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Last last year, a coalition of state attorneys general led by Texas Attorney General Ken Paxton, filed a wide-ranging antitrust suit against Google’s advertising business.
Google dominates the platforms that marketers use to buy ads, the technology that publishers use to sell ads, and the exchange that connects the two.
This central role is at the heart of the suit, which alleges that, “Google is pitcher, batter, and umpire, all at the same time. The suit alleges Google used that position and a series of “exclusionary tactics” to distort competition in the online ad market.
Earlier this month, Google accidentally uploaded an improperly redacted filing in response to the allegations, regulatory news site MLex first reported. The judge on the case allowed Google to refile the document under seal. Insider has obtained a copy of the unredacted version.
The document lays out Google’s strong rebuttal against allegations that it acted unfairly, but it also offers fresh detail about the mechanics of its auction systems and a little-known partnership struck with Facebook in 2018, codenamed “Jedi Blue.” The state AGs allege in their complaint that Jedi Blue, a deal signed off by Facebook and Google’s top business lieutenants, amounted to price fixing and harmed competition.
Asked to comment, a Google spokesperson referred Insider to a blog post the company published last year titled “AG Paxton’s misleading attack on our ad tech business.” In it, Google refutes many of the claims, as well as describing Jedi Blue as a “well publicized ‘Open Bidding’ agreement” with Facebook. “We look forward to defending ourselves in court,” the blog post read.
Facebook and the Texas AG’s office didn’t respond to requests for comment. Facebook said in a statement to The Wall Street Journal in December that partnerships, like the one described with Google in the lawsuit, are common in the online ad industry.
“Any suggestion that these types of agreements harm competition is baseless,” Facebook, which is not a named defendant in this case, in the December statement.
Here are some of the most interesting and revelatory parts of the Texas AG-led lawsuit against Google’s and business and why they matter.
Project Bernanke was expected to increase Google’s revenue by $230 million a year
One of the complaints often lobbed in Google’s direction from its rivals and other members of the ad ecosystem is that by owning every link of the online advertising chain (and taking fees from each participant), it has an unfair advantage over other companies who focus on just one side of the ecosystem.
The Texas suit alleges that in 2013, Google built a new product under the codename “Project Bernanke” to give Google Ads — Google’s demand-side platform that advertisers use to buy ads — a better chance of winning bids in ad auctions versus rival ad buying tools.
In Google’s response to the suit, the company said Project Bernanke used data about historical bids made through Google Ads “to increase its likelihood of winning impressions that would otherwise be won by other buying tools (or go unfilled).”
The response goes on to say that the project paid off: the Bernanke program “was expected to increase Google’s revenue by $230 million in the given year,” according to the filing.
Google said such a program was comparable to how other ad-buying tools operate — though there’s a question of whether smaller players could offer the same level of sophistication, given that they didn’t have the kind of access to measurement data that Google does.
The valuation of online ads is based on the likelihood that it’ll lead to a user taking an action, Adam Heimlich, CEO of adtech company Chalice Custom Algorithms told Insider.
“That’s how they win — they know what will get that last-touch conversion more than anyone,” said Heimlich, who testified against Google in front of US Senate Judiciary last year. “It’s the auctioneer who determines how much items are worth, bids low, and then wins them — it’s such a serious asymmetry.”
The description of the program does not sound as egregious as directly using data from the publisher side of its ad universe to inform the products it sells to advertisers, stacks that most clients on either side would want to remain separate from the other. However, the details of the program were not disclosed to its publisher customers, Google says in the latest filing.
Google didn’t explain in the suit why the name “Bernanke” was used for the project. As chair of the Federal Reserve, Ben Bernanke led US monetary policy between 2006 and 2014. Google also didn’t respond to a request for comment from Insider about why the project was so-called.
Why Google was allegedly threatened by ‘header bidding’
In the years following its $3.1 billion acquisition of DoubleClick in 2008, Google became the clear market leader in offering ad serving technology to publishers. In a nutshell, the ad server decides which ads publishers should serve to each individual user, and it also collects data, such as whether a user clicked on the ad.
The suit alleges that Google’s ad server used a product called “Dynamic Allocation” that essentially gave Google first dibs on whether to bid on a particular ad impression, based on information its ad server had collected about the average ad prices rival exchanges would set for space on their websites.
“Publishers were deprived of competitive bids and competing exchanges were left with the low-value impressions passed over by Google’s exchange,” the Texas-led suit alleges.
But publishers and adtech companies figured out a wonky workaround: Header bidding.
“Header bidding improves publisher yield and takes away a key advantage Google has held with publishers since the DoubleClick acquisition,” adtech veteran Ari Paparo wrote for Insider in 2015.
Header bidding soon became a popular practice. The Texas suit claims around 70% of US publishers were using the technology by 2016. By 2017, even Facebook — the other half of the so-called digital advertising duopoly — announced it planned to partner with adtech firms to open up its Facebook Audience Network to their header bidding platforms.
Google was watching the header bidding trend closely. One Google executive even described Facebook’s move to hop on the header bidding wagon as an “existential threat,” The Wall Street Journal reported, citing a draft version of the case’s complaint.
Jedi was Google’s answer to header bidding’s popularity
Enter “Exchange Bidding,” or “Jedi,” as it was codenamed internally, which allowed multiple ad exchanges to participate in Google’s ad auctions within its Dynamic Allocation product. Google said it would maximize the money publishers could make from their ads and fix some other problems with header bidding like longer page load times and the draining of devices’ battery life.
But the industry was skeptical about this new Google-made workaround to a workaround. As Insider reported in 2016, when the product was still undergoing testing, some adtech and publishing executives feared the Exchange Bidding program, later known as Open Bidding, would still rig the game in Google’s favor somehow.
In its response to the complaint, which alleged Google sought to quash header bidding, the Alphabet-owned company said it “evaluated the success of the program by, among other things, comparing its adoption by publishers to publishers’ adoption of header bidding.”
Jedi Blue, Google’s multi-pronged deal with Facebook, was designed to get the social network to jump on its header bidding killer
Facebook, with its billions of users and thousands of advertisers, was an extremely important client for Google to attempt to get on board with Open Bidding.
Google succeeded with what was codenamed internally as “Jedi Blue.” (Companies often make up code names for partnerships or for discussing M&A prospects, but Google said in its filing that it didn’t use code names for agreements with other Open Bidding or “network bidding” partners. However, the Open Biding partnership between the pair was announced publicly.)
“In the end, Facebook curtailed its involvement with header bidding in return for Google giving Facebook information, speed, and other advantages,” the state’s complaint reads.
The unredacted Google filing offers a fair amount of insight into the Jedi Blue deal. Google charged Facebook a 5-10% fee to participate (the standard revenue-share fee for Open Bidding partners, according to Google.)
As part of the agreement, Facebook was required to make “commercially reasonable efforts” to bid on 90% of the bid requests it receives from Google, where Facebook is able to identify the user, through means such as “encrypted blobs” from its mobile app or through using tracking cookies on the web.
Google said it would look to match up user data on at least 80% of bid requests with Facebook’s data for people viewing mobile app ads and achieve 60% match rate web ads — except on Apple’s Safari browser, where tracking technologies are limited.
The discrepancy between the app and web match rates could go some way to show the importance Facebook places on unique identifiers from mobile operating systems for its own ads business. Apple plans to place more restrictions on how advertisers and their adtech vendors can access its advertising tracker IDs later this month — a move the social network has vocally protested. Google has not yet announced similar plans for its Android advertising IDs.
Facebook was required to spend $500 million or more on Google’s ad-buying products in the fourth year of the Jedi agreement, Google’s latest filing said. The agreement also required Facebook to set out to achieve win rates of at least 10% of its bids using Google’s ad software.
Google denied the allegation that it manipulates Open Bidding in Facebook’s favor, writing in its blog post that Facebook Audience Network still needs to make the highest bid in an ad auction to win.
Jedi Blue got sign off from top Google and Facebook execs
While Jedi Blue might look like a wonky adtech deal, the fact that it reached the higher echelons of both companies suggests how important the partnership was to both companies..
Google said in its response to the complaint that its 2018 agreement with Facebook was signed off by its Senior Vice President and Chief Business Officer Philipp Schindler and Facebook COO Sheryl Sandberg, among other executives.
“Any collaboration between two competitors of such magnitude should have set off the loudest alarm bells in terms of antitrust compliance,” wrote the states-led complaint.
That possibility hadn’t gone unnoticed. The contract “contains a provision governing the cooperation between Google and Facebook in the event of government investigations of the agreement,” Google wrote in its latest filing.
The case continues. Google’s search business a also faces separate competition-related complaint in the US, after the Justice Department sued the company last year, alleging it it of had an unfair advantage over rivals. Eleven states joined the Justice Department in its lawsuit. Google said the suit was “deeply flawed” and that it was confident a court would rule in its favor.