriously disserved and harmed – advertisers, publishers and consumers.

There’s evidence of illegal arson, smoke, fire, and harms.

Where are America’s antitrust firefighters when they are most needed?

When did netopolies like Google and Facebook become above the law and why?

***

Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an internetization consultancy for Fortune 500 companies, some of which are Google competitors, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.” Cleland has testified before both the Senate and House antitrust subcommittees on Google and before the relevant House oversight subcommittee on Google’s privacy problems.

Online Winner-Take-All Platforms Antitrust Series

Part i: Why Did Google & Facebook Stop Competing with Each Other? [8-3-16]

Part ii: Google’s Information is Power, Info-poly Power [9-18-16]

Part iii: What No Bids for Twitter Tell Us about Google-Facebook & Online Advertising [10-21-16]

Part iv: Five Worst Google Antitrust Decisions [11-4-16]

Part 1: America’s Indefensible Media Concentration Double Standard [12-5-16]

Part 2: The Google-Facebook Online Ad Cartel is the Biggest Competition Problem [1-12-17]

Part 3: Twitter & Snap Evidence Confirm Goobook Ad Cartel Crushing Competition [2-15-17]

Part 4: Look What’s Happened Since the FTC Stopped Google Antitrust Enforcement [3-13-17]

Part 5: Google Antitrust Implications of Makan Delrahim as DOJ Antitrust Chief [3-28-17]

Part 6: Trump Administration Implications for Google Antitrust in EU, US & Markets [4-7-17]

Part 7: 6 Reasons Trump DOJ Will Take Lead from FTC in Google Antitrust Enforcement [4-13-17]

Part 8: Google-Russia Antitrust Deal Has Big Implications for EU Cases, Trump DOJ [4-19-17]

Part 9: Google Takeaways from Trump Antitrust Chief’s Senate Confirmation Hearing [5-11-17]

Part 10: New Evidence Google Facebook Ad Cartel Crushing Competition Market Failing [5-18-17]

Part 11: Alphabet-Google Big Takeaways from Trump Antitrust Chief’s Senate Answers [6-1-17]

Part 12: Trump Administration Lets Last Google Government Guardian Go – Michelle Lee [6-9-17]

Part 13: The Internet Association Proves Extreme US Internet Market Concentration [6-15-17]

Part 14: Why Amazon-WholeFoods Will Attract Serious Antitrust Scrutiny [6-16-17]

Part 15:  Why US Antitrust Non-Enforcement Produces Online Winner-Take-All Platforms [6-22-17]

Part 16: The Trump DOJ “Slam Dunk” Antitrust Case Against Alphabet-Google [6-28-17]

Part 17: How the Google-Facebook Ad Cartel Harms Advertisers, Publishers & Consumers [7-20-17]

 

 

 

Q&A One Pager Debunking Net Neutrality Myths