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Policy

Featured Post | Policy

The cracks in Google’s adtech façade are starting to show

Behind the scenes, Google is flailing – despite its predictably tight control over industry narratives. 

The underlying shockwaves stem from an increasingly widespread understanding of Google’s dominant role over the entire adtech supply chain. Those who have sought to unpack and explain the complexities of the company’s hold on the industry can thank a senior Google employee for providing this apt analogy in discovery: They described Google’s role in adtech as “if Goldman or Citibank owned the New York Stock Exchange.” Now that’s something a jurist can understand. 

The escalation of enforcement 

In the last sixty days, Google has floated three different test balloons in an attempt to head off the intensifying scrutiny: 

  1. The Wall Street Journal reported Google has offered to split off part of its adtech business in an effort to head off the Department of Justice’s filing of a landmark lawsuit – expected this month according to a Bloomberg report. The only problem: Google’s offer was to split the adtech business and put it under a different part of parent Alphabet. To extend the previous analogy, placing the NYSE in a different division of Goldman Sachs would not solve the inherent issue. Hard pass.  
     
  2. Google announced a new feature with the innocuous title of “Confirming Gross Revenue.” They’ve pitched it to advertisers and publishers – and little doubt to enforcers, too – as providing transparency in a “privacy-safe way” as to the money flow in the advertising supply chain. The problem with it is that Google will avoid having to provide insights into auctions, transactional flow, or any real detail as to how Google’s decisions determine revenues across the market. Google’s press announcement crows that “Display & Video 360 is onboard as an early tester.” That sort of says it all, since Google owns DV360.  
     
  3. Google once again delayed its deprecation of third-party cookies, something that they’ve been dragging their feet on for nearly three years. From the very beginning, Google has used misleading Google-authored research of the Google-dominated supply and data system to suggest their delays are only due to their interests in not harming publishers. What is true is that a wrong move by Google (hello Floc, hello Topics) can very well continue the ongoing harm to premium publishers by treating every website as an interchangeable commodity. If there’s any chance that a move will hurt Google’s ad business, it won’t happen. 

Litigation, legislation, and learning 

So why all the flailing? To illuminate what’s going on underneath the surface, let’s take a roll call. Fifteen U.S. states, the U.S. Department of Justice, the E.U. Competition Commission, the U.K. Competition and Markets Authority … Netherlands … France … well, suffice it to say that the list is long (and growing) for investigations, lawsuits, and enforcement action underway – all of which are probing Google’s advertising tech business(es).  

The E.U. has been particularly active by fining Google more than $8 billion across three decisions. It also recently passed its new landmark gatekeeper law, the Digital Markets Act, and is ramping up enforcement of its landmark privacy law, the GDPR, by pressing Google-friendly Irish regulators. 

Importantly, enforcers and litigators are studying and learning from each other across issues of competition and data privacy worldwide. And they’re keeping especially close eyes on the Texas-led lawsuit which now counts 15 bipartisan state attorneys general as plaintiffs along with countless private plaintiffs. They certainly won’t have overlooked Google losing much of its arguments last week in attempting to dismiss this case. This blow came at the hands of a SDNY Court which very much seems to understand Google’s business. And that’s a huge problem for Google. 

Full court press 

Although “Jedi Blue” received the most press attention, due to the allegations of Google colluding with Facebook, there are a range of other very serious allegations which the Court has now given the green light for further discovery and trial. And, significantly, they are readily explainable to a jury. Two foremost allegations are the tying of Google’s adtech services and the manipulation of its auctions.  

What if I told you Google required the use of its ad server in order to receive the benefits of Google’s market-leading ad exchange and the fast-growing advertising demand dollars flowing through it?  Some might call this “tying,” which – if proven – is illegal.  Note that Google had about 50% of the ad server market when it acquired DoubleClick (DFP). It has since steadily increased that stake to claim nearly 99% of large publishers. Please allow me to quote the Court:  

 “The States plausibly allege that Google used its monopoly power in AdX to actually coerce publishers into licensing a separate and distinct product, Google’s DFP ad server, and that Google’s actions had anticompetitive effects in both markets, affecting a substantial amount of interstate commerce.” 

Or what if I told you Google had paid its publisher clients based on the third-highest price in an auction while collecting on the second-highest price with the determination it would re-route the variance into more advertising demand for its own services?  Some might call this, “market manipulation,” which – if proven – may well have been an illegal way to protect its monopoly. As the Court again summarized Google’s project “Bell”:  

“In other words, Bell penalized publishers who did not grant AdX preferential access by paying them based upon the third-place bid rather than a second-place bid, while using the difference to increase the bids made to publishers who allowed preferential access.” 

In fact, the only count which was dismissed in the lawsuit is the infamous “Jedi Blue” allegation. Despite Google anchoring its press spin on this win, it’s this single dismissal – one that befuddled many legal experts watching the case. I wager this one will resurface again as the E.U. and U.K. have already announced their own investigations. Also, the “Jedi Blue” allegations are included in a private lawsuit against Facebook that has already been given the green light in the northern district of California. Each of these efforts builds on the others and the subsequent learnings can only aid the U.S. Department of Justice in its work.  

Antitrust is in the air 

It was rightly said nearly three years ago that antitrust enforcement will take significant time. The wheels of justice do indeed turn slowly. Attempting to propose solutions before the investigations and allegations landed would be premature, but Google’s efforts to settle these cases shows they are nervous. And Google’s efforts to manipulate the outcome may be the most transparent thing about its business.  

The reality is many of the charges against Google have now been found plausible and will proceed into deeper discovery just as many other regulators and legislatures attempt to curb its power. Make no mistake, Google is stumbling in a way we’ve never seen in its two decades. Of course, the company will look to proactively lay out solutions for all of us. But we all see through this. No one should settle for anything less than a return to competition and the rebalancing of bargaining power that comes with it. 

Advertising | Featured Post | Policy

What the landmark GDPR fine of the IAB signals for the ad industry

In February of this year, the Belgian Data Protection Authority (DPA) dropped a bombshell on the ad industry when they ruled that the Interactive Advertising Bureau’s (IAB) Transparency and Consent Framework (TCF) violated the General Data Protection Regulation (GDPR) in several critical ways. Admittedly, that alphabet soup doesn’t exactly sound like a bombshell.

So, let’s go beyond the acronyms and break down what this means for publishers going forward.

The ruling

First, the basics. The GDPR requires companies to have a valid legal basis tied to a specific purpose before processing any personal data from consumers. The two most popular bases are consent (affirmative and freely given) and legitimate interest (essentially, the benefit to the consumer from the use of their data outweighs the risk). Although it should be noted that Facebook decided to take its own direction by using a contract as its basis, a strategy that is quickly unraveling.

To maintain the free flow of data that currently fuels a wide swath of digital advertising, the IAB created the TCF which allows companies to transfer their legal basis for the data used in the buying and selling of advertising inventory in a real-time bidding format. Under the TCF, a publisher can note whether or not they have a legal basis to process a consumer’s personal data. Then, advertisers and ad tech companies can decide whether to bid on the ability to show an ad to that person.

The Belgian DPA received several complaints, including one from Johnny Ryan at the Irish Council for Civil Liberties, that the IAB’s TCF violated the GDPR. In short, the TCF was criticized for facilitating the widespread dissemination of personal data to the entire industry without any real controls on the access, use or auditing of that data. Specifically, the DPA found that:

1. The TCF and the ad tech companies using the TCF were processing a ton of personal data without any legal basis and certainly beyond any legal basis claimed by the publisher.

2. The IAB failed to properly educate consumers given the complexity of the data processing.

3. The IAB deployed no technical measures to limit unauthorized access to personal data.

4. The IAB was operating as a controller of data and, thus, should have kept a register of activities, appointed a data protection officer and conducted a data protection impact assessment.

The DPA ruled the TCF invalid and fined the IAB 250,000 Euro per day. The IAB is currently appealing in the hopes of making small changes to satisfy regulators. However, many insiders are skeptical that the IAB’s proposals will suffice. The fundamental problem is that the current ad industry is built on the ability to collect and share consumer data at will and at scale. And GDPR enforcers want meaningful change with meaningful protections for consumers. This approach to maintain status quo simply does not satisfy that requirement.

Impact on data-centric ad businesses

Let’s assume that the Belgian and other European regulators win on appeal and the TCF is required to undergo major changes. What does that mean for the ad marketplace, for real time bidding and for publishers?

For starters, ad marketplaces will be required to handle consumer data more carefully. Allowing free-for-all access to consumer personal data by any company that agrees to the terms of service just won’t fly. They may need to deploy technical measures to mask personal data and/or limit access to only those companies with a sound legal basis.

Of course, this could be a problem for some of the IAB’s biggest members and hundreds of ad tech intermediaries, which are dependent upon the ability to profile consumers silently across the web. However, should a more consumer-friendly, less data-invasive approach win out, advertisers will need to learn to rely far less third party data. The certainly won’t want to open themselves up to liability for using illegally-sourced personal data.

Marketplaces and the shifting data market

The second major impact will be on the organizations that run marketplaces. The IAB attempted to craft a framework which would save the status quo of third-party, behaviorally targeted advertising because that is the moneymaker for its biggest members and the sea of intermediaries who mine and resell access to user profile data as a core business model. However, a fine of 250,000 Euro per day is likely too rich even for the dominant platforms.

Going forward, organizations that want to offer automated ad marketplaces will have to institute more controls and assume greater liability. There is a real question as to whether any organization will want to take on that role certainly for the entire industry. It’s far more likely (at least in the short term) that smaller organizations will stand up marketplaces with segments of industry.

CPRA follows suit

Third, the issues at play on the European landscape are likely to play out similarly on the California coastline. California regulators have just recently proposed a set of draft regulations for compliance with the California Privacy Rights Act (CPRA). Starting next year, the collection and use of Californians’ personal data will be regulated in ways that are very similar to European law. Whatever solutions emerge to satisfy European regulators will have a very good chance of satisfying California regulators.

Future focused

Undoubtedly, the IAB faces significant pressure from its most powerful members such as Google and Facebook and the long-tail of adtech solution companies. Given that their businesses have been built on the ability to collect data (even off-platform, when consumers do not expect it), they are deeply invested in finding a way to comply with emerging regulations in a way that ultimately allows them to continue their business more or less as usual. In Europe, their strategy has been to put off any major interruption to their massive data-collection-and-use model for as long as possible.

But these businesses that have dominated the digital advertising market do not represent the only way of doing business. While regulation certainly changes the market, it does not inherently change things for the worse.

In fact, I’ll leave you with a feel-good fact: A revamped and GDPR/CPRA compliant ad marketplace could elevate premium publishers. They enjoy trusted, direct relationships with consumers. Instead of a wild west marketplace where all kinds of actors stake dubious claims of proper legal bases, the premium publishers, which are on far more solid legal ground, would be in a strong position of controlling access to a limited supply of consumers.

Industry-Research | Policy

Research explores the best way to balance big tech and journalism

The Australia 2021 News Media Bargaining Code and the European Union (EU) 2021 Digital Copyright Directive are two examples of policies that establish a more equitable financial arrangement between big tech platforms and digital news organizations. They center around the understanding that platforms derive a benefit from news content and that publishers are not compensated for the way in which these platforms profit from their content. Courtney C. Radsch examines the different policies in her report, Making Big Tech Pay for the News They Use to offer insight into the legislation and its implementation.

With the exception of non-profits, most news organizations employ a commercial model. In the simplest terms, advertising is used to drive revenue to support the news organization. However, intermediaries – notably Google and Facebook – now stand between the publisher and the advertiser. Since search and social media are key ways in which people discover and consume news online, these platforms benefit from the user traffic derived from publishers’ content. They collect personal data on users and group people into demographic and special-interest categories to target advertising to them on their platforms.

Radsch’s research examines how policymakers are working to redirect revenue to compensate news outlets more equitably.

Her report classifies the different policies into three distinct groups:

  1. Digital taxation,
  2. Competition policy (or antitrust), and
  3. Intellectual property.

Taxation

In recent years, taxing digital advertising has gained interest. In 2019, the U.S.-based Free Press proposes a small tax on revenues generated from targeted advertising. This policy was established with Google and Facebook in mind. The taxed revenue would be used to fund public interest media systems.

Radsch notes it’s problematic that the policy does not identify who will monitor and implement a payment distribution system for the news media companies. 

While not covered in this report, in 2021, Connecticut, Indiana, New York, Oregon, and Washington introduced state proposals for a new tax on revenues from digital advertising or to expand the state sales tax to digital advertising sales. Interestingly, none of these proposals allocate the tax revenue to news organizations. Connecticut plan suggested the revenue from the tax be dedicated, in part, to funding online bullying prevention efforts and training for social isolation and suicide prevention.

Maryland became the first state to enact such a tax in February 2021. However, these state tax laws face court battles since they likely run afoul of the Constitution’s Commerce clause. This clause restricts the ability of states to regulate commercial activity across state lines, and the Internet Tax Freedom Act prohibits states from levying taxes solely on digital goods or services.

Bargaining power

Other policies are exploring making platforms pay for the news they use, headlines, photos, and snippets. This type of policy forces the platforms to negotiate directly with publishers rather than the government. Australia made headlines in 2021 when it passed this type of legislation requiring Facebook and Google to share algorithmic information with and pay licensing fees to news organizations. The code states that news media companies can bargain individually or collectively for payment from platforms to use their content.

As a result, Google and Facebook threatened to pull their services from the Australian market. Facebook did shut down its service for one week. Both companies ultimately acquiesced and signed deals with Australian publishers.

Intellectual property rights

Many question whether the “fair use” exception in copyright law, the use of a small amount of copyrighted material without prior permission, applies to Google and Facebook.

The 2021 EU Digital Copyright Directive created a right for press publishers, not just authors, to claim copyright, including for snippets of news. In addition to individual publishers being able to strike deals with the various platforms, the Directive allows collective management organizations to negotiate licensing fees and distribute them back to publishers. 

In 2021, members of the U.S. Congress proposed a new version of the Journalism Competition and Preservation Act of 2021. This bill would create a four-year safe harbor from antitrust laws for print, broadcast, or digital news companies to collectively negotiate with platforms regarding the use of the news companies’ content. In other words, media news companies could collaborate to discuss bargaining with Google and Facebook without fear of antitrust violation. Despite bipartisan support, the bill appears to have stalled.

Profits and progress

Google and Facebook claim that news content generates little revenue. However, their earning calls suggest otherwise. These companies benefit tremendously from the trusted content and audiences that news publishers deliver. 

Radsch’s report calls for platform transparency, including sharing traffic reports and the number of ads served around each news item. This would be a good first step to revealing the amount of revenue the news content generates on the platforms. Once this amount is determined and platforms equitably paid for news content, the relationship between the two can reset. Given the importance of advertising revenue to journalism, it’s important to get this right. Radsch’s report offers guidance and insights that will help policymakers move forward meaningfully.

Policy

Digital outlaws: How Facebook extorted Australia

As the world learns from Australia’s news media bargaining code that has reportedly driven $200 million of funding to news organizations, a whistleblower revealed the tactics to try to stop other nations from importing and building on it. This panel featured the CEO of the whisteblower’s law firm, an advocate for the digital future of news organizations, and a member of Parliament working on new laws to create a more competitive market.

Held June 23, 10:45-11:05am ET at The 2022 Collision Conference in Toronto Canada

Jason Kint, CEO, Digital Content Next
Libby Liu, CEO, Whistleblower Aid
Nathaniel Erskine-Smith, Member of Parliament for Beaches – East York, House of Commons of Canada
Alex Kantrowitz, Founder & Editor-in-chief, Big Technology

Featured Post | Perspectives | Policy

The FTC is about to enter a new era

Nominated by President Biden, and recently confirmed by the Senate, Alvaro Bedoya was sworn in as the 5th Commissioner of the Federal Trade Commission (FTC) this month. As a result, Chair Lina Khan now has a majority of Democratic-nominee votes with which she intends to move quickly to implement a promised progressive agenda. Let’s dig deeper into what issues Chair Khan and the FTC are likely to move forward and how this might play out.

Privacy rulemaking

In February, the FTC gave the required advance notice to the relevant Congressional committees that it intended move forward with a rulemaking “to curb lax security practices, limit privacy abuses, and ensure that algorithmic decision-making does not result in unlawful discrimination.”

Now that Commissioner Bedoya is confirmed, it is widely expected that the FTC will move forward in the very near future. Historically, an FTC rulemaking of this kind can take years to process. However, in 2021, the FTC streamlined the process including by removing the requirement for a staff report and analysis. So, while it is not clear exactly how long it will take, the intent is to move quickly.

One of the wild cards in this process is a petition filed last year by Accountable Tech, which urged the FTC to ban “surveillance advertising” under its authority to prosecute “unfair or deceptive” acts. The petition suggested the FTC could act in one of two ways:

  • Prohibit platforms from using personal data for targeting ads, or;
  • Prohibit businesses from “sharing user data, for the purposes of advertising, to any business line, website, advertising technology, or tracker other than the business or service with which a user intentionally interacts” AND prohibit platforms over a certain threshold from using consumer data to target ads.

As hinted at in the second option, Accountable Tech’s petition notes that “any rule should make clear that it does not ban all advertising or even all targeting of advertising.” Indeed, they specifically call out search, contextual, and first-party targeted advertising as acceptable practices in line with consumer expectations. All that said, it is unclear whether and how much the FTC will follow the suggestions of the petition.

Ramping up COPPA enforcement

In 2019, the FTC initiated a mandatory review of their regulations concerning the Children’s Online Privacy Protection Act (COPPA), but we have heard very little since. Consumer groups have been calling on the FTC to modernize the COPPA rules, which have not been updated since 2013. Now that Chair Khan has a majority, we are likely to see revised draft regulations sometime before the end of this year.

In the meantime, on May 19, the FTC issued a policy statement indicating that they intend to closely examine whether ed tech providers are fully complying with COPPA. Specifically, they will focus on whether these companies have sufficient “limitations on collection, use, and retention, along with security.” Enforcement action in the ed tech space could provide clues as to how the FTC wants to update the COPPA rules.

Merger reviews

The Biden Administration has publicly announced that it will closely scrutinize any and all acquisitions by big tech companies. To that end, the Department of Justice and FTC are working on updating the merger guidelines.

As part of a series of “listening forums” to gather feedback, Chair Khan voiced concerns about mergers in the media sector, noting that there were $200 billion worth of mergers in 2021. She disclosed that “we are working to ensure that our analytical methods are keeping up with new market realities.” Specifically, she wants to avoid consolidation that leads to firms having “outsized power over how information is distributed.” At the same forum, DOJ Assistant Attorney General Jonathan Kanter expressed concerns that consolidation in the media sector has led to a decrease in the amount and diversity of content.

From my perspective, there are two big takeaways from this listening forum. First: The Administration is doubling down on its efforts to stop big tech platforms from developing (via acquisition) a dominant position in the content industry. To that end, they are looking for new ways to identify and quantify harms to content creators and the market in general. And Second: While we can expect the Administration to remain hyper-focused on big tech mergers and acquisitions, publishers should also understand that the FTC and DOJ will be closely scrutinizing deals between publishers.

Dark patterns

Last year, the FTC issued a policy statement to curb the use of “dark patterns” to trap consumers in subscriptions. Since then, the FTC has followed up with enforcement action against various companies and we expect that action to continue going forward. Many have observed that Amazon may be in the Commission’s sights. While that may be true, the FTC’s enforcement record indicates it is looking at the industry more broadly.

A bold era begins

Lina Khan has been heralded as a bold thinker, ready to lead the FTC into a new, modern era. Yet, for most of her tenure, she has been hampered by the lack of a working majority. With that constraint removed, we can expect more and aggressive action from the FTC on privacy and competition. Indeed, the era of Lina Khan is about to begin in earnest.

Advertising | Featured Post | Perspectives | Policy

Apple and California are pushing advertising to adapt. That’s a good thing.

For far too long, many have falsely equated the value of digital advertising as the ability to track consumer behavior. This belief, and much of the marketing strategy it inspired, eroded consumer trust, which hasn’t been a win for anyone. Regulation is catching up and efforts are now being made to align business practices more closely with consumer expectations.

Regulation is catching up and efforts are now being made to align business practices more closely with consumer expectations. Unfortunately, this has a lot of pundits opining about the negative impact of privacy governance on marketing. The reality is that digital advertising has much more than tracking to offer consumers, marketers, and media companies. The changing landscape is a necessary evolutionary step, and an opportunity to get things right.

CPRA in effect

Later this summer, California regulators will spell out draft rules for how companies should comply with the California Privacy Rights Act (CPRA), which builds on and strengthens existing California privacy law. One of the biggest changes will be the ability for consumers to opt out of being tracked with a single click. The CPRA specifically requires companies to honor an opt out signal generated from a global privacy control in a browser or device.

Interestingly, this new provision in the CPRA mirrors Apple’s approach with App Tracking Transparency (ATT), which it rolled out in 2021 as part of its update to iOS 14.5. Under ATT, apps must ask consumers for permission to track them. The results have not been surprising: 81% of consumers have chosen the option not to be tracked.

So, what will happen when Californians have the same ability to opt out as Apple users have today?

It’s not unreasonable to assume that Californians will opt out of tracking at similar rates. Given that there are more than 39 million California residents, an 81% opt out rate translates to 31,590,000 people. And really, if even half that opt out, it is not a small number. Advertisers will understandably want to find new ways to reach these consumers. The industry is already feeling the impact of consumers’ privacy preferences and advertising must evolve accordingly.

Dominant companies dented

Since the launch of ATT, companies that depend on web-wide tracking of consumers have suffered. Facebook warned investors that Apple’s improvements to privacy will cost them $10 billion in revenue this year.

It’s interesting to note that ATT’s impact is felt solely in Apple’s platform, which has provided Google with the unique calling card to advertisers of being the operating system and browser still “all-in” on tracking. However, CPRA will apply to everyone. Given that Google, like Facebook, has built an advertising empire based on invasive tracking, it seems inevitable that the company will see an impact on its ad revenues as well.

Some have noted that Apple has also seen revenue climb from its own App Store search ads. However, they are quickly reaching capacity constraints in the app promotions category, so this is unlikely to serve as a major growth category for Apple.

Ad innovation

Of course, despite limits to tracking, Apple users still see display ads as those ads just aren’t targeted using behavioral profiles. Apple allows ads to be targeted to cohorts or by using first party data. So, I believe that we will start to see more innovation in how advertising is targeted to consumers. First party targeted ads seem like an obvious winner. In particular, ad innovation on Apple platforms could yield significant success because those audiences have long been seen as a more valuable consumer demographic than Android users.

Premium advertising alignment

Consumers frequently complain about creepy ads that follow them around the web. Those kinds of ads are not subtle. In fact, they are viewed by many as the digital equivalent of junk mail. And, as such, they don’t match well with premium content.

However, ads that are based on first party data might be better suited to a premium environment. For starters, the consumer is likely to realize that they are seeing a certain ad because of data they shared with the publisher. They are also likely to have a more favorable view of that ad because of the context. That’s because – instead of focusing solely on targeting a user at the lowest cost – the advertiser has instead intentionally aligned themselves with the relationship the publisher enjoys with the consumer. The ad is, therefore, likely to leverage that premium context to greater effect. In a world where third-party profiling is restricted, we could start to see higher quality ads in premium contexts – and ads that are more effective as a result.

Valuable consenting consumers

While it is a relatively small number, the 19% of consumers that intentionally opt-in to data sharing with sites and companies they trust will become extremely valuable. Trusted, well-respected brands promise to be the main beneficiaries as they are those most likely to gain consent from consumers. Obviously, advertisers would pay a premium to reach these audiences. It’s also interesting to consider how premium publishers could find new ways outside of advertising to monetize their most loyal consumers.

If past is prologue, big tech lobbyists and lawyers will forebodingly warn that the CPRA will cause irreparable damage to the advertising industry. They will bemoan the impact on small businesses and diverse voices. However, it is critical to remember that their real goal is to blunt the hit to Google and Facebook’s bottom lines, which is already driven by upwards of 70% of the digital advertising market.

The future is good advertising

Ultimately, we need to focus on the fact that consumers want, and will get, more control over how their data is shared across the web. As Carnegie-Mellon economist Alessandro Acquisti points out: When consumers are empowered with more privacy, welfare doesn’t evaporate, it shifts and reallocates towards a new set of winners.

The adaptation required from ATT and CPRA are likely to shake up digital advertising and shift advertising revenue from current channels. Like Apple’s tracking prevention last year, CPRA is poised to have a huge impact on the companies dominating digital advertising by logging every aspect of a consumer’s behavior. At the same time, these shifts promise to expand opportunities for trusted, premium publishers; They will stand out to consumers by offering something consumers actually want: valuable news and entertainment, delivered in a way that respects them and their wishes.

Featured Post | Perspectives | Policy

Magic wand meets crystal ball: My digital media predictions

It’s the start of a new year. So, two of the most popular questions I get are: 

“If publishers could wave their magic wand, what would they change about media?”  

“If you look into your crystal ball, what do you see for the future of publishers?”  

You may be surprised to hear this, but I don’t own a magic wand or a crystal ball, although I’d find either quite satisfying.  Despite my lack of magic tools, I do have predictions about the future: Publishers have never been closer to having many of their key needs being addressed in the market. I see a steady march towards meaningful change. And now, publishers only need to maintain the drive to follow through on what they’ve wished for.

All Posts

Market power of the “gatekeepers”  

On both sides of the Atlantic, legislation is emerging that limits the potential for, and real abuse of, market power. This will specifically impact “gatekeepers” like Google, Facebook, Microsoft, Amazon, and Apple. The EU’s Digital Markets Act, which is expected to pass by summer, will put heightened obligations and constraints on gatekeepers. Meanwhile in DC, antitrust reform legislation has gained serious bipartisan momentum. 

In particular, two bills are front and center: the American Innovation and Choice Online Act and the Open App Markets Act. These seek to limit platforms “preferencing” – highlighting or promoting – their own products and services, whether in advertising or content discovery and limit app stores in their ability to capture unfair profits. For many years, DCN has played a leading role in documenting the clear imbalance in market power. And now, for the first time, DCN has chosen to endorse legislation in our support of these two bills.  

Prediction #1: By the end of 2022, we will have the first laws passed that limit gatekeepers from abusing their market power.  

The emperor has no clothes  

Years ago, Facebook taught the market that it couldn’t be trusted as a business partner. And it has reinforced this fact again and again and again and yet again.

These days, most publishers treat Facebook as any other marketing channel in which the business value needs to be proved – it’s no longer the new, sexy test bed for marketing ideas. Of late, we see this in the lackluster performance of long-form video on IGTV, causing Facebook to once again pivot to short-form video with Reels. Long gone are the days in which Facebook would say “jump at this shiny new object” and publishers would respond “Yes! How high?”  

Through various lawsuits, Google finds itself in a similar situation. Publishers are finding out that the promises made by Google’s external ambassadors often differ wildly from the company’s internal ambitions. We see this in many ways, from how it conducts advertising auctions to its abuse of consumer data or the way it positioned Accelerate Mobile Pages (AMP). DCN recently surveyed our members to understand their thoughts on AMP and learned that more than half were re-evaluating their use and expect to stop participating because it significantly under-delivered on the revenue and promised value by Google.  

Prediction #2: Google and Facebook feel significant pressure for the first time to truly appease publishers through their commercial deals.   

Value of direct relationships with consumers and advertisers      

Facebook’s record one-quarter-of-a-trillion-dollar stock drop last week should signal optimism for publishers. There is significant movement in technology and public policy to align the value of data and attention with the sites and apps we trust — and actually choose to use. The downturn in Facebook’s fortunes is a sign that their core surveillance advertising business model no longer passes muster. 

Apple has played a leading role by cutting out much of the tracking done by companies with which consumers aren’t even interacting. This move led to a reduction in Facebook’s revenue expectations by $10 billion, a whopping number that represents more than half of our membership’s annual advertising revenues.  

Counter to the sky-is-falling-rhetoric posited by Facebook and Google’s trade bodies, this advertising investment won’t just “vanish into thin air.” Expect further market realignment as regulators flex in the EU and as California’s new law comes into enforcement in January 2023.  

Prediction #3: By 2023, the tracking of consumers and the use of third-party data to target them will have changed significantly under the pressure of legislation, lawsuits, and consumer preferences. 

Premium means premium  

We’ve long established that brands are proxies for trust and, in turn, value for both consumers and advertisers. As the advertising market continues to accelerate away from the 2020 slowdown, there is a noticeable shift appearing – validated in our DCN Benchmark Report – towards premium environments where advertisers can create desire and demand for their products. Often this entails instructing their agencies to be more focused on where their ads appear, a strong advantage for professional media over user-generated content.  

Additionally, consumers are speaking with their wallets louder than ever. DCN members are setting new highs for subscriptions across the board – from streaming services to news brands and from local to international. And as our Gen Z research showed, the kids are alright and more likely to put their money behind services that speak to their own values.   

Prediction #4: Although 2020-21 was an atypical growth period for subscriptions, expect steady growth in 2022 and beyond.  

The future we deserve 

If I did indeed wield a magic wand, I would curb data collection and limit it to the services people actually choose to use. I would also wave away the fear of giant gatekeepers, triggered by the sense that we can’t avoid them. They are not unassailable. What we see in terms of policy and public sentiment suggests exactly the opposite. 

Right now, the battle for a competitive, thriving, and plural publisher ecosystem sits at the integration of data and competition policy. For media brands to retain value and ensure that their news and entertainment isn’t seen as an interchangeable commodity, we must continue to push against unscrupulous data collection. 

Predictions and pressure prevail over magic. I see the power of the progress that has been made from the growing alignment of concerns globally and the education of those charged with regulating and policy making and maybe more importantly consumers and advertisers seeking out the trusted brands of the future.  

Advertising | Featured Post | Innovation | Policy | Revenue

Regulation, revenue, and relationships top of mind at the 2022 DCN Next: Summit

Held virtually January 31-February 3, the 20th annual members-only DCN Next: Summit was a gathering of digital content companies from all over the world.

CEO Jason Kint opened the event by offering his perspective on how the last few years have underscored the need for quality information. He also reinforced the need for trust, particularly as we move toward web3. “Where people have choice and a competitive market, where they spend their time, attention and relationships, trust will matter. Trust matters more than ever,” Kint explained.

Keynotes and discussion sessions touched on subscriptions, paywalls and reader revenue, video, film, audio strategy, and AI. The event also explored the political and technical forces shaping the media landscape today, with sessions focusing on cookies, identity, trust, privacy, and platforms.

The personal is political, and platforms

The opening keynote featured 2021 Nobel Peace Prize recipient Maria Ressa speaking with investigative journalist Carole Cadwalladr. They discussed platforms and the critical role a free press plays in healthy democracies. As Ressa put it, “Until technology gets guardrails around it, until we get to the point where the platforms that deliver the news are redesigned so that lies laced with anger and hate do not spread faster and further than facts, journalists will be under attack.”

Investigative Journalist Carole Cadwalladr in conversation with Maria Ressa, CEO of Rappler

Platform concerns and necessary regulation arose again throughout the event, notably in Thursday’s final keynote. Attendees heard from U.S. Senator Amy Klobuchar, mere hours after a Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights hearing.

Klobuchar, who has been working to hold big tech platform accountable, provided an update on the bipartisan antitrust app store bill that just went through committee, as well as other bills she’s leading.  “We just had an incredible vote on a bill that Senator Blumenthal and Blackburn and I … put out a few months ago on app stores: 21 to 1,” she said.

The bipartisan legislation, called the Journalism Competition and Preservation Act would enable news organizations to collectively negotiate terms with platforms to provide fair compensation for news content. Klobuchar  told attendees, “The big issue is advertising money and fair compensation. These companies are sucking up the ad dollars using the original content that you produce and they’re using the data they collect from your audiences to compete against you.”

Chris Pedigo SVP, Legal Affairs of Digital Content Next, interviews Senator Amy Klobuchar

First-party data and identity

Unsurprisingly, the upcoming deprecation of the third-party cookie was a topic of much discussion at this year’s summit. The change has destabilized the advertising ecosystem. Experts discussed how to prepare for the post-cookie reality and how publishers could invest in their first-party data.

To prepare for the post-cookie reality, Rachel Parkin, CafeMedia’s EVP, Sales and Strategy, suggested publishers strengthen relationships with advertisers and build up their arsenals and come up with the right framework for identity and authentication for users and content.

TRUSTX CEO David Kohl suggested that publishers, by acting as a group to create scale, can create competitive advantage. ” We are in transition and there’s tremendous chaos in identity and audience data. But here’s the thing: Chaos creates opportunity,” he said. “And the question is, how can publishers take the lead in organizing the chaos? How can we band together? It is time to create an ‘easy button’ for scale.”

Another session discussed how publishers are leveraging consent-based visitor relationship data sources to fuel monetization as the industry moves forward into a cookie-less future. David Rowley, senior director data and identity products at News Corp. said they feel first party data is going to be one of the most important assets to a publisher. News Corp is assessing what’s out there for external identity solutions, Rowley said, and building out a proprietary identity solution.

“Publishers use so many different types of technology, DMPs, CDPs, analytics platforms, you name it, all of them spit out and create their own identifiers. Being able to stitch all of those together to have a unified view of a user is critical, so you can have that one-on-one relationship with a user,” he said.

People and empathy

Another theme that echoed through the conference was that of managing during these difficult times. As Agnes Chu, president of Condé Nast Entertainment remarked, “I think it’s hard to drive change during a time where people are experiencing so much anxiety themselves.”

Lindsay Peoples Wagner, editor-in-chief of The Cut, outlined that it’s important for leadership to have and bring a sense of empathy. Leaders must “be able to step outside of yourself and understand that, yes, we’re all employees and work at a company, but we’re human beings,” Peoples Wagner said. “People, especially in the past couple years, have had a really hard time with mental health or their family issues or being sick. It’s important to understand, I think, that people may need time, and that push and pull as a manager, I think is more important than ever.”

Michelle Manafy, Editorial Director of DCN interviews Lindsay Peoples Wagner, Editor of The Cut

The biggest shift for TripAdvisor’s Christine Maguire when the pandemic hit, was from building products to empathy. “I had to sort of take a step back and realize where everybody was in their journey,” she said. “Having empathy for what goes on in their day to day is so important, because oftentimes we come in to make a change when there is a problem, and that’s too late.”

The future of work

The newsroom of the future may look nothing like the pre-pandemic one. Indeed, as publishers move forward, they’re stepping into a future which doesn’t look much like the past. There’s upside, such as the ability to create more flexible working situations, which facilitates broader recruiting.

However, as author Anne Helen Petersen noted, when companies allow their employees to live anywhere and work any time, they may run into a lot of sticky situations.

“The larger question that a lot of companies are dealing with is if we say that people can have really flexible work schedules and can go in when it is most convenient for them, are we also going to put stipulations on the states or countries where they can live,” she said. “Are we going to say that they get into New York within the day, that they take the train in? Is that okay? Or are we going to say that it’s one flight away? What are our boundaries?”

The future of the industry

On the last day of the summit, Co-founder and CEO of Insider Henry Blodget and Atlantic CEO Nicholas Thompson engaged in a spitfire conversation about the digital media industry. They discussed the complicated relationship with platforms, new technologies like AI, NFTs and blockchain, and made predictions for web3.

Blodget was optimistic about the future of local news. However, he sees a different scenario play out for others going forward. As the industry evolves, he thinks there will be three to five big generalists, a bunch of targeted specialist publications that serve a particular niche, and everyone else is in the middle.

Atlantic CEO Nicholas Thompson in conversation with Henry Blodget Co-founder & CEO of Insider

“I do think we’re all going to face pressure and there’s going to be a lot more consolidation because there are enormous returns to scale,” Thompson replied. “We see that every day with The New York Times, when they roll out some cool new tech feature that they can spread across their 10 million subscribers.”

“Let us just acknowledge that The New York Times is Netflix of journalism,” Blodget said. “My view is in five to 10 years, they will have 25 million subscribers and they will still be growing strong and they will become one of the most powerful English language journalism publications in the world. And the rest of us are gonna have to find places to carve out what is left.”

Featured Post | Perspectives | Policy

Avoid the hype. Focus on policy for 2022.

From political races to red carpet award shows and global sports competitions, there are very few “franchises” that aren’t being stretched longer and longer to capitalize on the public’s interest. We find ourselves once again at the time of year when industry prognosticators offer their curated lists, social media hot takes, and opinion pieces in an attempt to memorialize the most important events of 2021 and to make predictions for 2022.

In tech and internet policy circles, this cycle seems ironic, given that forecasts are delivered daily – often several times a day, depending on the latest news cycles. But as we head into the final stretch of 2021, I have a few thoughts about how we need to avoid the distractions and stay focused on the one big change likely to occur in the new year.

Reality check 

To start, I’ll set the table on what I am skeptical about focusing on as we move forward: anything “metaverse” or “creator economy.” And I’ve got some good reasons to hope that, as we head into a new year, we don’t repeat the mistakes of the past.

Amidst the current hype around virtual worlds, augmented reality has certainly emerged as a powerful tool. And it is entirely possible that virtual reality will have practical applications beyond gaming (and not akin to never-quite-there 3D TV).

However, I feel compelled to remind everyone how the pivot to video became an industry obsession. That massive shift was not because of consumer demand; it was driven by Mark Zuckerberg’s 2016 prediction that nearly everything on his kingmaker platform would be video within five years.

So much has happened in the ensuing five years, not the least of which has been a steady and escalating series of revelations of how utterly deceiving this particular CEO and his company have been. And, unsurprisingly (at least in retrospect), we learned that this prediction was at least partially built on a Facebook deception. And, while we can ask ourselves why we had so many years when Facebook said “jump” and publishers and marketers blindly responded, “how high?” – perhaps the most enduring and meaningful lessons are learned from mistakes.

Facebook is not alone in the self-serving prophecy business though. Google’s Accelerated Mobile Pages also became an industry obsession, not because it was in the consumers’ best interests as Google claimed. Rather, it was simply a function of another industry-take-all-platform shaping the market to its liking. As we recently learned in unsealed antitrust allegations, it was a means for Google to bolster its advertising interests by slowing down competition. 

Creative control 

The hype cycle is also obsessed with the “creator economy.” There is an absolute flurry of innovation in providing platforms for individual creators. Though this isn’t entirely new. Google’s YouTube, for example, has both inspired and capitalized on it for ages. The same can be said more recently about TikTok.

Yes, it is very exciting to watch. However, these creator models are essentially comprised of typical vendor services: subscriptions, newsletters, distribution and, more recently, audio services. It’s not a coincidence that much of the investment and press hype—bordering on industry obsession—can be tied back to Facebook or its board of directors. Don’t forget that the company has its own Substack-like “creator platform,” Bulletin. Neither the hype nor the investment is surprising, though, given Facebook’s longstanding interest in disrupting media institutions.

What you should really be watching in 2022 

The most important industry story of 2022 will continue to be the at-times dull, but critically important, accountability around antitrust and data policy. We can thank Facebook and Google for adding a sprinkle of excitement to these conversations through whistleblowers, code names (Project NERA, Bernanke, Jedi Blue, and Poirot to name a few) and improperly filed redactions. As an increasing number of privacy laws come into effect, regulators may want to consider more Star Wars-inspired naming conventions to spice things up a bit.

Names notwithstanding, we are going to see regulation continue to intensify next year. In the near term, Europe appears set to finalize two landmark regulations: the Digital Markets Act and Digital Services Act. If these prevail, Europe will be first to have a purpose-built “gatekeeper” law for the 21st century.

The Digital Markets Act addresses the imbalance in negotiating power in a networked economy that results in both individuals and businesses lacking autonomy and choice, which harms the public at large. It recognizes that no individual publisher or consumer can truly opt-out of Google’s search engine that scrapes the entirety of our lives via the internet. Almost as impossible to avoid are Facebook, Instagram, and WhatsApp, which connect people to communities. And then there’s the binary mobile and app store marketplace, delivered by Apple’s iOS or Google’s Android.

With this level of market power, publishers and consumers have little to no choice in negotiating rights to their data and consent with these powerful gatekeepers. The European approach mirrors the work of Australia’s competition and consumer protection regulator — and it looks like U.S. authorities are headed in the same direction. In a market dominated by superpowers, regulation follows to govern how that market power is used or abused.

The Digital Services Act will then modernize the rules for content liability and possibly how advertising can be targeted when based on surveillance capitalism by companies that, in many cases, consumers don’t even intend to interact with. The DSA and DMA have two main goals: First, to create a safer digital space in which the fundamental rights of all users of digital services are protected. And second, to establish a level playing field to foster innovation, growth, and competitiveness, both in the European Single Market and globally. Not many can argue against these goals, it’s only a matter of whether the legislation will achieve them.

Bringing it home

In the U.S., California’s CCPA is currently the strongest data protection law for digital advertising stateside, followed closely by Colorado’s new law. However, as state and federal laws are negotiated to carry the baton, all eyes and minds are on Europe. There is an acute concern about making sure to address market power and create a sustainable path for publishers going forward, one that isn’t determined for us by industry gatekeepers like Facebook, Google and Apple. This likely requires laws that directly integrate competition and data policy rather than developing rules in the same room as the industry titans, which has failed to result in anything fair if even legal.

So, as we look forward, let’s not repeat the mistakes of the past. When the dominant digital power players press their self-serving agendas, we do not have to buy in. We don’t have to follow their lead. We don’t have to amplify their messages. And for goodness’ sake, we do not need to pivot.

Instead, we should stand our ground, steady on the bedrock of consumer trust and responsible business practices. If 2021 showed us anything, it is that consumers value great content. It’s what we do. And we will continue to do it well. Nothing meta about that.

Advertising | Perspectives | Policy | Supporter Spotlight

A regulatory reckoning over scam ads approaches

The classics are so well-known they’ve become punchlines: acai berry treatments, one simple trick to get rid of belly fat, get rich working from home. Newer scam ad verticals like bitcoin and crypto schemes, home solar energy savings, and nutritional supplements for diabetes sufferers are slamming consumers on every corner of the Internet.

And yet scam and deceptive advertising is simply accepted as an ugly part of digital media and advertising. And it’s only getting uglier. Since the beginning of 2021, The Media Trust has detected a 50% increase in scam campaigns hitting publisher properties. Still, too many AdTech companies and publishers look the other way as the scams roll through the programmatic pipes, hoping their audiences have the good sense not to be bamboozled.

The Media Trust detected unique scam campaigns ramping upwards throughout 2021 with a major spike in July.

Unfortunately, there have been virtually no consequences for sites running scam ads. There’s the occasional massive fine, like when the Federal Trade Commission came down hard on Clickbooth for its acai berry barrage. However, for the most part, scammers advertise with impunity and AdTech and publishers become their accomplices.

However, consequences may be coming—and the fallout may be dire—judging by the developing online regulatory situation in the UK and increasing attention elsewhere.

The scope of online safety measures

British Prime Minister Boris Johnson has promised to present the Online Safety Bill before Christmas. The bill would require publishers, social networks, and many communication/messaging apps to deter, remove, and mitigate the spread of Illegal and harmful content—particularly when aimed at children. The bill threatens fines as high as £18 million or 10% of global revenue, and possible criminal sanctions.

Beyond content that sexually exploits children (which must be reported to law enforcement), the harmful content in question includes malicious trolling and racist abuse—with the added goal of “protect[ing] democracy,” presumably through stemming online disinformation. The UK Office of Communications (Ofcom) will enforce the proposed law, which will also give the regulatory agency the ability to completely block access to a site or platform.

However, advocates like famed British personal finance advisor Martin Lewis think the bill doesn’t go far enough. That’s because it’s laser-focused on user-generated content and doesn’t regulate online advertising—most notably scams. Lewis, whose likeness is often exploited in scam ads pushing bitcoin schemes, has been on a crusade against online scam ads for years, including forcing Facebook to settle for £3 million over a 2018 lawsuit regarding more than 1,000 scam ads featuring his appearance.

Drowning in scam ads

The data backs up Lewis’ claim that the “The UK is facing an epidemic of scam adverts.” In 2020, 410,000 cases of fraud reported to the UK police represented a 31% jump from the year prior, according to consumer group Which?, with £2.3 billion fleeced. Including anxiety and psychological damage, Which? puts the actual total suffered by UK consumers at £9 billion.

And the greatest frustration among consumers and public advocacy groups is the lack of recourse and sense that scammers act with impunity—aided by AdTech and digital media. In another Which? report, 34% of consumers said a scam they reported to Google was not taken down, while 26% said the same of Facebook.

In 2020, The National Cyber Security Centre removed more than 730,000 websites hosting scam advertising landing pages featuring the likenesses of Lewis, Richard Branson, and other celebrities. Despite that effort, The Media Trust has seen a 22% increase in these types of scam (aka “Fizzcore”) content throughout 2021 that use similar landing pages.

Fizzcore attacks, which typically feature celebrities and hawk bitcoin scams, have grown 22% over 2021 despite crackdowns.

Fizzcore is more nefarious than other scams because it employs cloaking to hide malicious creative and/or landing pages from creative audits and other detection techniques. The vast majority of these have been pushing bitcoin investment scams, often with the same Lewis and Branson content.

Personal finance advisor Martin Lewis and billionaire philanthropist Richard Branson are common faces in scam ads directed at UK citizens.

Even if online scam advertising fails to make the final Online Safety Bill, a reckoning for scam ads could come in other forms. The UK’s Department for Digital, Media, Culture and Sport (DMCS) is developing the Online Advertising Programme (OAP), a framework that enables regulators to address potential consumer harms from digital advertising, including scam ads.

And just to pile on, UK. Home Secretary Priti Patel announced a relaunched Joint Fraud Taskforce on Oct. 21. Addressing the significant rise in scams during the peak of the coronavirus pandemic, the taskforce will focus on addressing scams and fraud through private-public partnerships and refurbishing of government reporting tools.

Fallout beyond the British Isles

The ramifications of all this regulatory (buildup) ought to make the industry anxious. The Online Safety Bill would put heavy new burdens on publishers and social media in moderating user content in the UK, but the inclusion of scam ads might directly affect revenue. In the absolute worst-case scenario, publishers would need to vet all specific advertisers running on their sites as well as be familiar with all creative to avoid liability. That could mean many risk-averse publishers shut off programmatic advertising.

Scam advertisers are notoriously hard to pinpoint. They use any and every buying platform available, and then tools like cloaking in code to hide their malicious motives. When it comes to rooting out scam campaigns, the proof isn’t completely in the ad code. While creative and domain patterns can be identified and blocklisted, finding scammers also requires investigation into the elusive end-advertisers, their motives, and their histories. It’s not impossible, but it requires dedicated teams always on the pursuit.

Beyond stopping scammers cold at the source, the next best way to stem proliferation of scam ads is to bring culpability to publishers and their AdTech partners. However, publishers are the low-hanging fruit. The website was where the consumer was attacked, so they’ll always be the prime regulatory target.

Despite the intense pressure in the U,K., regulators in other countries are also most definitely paying attention and looking for a potential roadmap. In the U.S., reform of Section 230 of the Communications Decency Act—which shields online media companies from legal liability regarding user-generated content—appeals to both major political parties. Really, what politician would say no to the easy win of protecting consumers from online scams? According to the Federal Trade Commission, consumers lost $3.3 billion to fraud in 2020, up from $1.8 billion in 2019—and that’s only the 2.2 million reports filed. 

Self-regulation to the rescue?

The IAB UK is conversing with the DMCS on the OAP, but ultimately the trade group believes industry self-regulation is the answer. While self-regulation on the data privacy front became a mockery of itself, self-regulation of scam ads doesn’t need to meet the same fate. First off, trade groups like the IAB need to establish stronger ad quality guidelines that offer standards for handling malvertising, scam, and other harmful ads.

In addition—or short of that—publishers need to take control of their own destinies regarding scam ads. Every ad quality provider should be identifying scam ads and enabling publishers to block them. Slapping down redirects simply isn’t enough for a bad-ad-blocker—a publisher serving scam ads is violating the trust of its audience and leaving consumers vulnerable.

Not only is blocking the scam ads the right thing for publishers to do, it is a way to get ahead of—or perhaps helping avoid—a regulatory onslaught that will have catastrophic revenue consequences. Failing to mitigate will come back to haunt the industry.

Advertising | Featured Post | Policy

An unredacted view into Google’s unbridled ambition

Google takes somewhere between 22% and 42% of all the money flowing through its ad system, according to the unredacted version of the Southern District of New York federal case, Texas v Google, which was unsealed last week. While we knew or suspected many of the revelations, surprising new details were uncovered including internal communications that expose just how big their ambitions are the and tactics they take. The case and the supporting evidence present a chilling and calculated effort by Google to squash all competition. There is much to unpack in the newly released documents, but I’ll focus on three aspects that jumped out to me.

Google fees

It has always been unclear how much Google charges when it is involved with an ad. However, the recent evidence shows that they charge on all sides of the transaction — and they charge a lot. The suit lays out the scope of Google’s ad business: “Google operates the largest electronic trading market in existence.” In fact, it appears that 75% of all ad impressions in the United States were served by Google’s Ad Manager. In Google’s words, “more daily transactions are made on AdX than on the NYSE and NASDAQ combined.” Eleven billion online ad spaces each day.

At the same time, Google owns the largest buy-side and sell-side advertising platforms. As one senior Google employee admitted, “(t)he analogy would be if Goldman or Citibank owned the NYSE.” More accurately, the analogy would be if Goldman or Citibank were a monopoly financial broker and owned the NYSE, which was a monopoly exchange.

And, because of this dominant position on all sides of the market, Google can charge monopoly rents. Most ad exchanges charge a take rate of four to five percent of ad spend. Google takes 22 to 42 percent. And, on top of that, Google charges another 10% if a publisher wants to divert inventory outside of Google’s system.

Oh, and that’s just on the sell side. The suit lays out similar predatory fees and anticompetitive practices on the buy side as well.

Header bidding, an existential threat

When “header bidding” came along, it offered publishers the ability to make their ad inventory available to multiple ad exchanges simultaneously, fostering competition and innovation. Publishers hoped it would give them greater flexibility to monetize their ad inventory and increased leverage to negotiate better deal terms – something that would have resembled a healthy marketplace. Apparently, the very notion of header bidding hit hard at Google’s core.

As noted in the evidence, Google identified header bidding as an “existential threat.” In the unsealed complaint, we see that one of Google’s most senior executives declared eliminating the threat his top priority, which merited an “all-hands on deck approach” for the leadership team.

Then, in a stunning play to protect its dominance, Google struck a covert deal with Facebook. At the time, Facebook was actively considering getting into the header bidding space, which would have put them on a direct path of competition with Google. However, both companies recognized that they had more to gain by fixing the market for themselves than by competing openly.

The unsealed evidence reveals that a senior Facebook executive understood why Google wanted the deal: “They want to kill header bidding.” That’s a clear quid pro quo around an alleged violation of Section 1 of the Sherman Act. This could translate into criminal charges, depending on how the courts see this evidence.

Google also promised that Facebook would win a certain percentage of auctions in open bidding, Google’s alternative to header bidding. In return, Facebook promised a minimum spend and bidding frequency. They also capped the number of line-items that publishers could use, which severely hindered publishers’ ability to use header bidding. Google likely figured that it would pressure publishers to use open bidding instead.

Finally, after pushback from Facebook, Google agreed to remove the ability for publishers to set a floor price for their inventory. In Google’s ad marketplace, which was already  stacked against publishers, this tilted the playing field even further in favor of Google and Facebook.

AMP, the offer publishers could not refuse

Google created a new format for content creators called Accelerated Mobile Pages (AMP), which was pitched as a way to improve the consumer experience on mobile. Not coincidentally, Google announced that it would start giving priority to AMP pages in search results, which gave the Google-led project a path to fast adoption. Essentially, Google made an offer that no publisher could refuse: Use AMP or lose the ability to be found via the dominant search engine.

Despite Google’s claims, there are multiple benefits for Google’s business baked into AMP, as well as downsides for publishers:

  • It’s a Google domain so Google can collect even more data as a first party about a publisher’s audience;
  • Custom ad formats don’t work on AMP, nor does header bidding, so publishers make less money (40% less according to Google);
  • It’s another platform that requires resources to manage; and
  • The unredacted documents show that Google also inserted an artificial one-second delay into non-AMP pages in order to give AMP “a nice competitive boost.”

The takeaway

All this new evidence shines a bright light on a pattern of behavior by Google to close off competition at every turn. Suffice to say that the harm to publishers has been dramatic. Google’s goal was not to build better products or services. And it certainly wasn’t trying to improve the overall health of the advertising ecosystem.

In these unredacted transcripts, we see the details of Google’s anticompetitive strategy articulated in Google executives’ own words. Their goal was to choke out competition: by killing off a new technology that would have improved the health of digital advertising; by cutting a deal with Facebook to rig the market; and by forcing publishers to use AMP.

I expect this case will only get more attention going forward. We are likely to see additional private suits filed as competitors realize they were conned by Google (and Facebook). I suspect we will see additional states join this lawsuit or file similar suits as it is clear that consumers were harmed by a dysfunctional market.

Finally, many speculate that the Department of Justice could add its considerable weight to this fight as soon as Jonathan Kanter is confirmed as the head of the antitrust division. Given the scope and impact of this case, we welcome any and all help to fight one of the most brazen examples of anticompetitive behavior in recent memory.

Featured Post | Perspectives | Policy

Seeing through Facebook’s transparency report

“Transparency is an important part of everything we do at Facebook.” Well, at least that’s according the first line of the company’s just-released Widely Viewed Content Report. The report is intended to provide insight into what content flowed across Facebook in the second quarter of 2021. In particular, it examines what content was viewed most in consumers’ News Feeds.

Facebook claims that most of the content on its platform comes from its users’ friends and family. The report states that news (or content that appears to be news) only represents a small fraction of what users see and share. It appears the company wants us to believe its platform is filled with family pictures and GIFs of kittens. Move along, industry watchers. According to Facebook there’s nothing to see here!

Cleaning house

The New York Times uncovered that this wasn’t the company’s first such report. According to the Times, Facebook prepared a Widely Viewed Content Report for Q1 but not release it. Apparently, the picture it painted wasn’t pretty.

According to the Times, “the most-viewed link was a news article with a headline suggesting that the coronavirus vaccine was at fault for the death of a Florida doctor.” Although the article came from a major publisher, it was the headline – and the way it was shared in a particular context by anti-vaxxers – that put it on top. Meanwhile, the 19th most popular page during Q1 was from the Epoch Times, an outlet widely known for pushing conspiracy theories.

Weird. These aren’t exactly posts about grandma’s mouth-watering apple pie or dare devil kittens hanging from ledges.

Remember, Facebook only reluctantly published the Q2 report after it spent a year discrediting external research from its own CrowdTangle data, which measures engagement (liking and sharing). When Facebook dismissed these reports, academics and researchers responded by pointing out that they were simply using the data Facebook had, itself, put out into the market. Meanwhile, CrowdTangle’s personnel were dispersed to other parts of Facebook, and the tools were pared back by Facebook, in what looked like an effort to regain control of the data and narrative.

It kind of feels like Facebook is hustling us in a giant game of Three-card Monte.

Revisionist history on repeat

Maybe there are those still inclined to give the company the benefit of the doubt. As Facebook spokesman Andy Stone soft-played their actions when he tweeted “we might have been guilty of cleaning up our house a bit before inviting company.” Unfortunately, the dumpsters full of incendiary trash impacted untold numbers of “guests” way before Facebook purportedly tidied things up and invited the “company” of critical analysis.

Facebook has a long track record of covering up and thwarting transparency at critical moments including the countless times where they enabled companies to collect data about consumers and then repurpose that data for number of reasons. Notably, these included selling Facebook’s data to third parties like Cambridge Analytica, which turned out to be one of the largest data breaches in history.

Deception is part of the business model

Recently, Facebook blocked researchers ability to gather information about what political ads are being shown across their services. It was especially galling that Facebook justified its decision as a protection of “user privacy.”

Given the company’s track record, it shouldn’t be surprising that Facebook once again opted to block full transparency. And yes, once again, the real reason is because it could hurt the business model. Even the FTC weighed in and warned Facebook not to use privacy “as a pretext to advance other aims.”

Truth told

For the Facebook model, it doesn’t matter whether the content is truthful. In fact, if there is a bias at all, it must be in favor of the least trustworthy, most salacious content (e.g. vaccine misinformation, Epoch Times) because that content tends to catch fire more quickly. And profits are way up. The business model is clearly working.

On top of that, at key junctures in Facebook’s history, executives have unequivocally chosen to hide the truth to maintain these profits. Vague commitments to transparency come only when they find themselves once again caught with a hand in the proverbial cookie jar. And now, even those promises to “do better” come with a giant caveat: We’ll only tell you something if it makes the company look good.

At this point, there are legitimate questions about whether Facebook is a good-faith actor that can ever play a constructive role. Facebook’s business model is at odds with transparency and their executives seem committed to running the business like a Three-card Monte hustle. With deep political divisions in our country hindering our ability to tackle a shared crisis (or even have a thoughtful discussion), we need leaders to step forward and demonstrate an unequivocal commitment to transparency and trust.

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