As the leaders of the developed world gather in the UK over the weekend for the G7 summit, the clouds were also gathering over big tech companies, most of whom are headquarted in the United States. High on the list of subjects that is being addressed is the creation of a global minimum tax and, more importantly for tech, discussions about how to tax the likes of Amazon, Google, Apple, Microsoft and Facebook in the countries they are operating and selling advertising in.
Tackling Big Tech
The talks are just the latest in a series of discussions and actions that have increased in intensity over the past two years since the introduction of GDPR in Europe. GDPR does not address financial matters nor taxation, but it does demonstrate an increasing appetite for regulating big tech, particularly in Europe. The recent fine imposed on Google France is a case in question.
France's competition regulator fined Google $267 million last week for favoring its own services for placing online ads at the expense of rivals. The competition authority ruled that Google gave preferential treatment to its own ad inventory marketplace AdX and to the Doubleclick Ad Exchange, its real-time platform for letting clients choose and sell ads. More to the point, “...it is the first decision in the world to look into complex algorithmic auctions processes through which online display advertising works," the authority's president Isabelle de Silva said in a statement.
It happens like this: Media groups looking to sell ad space on their internet sites or mobile apps often use multiple companies simultaneously, known as supply side platforms (SSP). But regulators found that Google's services were unfairly competing against rivals, using a variety of methods, or preventing sufficient interoperability with rival ad marketplaces. According to the FCA (French Competition Authority), Doubleclick, for example, would vary the commission it took when brokering a sale based on prices offered by other so-called ad servers.
The fine got the full backing of the French government — as have previous fines applied in Europe — with the French Finance Minister Bruno Le Maire, pointing to the wind-change that will inevitably impact the business model of these companies. "Large platforms have gradually acquired dominant market positions, and it's essential that we apply our competition rules on technology giants who operate here," he said in a statement.
It is not the first time Google has fallen foul of the French regulators. In December 2019 it was fined nearly $200 million over "opaque" operating rules for its advertising platform, which were deemed to be applied in "an unfair and random manner." In December 2020, Google, as well as Amazon, were fined a total of $150 million by France’s privacy watchdog for placing advertising cookies on users' computers without consent.
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How Google Responds
Clearly last week’s fine is only a tiny fraction of the $55.3 billion in revenue booked by Google in Q1 of this year, mainly from online ad sales. However, Google was also obliged to change the way it books, buys, and enables online advertising, something that in the future will potentially have a more significant impact. In a statement about the fine, Maria Gomri, legal director of Google France, explained that Google will be changing elements of its advertising practices.
She explained that changes in the way Google does business were already in the air for some time. “Over the past two years, we have been working with the French Competition Authority (FCA) to answer their questions about our advertising technology, and more specifically about Google Ad Manager, our publisher platform,” she wrote in a blog about the recent fine. As part of an overall resolution of the FCA’s investigation, she added that Google has agreed to a set of commitments to make it easier for publishers to make use of data and use Google tools with other ad technologies. “We will be testing and developing these changes over the coming months before rolling them out more broadly, including some globally,” she added.
The result is that once these buyers use Google Ad Manager to participate in Google’s ad exchange, they receive equal access to data from Google auctions to help them efficiently buy ad space from publishers. As there are a lot of ad exchanges to choose from, publishers sometimes also use a technology called "Header Bidding" to run an auction among multiple ad exchanges. Because these Header Bidding auctions take place outside of our platform, it is usually not technically possible for Google to identify the participants, and therefore we cannot share data with those buyers.
She added: “With these commitments, we will work to create a solution that ensures that all buyers that a publisher works with, including those who participate in Header Bidding, can receive equal access to data related to outcomes from the Ad Manager auction. We will be providing information around the “minimum bid to win” from previous auctions. “
There will also be wider flexibility with Ad Manager. Gomri says that moving forward Google will allow buyers to set custom pricing rules for ads that are in sensitive categories and implementing product changes that improve interoperability between Ad Manager and third-party ad servers. Also, we are reaffirming that we will not limit Ad Manager publishers from negotiating specific terms or pricing directly with other sell-side platforms (SSPs). It is not clear whether the changes will be global or apply only to France and Europe in general.
Google's Working With Regulators
This is not the first time Google has been fined a big sum — €220 million looks like small change compared to the €4.34 billion it lost in 2018 for blocking rivals with its Android mobile systems, David Aylor, founder & CEO of David Aylor Law Offices told us.
Leaving the fines aside, AdX by Google will see a loss in market share as they work to “even the playing field” and allow independently developed systems to better integrate with the platform. “For a company the size of Google, the lost profits won’t be enough to hurt their operations. However, they will likely design operations closely with regulators to avoid more legal implications in future situations,” he said.
It is important to note that this is a landmark decision with clear, unambiguous wording — Google has broken the EU’s antitrust rules, Marie Fenner managing director for global accounts at New York City-based digital platform provider Piano, said. Google did not contest this ruling, and the company is no stranger to EU fines, tallying more than €8 billion in penalties since 2017, she pointed out.
“As part of the settlement, Google has agreed to make its platform more transparent and to proactively share information over the next few months,” she said. Is this going to be the end of the “walled garden” in the Google ad marketplace? I’ll give them the benefit of the doubt, although my inner skeptic tells me this may not be the case.”
“More data sharing with publishers means publishers can rightly claim the ownership of data and leverage it in the way that makes the most commercial sense to them.” This will hopefully pave the way for better competition, but only time will tell. For now, Google’s commitment to the French Competition Authority is encouraging,” she added.
Big Tech in The Cross Hairs
This is not the end of Google’s Europe problems by any means nor is Google the only company with problems. Germany's antitrust watchdog has launched a two-part probe into Google which will determine if the company is of "paramount significance across markets" and launch an in-depth review of Google's data processing terms.
"Google’s business model relies to a very large extent on processing data relating to its users. Due to its established access to data relevant for competition, Google enjoys a strategic advantage. We will therefore take a close look at the company’s data processing terms. A key question in this context is whether consumers wishing to use Google’s services have sufficient choice as to how Google will use their data," says Andreas Mundt, president of the Bundeskartellamt competition watchdog.
In May Italy’s anti-trust authority fined Google more $120 million for shutting out a rival's smartphone app offering recharging of electric vehicles. Google's Android operating system and Google Play app store dominate the Italian market, and the authority said the firm abused its market position by blocking an Enel X app for users of electric vehicles.
Facebook (FB), the other dominant player in digital advertising, is being investigated separately by EU regulators over claims that its use of data gives it an unfair advantage in the business.
The EU is not the only region taking on big tech. In the U.S., there is several anti-trust investigations going on featuring more than a few companies, while even in China, regulators are tackling anti-competitive practices. In the middle of last month, the Chinese e-commerce giant Alibaba Group said it fell to a $1.17 billion operational loss in its latest financial quarter, due to a record fine levied by the government for anti-competitive practices.
The Hangzhou, China-based company was fined $2.8bn as part of a push by regulators to rein in dominant digital platforms that have achieved unprecedented influence over the daily lives of hundreds of millions of Chinese consumers.
There is a wind-change happening in respect of big tech in both the U.S. and Europe. The question now is how these companies will respond to it, or more to the point, how can they respond to it.