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How Did Google Get a Stranglehold on the Digital Ad Marketplace?

6 minute read
Rich Hein avatar
Monopolies, missing money, collusion — oh my! Learn how Google rose to dominance in the digital ad space, and what it could mean for marketers going forward.

About 15 years ago, Alphabets Inc.’s Google bought YouTube for $1.65 billion, a platform that had only been around for less than two years. Back then, there were about 25 million videos available on YouTube, while now experts estimate tens of billions. Today, YouTube accounts for 11% of Alpha’s overall revenue. Not a bad purchase in hindsight.

But those numbers only tell a small part of the story. Over the past decade plus, Google has leveraged its search engine, YouTube, along with acquisitions of advertising tech, to become the number one player in the digital ad market.

The effects of Google having dominance in this market has led to predictable monopolistic issues. Three separate studies have shown that at least 50% of every dollar spent in digital channels now goes to middlemen like Google, instead of the publishers showing the ads.

Most major brands and publishers now say it’s either very difficult or nearly impossible to buy or sell advertising on the internet without using Google’s products. Today, Google controls access to advertisers that put ads on its search platform, as well as running the auction process for advertisers to get ads onto a publisher’s site.

Google Does Not Agree

As one might expect, Google does not agree with the data or the naysayers. They feel the ad tech marketplace is a hive of competition and free market freedom. And they say they have no part in any monopolistic market manipulation.

“To suggest that the ad tech sector is lacking competition is simply not true,” said Sissie Hsiao, a Google VP. “Competition is flourishing, and publishers and marketers have enormous choice.”

Google claims it takes no more than 30% of money spent on ads, and it gives 70% to websites and publishers. Publishers and analysts are quick to disagree.

Over the past several years, Google has faced increased scrutiny with multiple antitrust investigations for its dominance in search, and has been fined $10 billion by the EU’s competition regulator. Regulators in the US, Australia, France, Germany and the UK are also looking into Google’s practices.

Analyst firms like Forrester do not agree with Google. In fact, they said Google has a dominant, near chokehold on the ad market.

“They don’t just have a buying platform, or the ad-serving market, or a content asset in YouTube or the search market. They have all of those things,” said Forrester analyst Joanna O’Connell in the Politico article mentioned above. “There are companies that can compete on a piece, but nobody can compete on all of that.”

Related Article: How Blockchain Is Changing Advertising

No Transparency

If there is one thing the ad tech marketing place is not is transparent. An ISBA study found that 15 cents out of every ad dollar spent couldn’t be accounted for. So out of the $59.8 billion spent in the US last year on digital advertising, no one knows where $9 billion went.

Google’s dominance of the ad marketplace isn’t just about controlling their own ads on Google’s walled gardens or their ownership of the auction process — they also provide tools for advertisers and websites to buy and sell display and video advertising, programmatically, for the rest of the web.

An ad market study by the UK’s Competition and Markets Authority found that Google had as much as 90% of the market share in some portions of the ad tech stack. In other areas, Google controls about 50%.

The trouble is that figuring out who has what percentage of market share in the ad tech marketplace is nearly impossible since private companies do not have to provide that information to regulators. The ad marketplace is totally unregulated, and companies do not need to abide by transparency or conflict of interest rules.

“You have no regulation or reporting requirements in ad markets,” said Dina Srinivasan, a fellow with the Thurman Arnold Project at Yale. “[Companies] are also taking advantage of the lack of conflicts of interest rules. In financial markets, you cannot route orders to your own trading venue. But that’s what Google does. Its broker routes trades to its own trading venue.”

Google’s activities are forcing regulators into action. Scott Morton, a professor at Yale, said, “In most subsegments, Google is nearly a monopoly or dominant. If someone violated the antitrust laws by maintaining a monopoly, we have a responsibility to make that case.”

US Antitrust Suit

On December 16, 2020, 10 states brought a lawsuit against Google, accusing the company of anti-competitive behavior in the digital advertising industry, which included an insider deal made with Facebook to give them unfair advantages in the ad auction process.

Learning Opportunities

Texas AG Ken Paxton, who announced the suit, said Google is using its monopolistic power to control the pricing of online advertisements, fixing the market in its favor and eliminating competition.

“This Goliath of a company is using its power to manipulate the market, destroy competition and harm you, the consumer,” Paxton said.

Google’s response was expected. “We will strongly defend ourselves from (Paxton’s) baseless claims in court.”

Texas is bringing the suit against Google with other Republican attorney generals from Arkansas, Idaho, Indiana, Kentucky, Mississippi, Missouri, North Dakota, South Dakota and Utah. These states claim Google uses its alleged monopoly on digital ads to choke off other potential competition.

“Google has an appetite for total dominance, and its latest ambition is to transform the free and open architecture of the internet,” the suit alleges.

Collusion With Facebook

A 2018 deal that was personally approved by CEO Mark Zuckerberg and Google Chief Sundar Pichai gave Facebook a leg up in Google’s online advertising auctions, according to unsealed court filings. The deal gave Facebook unlawful advantages when Facebook used Google’s advertising exchange, said the states who added charges to the 2020 antitrust suit.

Both companies say they are doing nothing illegal. Google spokesperson Peter Schottenfels called the lawsuit "full of inaccuracies” and lacking legal merit.

“Despite Attorney General Paxton’s three attempts to re-write his complaint, it is still full of inaccuracies and lacks legal merit,” Schottenfels said.

“Our advertising technologies help websites and apps fund their content, and enable small businesses to reach customers around the world. There is vigorous competition in online advertising, which has reduced ad tech fees, and expanded options for publishers and advertisers.”

Related Article: Why Facebook Discontinued Facebook Analytics

Google’s Future

While the regulatory actions against Google in the US seem to be partisan in nature, consisting wholly of Republican AGs, for other countries, this is not the case.

Google has accurately been identified by multiple countries as an abusive monopoly that has used its power and market dominance to unfairly control the ad tech marketplace, ensuring they are the ones hoovering up 50% of every ad dollar spent online.

Google has been responsible for the demise of many publishers, and its alleged collusion with Facebook must be looked into in an unbiased and bipartisan investigation.