Episode 135

Google on trial

This week marks an important moment in the history of digital advertising as the U.S. Department of Justice presses its case that Google is a monopolist in ad tech. 

The seeds of this case were planted in 2007, when Google bought DoubleClick, a critical piece of internet advertising infrastructure that was widely used by advertisers and publishers in running ad campaigns. With DoubleClick in the fold, Google methodically grew to dominate all phases of digital advertising by piecing together a full stack solution for ad tech, supplying the tools used to both buy and sell ads as well as the exchange used for transacting. And Google was the biggest source of demand for the exchange. The go-to comparison of this situation is if Goldman Sachs owned the New York Stock Exchange.

On this week’s episode of The Rebooting Show, I spoke to Ari Paparo, a former DoubleClick executive and ad tech veteran who now runs Marketecture. Ari, in addition to being the funniest person in ad tech, knows the history. We go back in time to when the Google-DoubleClick deal took place, just as programmatic advertising was becoming a reality, and get into the weeds about why controlling the plumbing of digital advertising created an unavoidable set of misaligned incentives.


Transcript
Brian:

you're actually going to be at the trial

Ari:

I am,

Ari:

I'm a 53 year old former executive who is now going to be sitting in a pew pretending to be a journalist, 9 to 5, taking notes.

Brian:

you're out there.

Brian:

You're doing you're you're working the beat

Ari:

I wasn't trained by Jason in finding out the truth,

Brian:

Do you have a, do you have a notebook?

Brian:

Do you have like one of the reporters notebook?

Ari:

even have this, I'll show you, the audience can see one of these, legal envelope things.

Ari:

I went to Staples and put down my credit card and bought some real heavy supplies for this whole

Brian:

Yeah, that'll be good.

Brian:

Welcome to the Rebooting Show.

Brian:

I am Brian Morrissey.

Brian:

This week marks an important moment in the history of digital advertising as the U.

Brian:

S.

Brian:

Department of Justice presses its case against Google, for what the DOJ believes is a monopoly in ad tech.

Brian:

the seeds of this case were planted all the way back in 2007 when Google bought DoubleClick, which was a critical piece of internet advertising infrastructure that was widely used by both advertisers and publishers and running and, Targeting and measuring their ad campaigns.

Brian:

Double click in the fold, and programmatic advertising really taking off.

Brian:

Google methodically grew to dominate all phases of digital advertising by piecing together a full stack solution for ad tech.

Brian:

Supplying the tools, the That were used by both the buy and the sell sides, as well as the exchange used for transacting, on ads.

Brian:

Google was also the biggest source of demand for the ad exchange.

Brian:

the go to comparison of this situation is if Goldman Sachs owned the New York Stock Exchange.

Brian:

the government's complaint unearths plenty of embarrassing details for Google, as these things inevitably do.

Brian:

and basically that it was using its position, its dominant position to its own advantage, which is kind of sensible, and in ways that ended up disadvantaging both publishers and advertisers, not to mention its competitors.

Brian:

Now the justice system works slowly, and this case, is probably just the beginning of a process.

Brian:

But it could lead to, and I think it will lead to a reshaped ad market.

Brian:

particularly if Google is constrained in its practices or even forced to relinquish, what DoubleClick became and for Google to no longer have its weird role on all sides.

Brian:

So on this week's show, I spoke to Ari Paparo about this case.

Brian:

Ari is an ad tech veteran.

Brian:

He worked at DoubleClick actually at the time of, its sale to Google.

Brian:

and he went on to start his own ad tech company, Beeswax, that was, bought by Comcast Freewill.

Brian:

Uh, Ari is now the founder, and proprietor of Market Texture, a vertical media company focused on ad tech with podcasts and a newsletter, and I think they'll be doing events too.

Brian:

we take a walk down memory lane to 2007 and how the Google DoubleClick acquisition was so pivotal.

Brian:

And what impact Google has had on the evolution of the digital ad market.

Brian:

it's always hard to do counterfactuals, but, they're also kind of fun.

Brian:

and we also talk about why one of the defining things about this case, at least I believe is that it will, it will unearth, unflattering aspects of Google's business practices.

Brian:

the leverage on these things is always in the discovery and going through the emails and messages That are inside companies because plenty of things are going to come out and are highlighted in this complaint that does not exactly paint Google in the best of lights.

Brian:

So here's my conversation with Ari.

Brian:

all right.

Brian:

Ari, let's get into it.

Brian:

Friday afternoon.

Brian:

I can think of no better way heading into a weekend.

Brian:

It's still technically summer.

Brian:

Then to talk about dynamic allocation, header bidding and various other ad tech stuff, because coming up on, it starts Monday, right?

Ari:

Monday at 9 a.

Ari:

m.

Brian:

Monday at 9am, the, the Seminole, antitrust case is going to, the DOJ is going to, start, kick off its case against Google.

Brian:

This, this one is around ad tech, and it is, to me, it's, it's going to be fascinating for a few reasons, but one of the big ones is this is very entwined in the history of internet advertising.

Brian:

It used to be called internet advertising, then it became digital advertising, I think, when it became bigger.

Brian:

Let's start by going back because you, you had a front row at this because you were at DoubleClick.

Brian:

is that your first job in ad tech?

Ari:

It was, more or less.

Ari:

I was a customer of DoubleClick during the dot com bubble.

Ari:

but my first job in ad tech was in 2004 when I started at DoubleClick.

Brian:

Okay, so at that time, internet advertising after the dot com craziness stuff, right?

Brian:

It, it, it was just that it was a very nascent industry and there was this separate industry that was thriving.

Brian:

I, to me, it was like almost separate, like search, right?

Brian:

I mean, search almost operated in its own world.

Brian:

And the people who were in what was, you know, slinging banner ads, you know, they didn't know because originally the search result pages were like the least valuable pages on the internet, which is kind of funny to think back then, because they were using just dumb, like display ads on them.

Brian:

But like Google built this massive business.

Brian:

It went public and people were like, Oh my God, This business is that big?

Brian:

I thought this was just like kind of the bad yellow pages.

Brian:

but like the display ad business was operating kind of separately.

Brian:

And that business was, explain how did the business operate before what is now known as programmatic?

Brian:

I mean, it was very basic business.

Ari:

it was an offshoot of journalism and the traditional media companies.

Ari:

Many of the traditional media companies made the jump into digital in the 90s.

Ari:

By the mid 2000s, they were had active sales groups.

Ari:

They were selling ads.

Ari:

they were selling ads usually directly, you know, over steaks and martinis and the ads were banner ads, or takeovers, but they weren't really, there wasn't really much video because the bandwidth wasn't there.

Brian:

There's faxes, right?

Brian:

It wasn't

Ari:

Yeah, little facts.

Ari:

There's some facts going on.

Ari:

Some some ios, some alcohol, and everyone was happy.

Ari:

and there were a couple of big players, but Google wasn't one of them.

Ari:

So at the time, the market was dominated by names you may want to forget, like AOL, Yahoo and MSN.

Ari:

And they were so dominant that people called them the big three, if you can imagine that.

Brian:

that was the big concentration.

Brian:

It was like every IAB report, I would have to like, be like, and the big three have gone up from 73 percent to 76%.

Ari:

Yeah, find a millennial and ask him to guess who the big three used to be in advertising.

Ari:

That would be a fun, fun podcast episode.

Ari:

so the big three were out there and what was happening from the very dawn of the digital advertising market was that because it's so, fragmented and distributed.

Ari:

And there's such a long tail of audience coming to your site.

Ari:

There were always ad networks, ad networks fulfilled the role of aggregating supply and enabling buyers to buy them in one spot.

Ari:

And that was because even on a major website, like the New York times, you'd have someone visit you from Bulgaria and your Salesforce had no way of selling an ad to a Bulgarian advertiser.

Ari:

So you had to outsource that.

Ari:

So ad networks are very important from the start, much more important than they were in other mediums like TV where there are ad networks, but they just aren't as important and, the big three operated ad network.

Ari:

So you can monetize your site with the help of Yahoo or AOL or people like that.

Ari:

And these ad networks also operated maybe with a little more tech than journalists do or journalists.

Ari:

Journalistic websites did.

Ari:

but the tech was still a outgrowth of what happened over the stakes of martinis and the direct relationships between buyers and sellers.

Ari:

It was just a matter of how executed across thousands of websites where there was maybe a little bit of tech involved.

Ari:

Yeah,

Brian:

They had it was like a boiler boiler room in Baltimore, people optimizing banner ads.

Brian:

Right.

Ari:

if you ever wonder why so many advertising people are from Baltimore, it's exclusively because of one company advertising.

Ari:

com and their boiler room.

Brian:

Okay.

Brian:

And then right media.

Brian:

I remember Mike Walrath, I have maybe it's like 2005, I think I'd just joined ad week and he walked me through.

Brian:

what they were doing.

Brian:

And at the time, I think it was initially positioned as ad networks would be bidding for, for inventory.

Brian:

But I think of right media as the.

Brian:

The pioneer in the space, just like Google didn't invent, search advertising.

Brian:

that was done by Bill Gross and

Ari:

Yeah, I think the right media story is very interesting and isn't really told that much where right media was a technical startup here in New York.

Ari:

And what they did was they offered an ad server for ad networks.

Ari:

So they let people use their tech to.

Ari:

Get a bunch of orders from advertisers and place them on many, many publishers websites.

Ari:

And that was a really interesting niche because the other ad servers like DoubleClick weren't really meant for that exact use case.

Ari:

And then, the CTO of RightMedia, a guy many of you know named Brian O'Kelly, he went off into a room with a bunch of pizzas and some Russian programmers and three weeks later came, came back with the world's first ad exchange.

Ari:

And What that did was allow right media customers in real time to swap impressions between each other, meaning that if a, let's say you have ad networked one that has a lot of advertisement for people who are interested in cars and you have.

Ari:

Ad network two that doesn't have any ads for cars, but happens to have their ad tag on a, let's call it a, a Vogue article about cars because it's a women's ad network.

Ari:

It would let ad network one with the car ads, win the auction and show the ad on ad network twos placement.

Ari:

Thereby ad network two would make money as a commission on an ad.

Ari:

They couldn't otherwise sell ad network.

Ari:

One would be able to sell more.

Ari:

Car ads to people who are interested in cars and everyone would be better off.

Ari:

it created liquidity, liquidity in really the entire advertising market for the first time in history of advertising.

Brian:

Yeah.

Brian:

And it solved an essential problem.

Brian:

I mean, even back then there was something like a million ad supported websites and it's impossible to do that in a direct manner, no matter what anyone says.

Brian:

And so, but, but this sort of intersects with DoubleClick because DoubleClick was a, I remember my first job as a Silicon Valley reporter and DoubleClick was one of the

Ari:

Wait, hold on.

Ari:

I, hold on.

Ari:

We have to stop there.

Ari:

Your first job was at Silicon Alley reporter working for Jason.

Brian:

Yeah.

Ari:

I didn't know that.

Brian:

Yeah.

Brian:

I'm his protege.

Ari:

Oh my God.

Ari:

I may have some copies in my, in my, filing cabinet.

Ari:

I need to, next time I see

Brian:

and I wrote some good, I wrote some good Cosmo.

Brian:

com stories, but I covered DoubleClick and I was like, I have no idea what the hell this company is.

Brian:

But then I was, I was like, they're just do these boring plumbing.

Brian:

I was like, there's the Cosmos so much more interesting pseudo and all these different like over there.

Brian:

There was some crazy ideas, but I was like, this is a dumb idea.

Brian:

Dull company.

Brian:

They like charge people like a couple cents per CPM to serve banner ads.

Brian:

And then they, they just did some back end sort of plumbing work.

Brian:

That's the way I thought about it.

Ari:

Arguably DoubleClick was the only New York company to survive out of the.

Ari:

com

Brian:

Yeah.

Brian:

Which is, which is I think telling that's sort of my point.

Brian:

It's like the boring companies usually are the ones, but like ad serving itself was, I don't know if it's a commodity market, but you know, it, it.

Brian:

Pretty much was.

Brian:

I mean, there was other players that were in the, in the ad survey market.

Brian:

And they, you know, you, you need it from both ends.

Brian:

You need it from the, the advertiser end and the publisher, and they had other tools.

Ari:

DoubleClick had a whole bunch of crap under its umbrella, but the two premier products were DFP, which was called Dart for Publishers, and DFA, which was Dart for Advertisers.

Ari:

And they were both software products, dull software products, that were very valuable though.

Ari:

They were dull but valuable, so it's hard to say whether they were a commodity or not.

Ari:

And they had very high market share in particular, DFP.

Ari:

We know from some filings that we'll talk about later at approximately 60 percent of the publisher market share.

Ari:

So 60 percent of publishers used it.

Ari:

And the ones who didn't were largely the big three.

Ari:

AOL, Microsoft, and Yahoo.

Ari:

Everyone else besides those use DoubleClick to serve its ads.

Brian:

Yeah.

Brian:

And there was a few other, competitors to it, but they, they were the dominant one in the market.

Brian:

And they also, by the way, we should do like a side, we should do an internet history podcast.

Brian:

because the abacus, when they, when they went to buy abacus, I think that was a sign of what was to come with all the privacy stuff.

Brian:

but again, we

Ari:

It's a side quest.

Brian:

We can't go down.

Brian:

We can't go down the abacus rabbit hole.

Brian:

but DoubleClick, I remember, came out with a, an ad exchange.

Brian:

really, right?

Brian:

Because, basically, what was happening then, I think, with right media, Yahoo invested in RightMedian.

Brian:

It was like, okay, let's see what it is.

Brian:

And then we're going to buy with strategic investment and then they bought in, in 2007, I believe.

Brian:

And then Microsoft bought a small, smaller one in at ECN.

Brian:

and I think that was, Jeff Green was

Ari:

Yeah.

Ari:

That's how Jeff Green got in

Ari:

the

Brian:

my God, this is all the, and then he went on to do the trade desk, and DoubleClick, explain then the importance of, of the exchange that DoubleClick was, it wasn't like it was this massive thing, but because of their position.

Brian:

As the default ad server, quote unquote, they had an advantage to build an ad exchange,

Ari:

So yeah, so one thing to note is a common misconception that DoubleClick sold ads, and at the time it did not.

Ari:

In the 90s it did, but it spun off that division.

Ari:

So by the mid to late 2000s it was not selling ads, it was only selling software that allowed other people to sell ads, and as a result, you said, used the word commodity earlier, it wasn't, Commodity, but the pricing was going down and the market maybe had been tapped out.

Ari:

and so this idea of an ad exchange comes in where you don't really have to sell ads, but you could still make a commission if you enable the sale of the ads.

Ari:

And that was incredibly attractive to the company.

Ari:

It was also a big threat because if somebody else did it really well, they may not need the ad server anymore.

Ari:

so under the leadership of, two guys, Michael Rubenstein and Scott Spencer, both of them are kicking around the market in different ways.

Ari:

they launched the first double click ad exchange.

Ari:

It was called the double click ad marketplace, I believe.

Ari:

and the idea was that because they had all these publishers using their ad server, they could run an exchange that would only bid when the bid was met.

Ari:

Was higher in price than what otherwise would have served, which would give publishers effectively the way they thought about it free money, because otherwise they would be losing that opportunity to deliver an ad that is higher priced.

Ari:

and you can only do that at the time if you were built into the ad server, and that was called dynamic allocation.

Ari:

And this is the first, you know, fence post along a very long path that we'll talk about when we talk about legal problems.

Ari:

Thanks.

Brian:

right?

Brian:

Okay.

Brian:

So at this time, Google was look, search was a home run.

Brian:

I remember people would say to me, there are one trick pony.

Brian:

Hell of a trick, hell of a trick.

Ari:

Best trick in the history of

Brian:

machine, in history, but they, they expanded beyond search into with, with AdSense and then Google image ads, I think they called them, which is they, they hated, I remember the actual very first story I ever was Eric Schmidt talking at an IAB, conference in which he was saying, stop scaring users with your.

Brian:

Crappy flash ads.

Brian:

And then I got the guy from the flash ad association, sending me an angry email, but I'm like, I didn't say it.

Brian:

And by the way, nobody liked flash ads.

Brian:

I know that you were the VP of rich media, but nobody, at the time, you know, Google was, you know, they did Google image ads.

Brian:

They were like static banner ads.

Brian:

they weren't really a big player in this.

Brian:

Part of the internet advertising market at

Ari:

No, they want it to be.

Ari:

So they realized that philosophically, let's give Google some, some credit, some, some let's empathize with the way they thought they thought ads were a form of content and we can make ads more useful.

Ari:

And that was their way.

Ari:

They built their Google search ads because they felt that the search ads were useful.

Ari:

In many cases, they were, they gave you a better answer than the organic search when you were looking for something.

Ari:

And they wanted to apply that to the wider world of ads.

Ari:

so like you said, they created AdSense, which was the publisher product that allowed you to make money by putting text ads on your site.

Ari:

And then they wanted image ads to happen, and image ads were really not happening for Google.

Ari:

they were very strict about not allowing third party cookies on any of their products.

Ari:

So, Third party cookies being the lingua franca of digital advertising meant that really any major advertiser was hesitant to put their image ads through Google system.

Ari:

They wouldn't get the reporting they're used to.

Ari:

They wouldn't get anything they were used to.

Ari:

in addition, They just kind of didn't have the vibe.

Ari:

I don't know what else to say.

Ari:

They didn't have the riz that it takes to do image ads.

Ari:

They just thought of it in a very technical way, and that's not how image and video ads work.

Ari:

You know, Madison Avenue, it's sexy.

Ari:

People want exciting ads that do exciting things.

Ari:

And Google just wasn't there, and they were pushing a lot of A big rock uphill and they were competing with the big three and the big three did have the Riz.

Ari:

You know, Yahoo really knew how to sell ads.

Ari:

You had leaders like, Wyndham Lahr, who's You know, legendary in the industry, you had an aggressive sales force.

Ari:

They would buy you jeans.

Ari:

If you're an agency player planner, they would run really rich media ads.

Ari:

So you have three entrenched competitors who are really good at display ads.

Ari:

And you have Google.

Ari:

Who's kind of like the nerdy kid in the corner, trying to invent something from scratch that is just absolutely not work.

Brian:

Yeah.

Brian:

I mean, they were saying, I mean, again, just to go back to what Eric Schmidt was saying, it was like, you, the way you guys are doing things is completely anti user.

Brian:

And I think it's going back, I think that ethos was really, really.

Brian:

Within Google at those.

Brian:

I mean, it was, it was soon after the IPO.

Brian:

I mean, I remember, I mean, I was still talking with people there who had their like first name at google.

Brian:

com, you know, like, I mean, it was a different company back then.

Brian:

And, and it was, it was a different vision of, of what, how ads should, should work.

Brian:

So DoubleClick got bought by, I think it was Helman, Helman Friedman.

Brian:

Was it

Ari:

It was taken private off the public markets.

Ari:

It was very bloated, had all these divisions that didn't make money.

Ari:

And so it really needed to be taken private to clean up the act.

Brian:

Okay.

Brian:

And then with this ad exchange and with what was going on, I guess competitively, when I remember in the market, it was a good time to, to, you know, to, to find a bigger partner, I guess it would.

Ari:

Yeah, I recently detailed this on a blog post, but the company effectively started a process to sell itself after having cleaned up the mess and made some really good, spin outs that helped pay for the debt of the deal.

Ari:

And, they realized that their DFP, their monopoly position in ad serving would be incredibly valuable to one of four companies, and you could guess who they are.

Ari:

They're the big three plus Google and they're YMAG.

Ari:

So Yahoo, AOL, Microsoft, Google spells YMAG.

Ari:

and so the leadership of DoubleClick with the cooperation of Hellman and Freedman created this thing called the YMAG model.

Ari:

And what that was, was a way of calculating how much money you would make if you own DoubleClick, if you were one of those four acronyms.

Ari:

And the model basically works like this.

Ari:

You have X billions of impressions running through DoubleClick on a daily basis, Y price, multiply those together.

Ari:

Then you say, what percentage of it could you win if you had, the ability to bid on it, maybe 20, 30%.

Ari:

And then what would you make on each of those impressions?

Ari:

if you bid on it, and therefore, how much money would you make on a monthly basis?

Ari:

And the answer was, because I have the actual deck and I published it on my website, the answer is 2.

Ari:

6 billion dollars a year was the conservative estimate for how much money you could make if you bought DoubleClick, and you were one of those companies.

Ari:

which is, you know, a lot of money at the time.

Brian:

it's still But it's important I mean that was basically with double click was not as valuable as an independent neutral cause if you think about an exchange, I would think, I mean, you know, the, the analogy has always made, you know, the, it's like Goldman Sachs owning the New York stock exchange.

Brian:

you want to sit, you want a neutral party.

Brian:

Cause I think this judge is going to be looking at this and other markets operate in different ways.

Brian:

And sometimes people can get so wrapped up into how it's done in their own market, but it doesn't seem, and it never seemed like it made sense A company to operate on multiple sides of the market and, to, also, control the exchange where

Ari:

Yeah, I think if you think of it in terms of supply and demand, DoubleClick had this supply position that was very strong and the exchange sort of made it liquid.

Ari:

So that was pretty exciting.

Ari:

DoubleClick did not have a real demand position, even though it had the advertiser products that weren't, they weren't bidding in it.

Ari:

It was, so there wasn't really a buy side at the time that would fulfill that supply and the first thing Google or anyone else would have done would be to take the demand they already had and just point it at this exchange.

Ari:

and that's what Google ended up doing.

Ari:

They took the Google ads demand that used to be called AdWords.

Ari:

Now it's called Google ads, and they exclusively pointed that demand at Google.

Ari:

The exchange thereby creating enormous amount of value for publishers, which is good for publishers and taking margin on both sides, being able to take margin from advertisers who now we're buying more ads and take margin for publishers by transacting on the sell side.

Ari:

And even if they had done that on a fair basis without any manipulation of the auction, it would have been a pretty big grab for market share in this emerging, you know, exchange marketplace.

Brian:

Yeah, so let me ask you this, let's just actually go, is all of this basically and a lot of antitrust seems to be this is, is this just going backwards to like 2007 and doing a job that maybe should because nobody had a crystal ball then.

Brian:

In that, I think over the years, and we'll talk then about like how Google use this, this position, but it responded to the incentives, like any other company, I think would.

Brian:

It's not like it's some sort of moral morality play.

Brian:

I mean, it just seems like it's going backwards in time.

Brian:

We're getting in going back.

Brian:

What is it now?

Brian:

17 years ago, to try to write something that, you know, I don't know.

Brian:

Maybe people, nobody was paying attention.

Brian:

That's for sure.

Brian:

At that time,

Ari:

Well, yeah.

Ari:

So in 2008, I guess it was the, acquisition was approved.

Ari:

The government did not interfere with the acquisition of DoubleClick by Google, with the exception of some search considerations, which turned out to be totally meaningless.

Ari:

And the argument that they should have known is, is interesting, but you have to realize the exchange had virtually no presence at all at the time of the acquisition.

Ari:

The DoubleClick exchange, according to the document

Brian:

it was like announced.

Brian:

It wasn't really a thing.

Brian:

Was it like.

Ari:

The, the revenue was 800, 000 a year at the time of the acquisition.

Ari:

So you would have to do like you know, a future crime sort of approach and say,

Ari:

well,

Brian:

Lena Kahn's, need some pre cogs like

Ari:

yeah, some precogs, like there will be a giant market for display ad liquidity.

Ari:

And the winner of that market will be Google because they will crush their competitors who don't yet exist.

Ari:

and you know, that's a

Brian:

Yeah, that's true.

Brian:

But it does go back to that.

Brian:

And then Google basically said they bought double click and then Microsoft made, depending on, on, on which side you're on for that made either the worst M& A deal in history, or if you were, if you were the seller, it was, it was a great deal.

Ari:

1 billion dollars just down the toilet in one fell swoop.

Brian:

They bought a Quantive, which was a distant number second with an Atlas ad server.

Brian:

it's by the way, I love it as like a Quantive was like basically the best agency model because they, they, they spun out the technology it's like the agency was just kind of written off Microsoft.

Brian:

but, you know, Google then did what anyone would do, right?

Brian:

It bought, it bought different pieces.

Brian:

It built different pieces and bought invite media for, the demand side, it bought ad meld.

Brian:

I think that was mostly about relationships, right?

Brian:

but it built this, this position within, within the ad ecosystem, but embedded within this is, is this idea of, of dynamic allocation.

Brian:

And basically that just gives.

Brian:

Either a fair and unfair or just an advantage, to Google, correct?

Ari:

Yeah, effectively, Dynamic Allocation let Google win auctions that competitive DSPs and ad exchanges couldn't possibly win because they never even got a chance to bid.

Ari:

The, think of the ad server.

Ari:

The, the ad logic that a publisher is executing as being in sort of layers or strata and mostly by price.

Ari:

So highest price first, then it goes all the way down.

Ari:

And so there was some level at which all of the other players, the remnant players, like at the time, people like Rubicon or advertising.

Ari:

com or blue lithium, all these, All these folks with different business models who were ad networks or ad exchanges, they wouldn't even be called if the price was below, say 3.

Ari:

And when they were called, they would only be called one at a time.

Ari:

And the first one who won would win and the ones below them wouldn't be called.

Ari:

So it was a very, serial process.

Ari:

I mean that like with an S serial, so one at a time in a row.

Ari:

Meanwhile, Google had a parallel process.

Ari:

All the way to the top.

Ari:

So if Google had a 20 ad they wanted to buy and the publisher had a 19.

Ari:

99 ad, Google would win and no one else even knew that ad existed.

Ari:

It was a huge advantage.

Ari:

It was called dynamic allocation.

Ari:

And then later they've called enhanced dynamic allocation.

Ari:

And they went through, yeah, they went through some real efforts and this will all come out in trial.

Ari:

They went out of the real efforts to keep that advantage, At the, at the adverse interest of their customers, the publishers, who wanted everyone to be able to bid as freely as possible because basic auction theory would say the more liquidity you have, the more optimal the outcomes will be.

Brian:

Right.

Brian:

Yeah.

Brian:

So what do you what do you you're actually going to be at the trial

Ari:

I am,

Ari:

I'm a 53 year old former executive who is now going to be sitting in a pew pretending to be a journalist, 9 to 5, taking notes.

Brian:

you're you're you're out there.

Brian:

You're doing you're you're working the beat

Ari:

I wasn't trained by Jason in finding out the truth,

Brian:

Do you have a, do you have a notebook?

Brian:

Do you have like one of the reporters notebook?

Ari:

even have this, I'll show you, the audience can see one of these, legal envelope things.

Ari:

I went to Staples and put down my credit card and bought some real heavy supplies for this whole

Brian:

Yeah, that'll be good.

Ari:

haven't plugged my newsletter.

Ari:

Can I plug my newsletter?

Ari:

I mean, people should

Brian:

of course you can.

Brian:

I, I, I'm going to plug it in the beginning, but like if, if everyone does it, I will, I will give it, this is a genuine, a genuine endorsement.

Brian:

Markitecture is definitely a must read because

Ari:

And if you're obsessed with the trial, I have a separate newsletter called the Monopoly Report that just covers the trial.

Brian:

but I do think that, I think one of the more, Fascinating parts.

Brian:

And we've talked about this of the evolving media landscape or people like yourself who, you know, are completely steeped in it in ways people like me, frankly, or not.

Brian:

so what are the big, what are you expecting?

Brian:

This is going to look, Google did not want this, this, this thing to go to trial at all, right?

Brian:

It's going to be embarrassing.

Brian:

And, but what are you expecting what are going to be, what is this going to hinge on, what are going to be the big issues that come out?

Brian:

Because I think the header bidding, one, we didn't get to that.

Brian:

The header bidding thing is going to be, it's going to be massive, but what else?

Ari:

Yeah, so this is, if you read the allegations from the Department of Justice, they have a long document, 130 pages, it's quite a good read, and it goes through step by step from approximately 2008 to approximately like 2000 and, I don't know, Step by step, Google manipulating the auction to their own benefit.

Ari:

Allegations.

Ari:

Put in the word alleged every time I say anything.

Ari:

So, allegedly, manipulating the auction to their own benefit.

Ari:

And hurting, the theory of harm is that they hurt both advertisers who had to pay more and publishers who made less.

Ari:

And, It's going to feel, I think, to observers, many of whom are, work at big publications, journalists, broadcasters, it's going to feel a little bit like a betrayal because Google has been saying very vocally since The late 2000s that they're the friends of journalists and publishers.

Ari:

They're the only ones we could count on.

Ari:

Well, Meta is very flighty and doesn't care about news and, you know, Tik TOK, et cetera, works with the Chinese government, you know, just fill in your narrative.

Ari:

Google's been.

Ari:

By your side, your trustee ad server, the biggest check you make every month comes from Google.

Ari:

So we're your friend.

Ari:

And what they're going to see is that that was not always the case.

Ari:

There are emails saying things like this isn't to the benefit of our clients.

Ari:

Like we shouldn't be doing this.

Ari:

Those there's some, there's some pretty damning conversations that are going to happen that show that Google was not always, working.

Ari:

To the benefit of the people it said it was working to.

Ari:

and then there's some wild cards.

Ari:

So first of all, you have a couple of people testifying Neil Mohan, who's currently the CEO of YouTube, who could be interesting testimony cause he ran at the time before he was the CEO of YouTube, he ran all of.

Ari:

The advert ran this whole thing, the whole ad tech stack.

Ari:

and then, another wildcard is the relationship between Google and Meta, which is called, Jedi blue is a crazy name where, wherein it's alleged that, Facebook at the time dropped its plans to compete with Google to get access to publisher inventory in exchange for a sweetheart deal that gave them access to everyone's inventory.

Brian:

my God.

Brian:

That's just, I mean, negotiate that on Signal.

Brian:

Don't, don't do that in the email.

Ari:

there's an email from a Facebook executive that says, it's quote, it's very clear that Google wants to kill header bidding, unquote.

Brian:

Yeah.

Brian:

So wait, this is a good time to go back.

Brian:

Cause I, I remember with the header bidding, the thing, I mean, this is a workaround for, for publishers.

Brian:

Explain to, to the lay people,

Ari:

well, the one rule of the internet is that if you have a problem, you need to solve it with JavaScript

Ari:

and header bidding

Brian:

also, JavaScript gives, but JavaScript also takes away too, right?

Brian:

It's,

Ari:

Right.

Ari:

So what was the problem?

Ari:

The problem was what I was saying earlier about the stratas in the ad server.

Ari:

The problem was that if you were a outside source of demand, and by demand, I mean like money, your Rubicon project, Magnite, is now, is what it's called, you wanted to bid into the Right.

Ari:

into the publisher's ad stack at every level of the strata and Google wouldn't let you.

Ari:

So what do you do?

Ari:

You run your entire auction before it ever gets to Google and you do that using JavaScript.

Ari:

And so this invention called header bidding allowed a, an auction to take place on a website before the ad server ran, figure out who the winning ad is and what they're willing to pay, and then shoves that data into the ad server, whether it liked it or not, like kind of like stuffing a Turkey, like 2.

Ari:

This is the bid, take it.

Ari:

And then the ad server didn't know what was happening and it would spit out the ad if it was the winning ad.

Ari:

and this is the way the entire digital advertising world works now is with this massive JavaScript stuffed turkey approach, all because Google wasn't willing to let people compete in a more intelligent way.

Ari:

And in the trial, what's going to come out is Google's, I would call it obsession with killing this.

Ari:

Like they did everything they could.

Ari:

They hated it so much.

Ari:

There's these emails like, Oh God, I can't believe people are doing this.

Ari:

That this is, this is the worst.

Ari:

We have to kill this.

Ari:

And, and it wasn't just competitive reasons.

Ari:

I think there was an aesthetic aspect to it that they just hated it so much.

Ari:

It went against all their principles of good engineering.

Ari:

but it is literally the thing that holds the digital advertising world together today.

Brian:

So who, like, where's the harm?

Brian:

Cause they're gonna have to show the harm, right?

Brian:

So, I mean, publishers were harmed, agencies got paid off.

Brian:

but were advertisers hurt?

Brian:

Did they, they ended up having to pay more?

Ari:

So, it appears that advertisers on Google Ads were hurt.

Ari:

so, the advertisers could come in from one of three sources.

Ari:

They could come in from an external DSP, like the Trade Desk.

Ari:

They could come in from, Google's DSP, known as DV360.

Ari:

Or they could come in from Google Ads, which is kind of the self serve platform.

Ari:

And there was a lot of manipulation, but it appears that the main, potential victim, or maybe think of it as like the patsy are the advertisers of Google ads, where whenever Google wanted to manipulate the auction, they would say, Hey, let's just charge them a little more.

Ari:

They won't notice.

Ari:

And.

Ari:

In various ways, they would be charged a little more and wouldn't even notice.

Ari:

So it's, I'm really simplifying this.

Ari:

Google could probably argue against this in a million ways.

Ari:

They'll bring out their economists and say I'm wrong, but that's, that's kind of on the advertiser side, what happened.

Ari:

On the publisher side, it's more of a theoretical argument, which is that there were all these cases where Google made the auction, not an honest auction.

Ari:

They took money from one customer and gave it to another customer.

Ari:

So they can win more.

Ari:

They changed the rates that they were agreed to.

Ari:

So they could win more.

Ari:

It was always about winning more.

Ari:

They wanted to win more options.

Ari:

And so I think,

Brian:

Well, it's easy.

Brian:

I'm sorry.

Brian:

I keep going back to this.

Brian:

If you're, if you're holding the auction and you're participating in the auction, is it, is any other market operate this way?

Ari:

Goldman Sachs dark pools is sort of.

Ari:

in that category.

Ari:

Like if you place an order with Goldman Sachs and they have a different Goldman Sachs customer who has what you're buying, they, they can manipulate those things.

Ari:

but it does seem pretty corrupt.

Brian:

Yeah.

Brian:

I don't, I mean, maybe we need like an SEC for ads.

Ari:

I, I do, I actually think that's actually more of the problem here is that we were, the advertising industry jumped into a frankly of an auction environment with zero regulations, zero oversights, not even a code of conduct.

Ari:

There was nothing illegal or against even the contracts people signed when people manipulated their auctions because there were no rules.

Ari:

It was all being made up on the fly by people like me and product management roles who were incentivized to make as much money as possible.

Brian:

Yeah, well, I mean, this is also, this could, this could fit into the sort of allergy against any kind of regulation.

Brian:

And I think you're seeing this with the, the privacy stuff, you know, for, for so long, I, I keep going back to, I was just constantly told by people like the IAB that, you know, it's, there's no PII and the direct mail guys are sketchier.

Brian:

And that's, that's our story and we're sticking to it.

Ari:

You know, I once got heckled by a Swedish person on the subject.

Ari:

I was giving a little presentation on how to manipulate your auction using AppNexus, and this fellow just had enough and he just stood up in the audience and says, What you're doing is wrong!

Ari:

You're wrong!

Ari:

You're lying!

Ari:

So, that was my little

Brian:

baby.

Ari:

Yeah, that was my comeuppance.

Brian:

I just spent the last, I just, spent two weeks closing those consent windows, but you know, the upside is gelato was amazing.

Brian:

So

Ari:

You're just, I picture you just smoking cigarettes and closing consent windows.

Ari:

That was your vacation.

Brian:

I also speak with a European accent when I'm there.

Brian:

so yeah.

Brian:

Okay.

Brian:

So when you think of, I mean, might as well play Matlock, it seems to me, like, This entire setup is, is just doesn't, shouldn't necessarily exist.

Brian:

And it might even be, it's not like even Google completely needs it.

Brian:

I don't think,

Ari:

Yeah,

Brian:

mean, could this jumpstart like a more dynamism in the market?

Brian:

Cause I think one of the other, obviously I think Google's competitors in ad tech were absolutely harmed by this.

Brian:

I don't know how you could show it.

Ari:

yeah, the competitors were clearly harmed, and there's lots of competitors who want to testify, and the list of, the list of them is pretty long, and actually Google has been trying to squash their testimony and not let them testify.

Brian:

Well, who the hell else is going to testify about like ad tech

Ari:

They want, you know, these economists who don't know anything.

Brian:

The e market are going to like take the stand?

Brian:

Like,

Ari:

so the DOJ remedy that they've asked for is very clear.

Ari:

They want Google to divest the ad server and the exchange.

Ari:

That's full stop.

Ari:

so that's GAM and edX, they want them to divest.

Ari:

and it would be pretty clean.

Ari:

Those are products that exist that are, they're intertwined with other products, but those intertwine.

Ari:

Nature's could be untwined.

Ari:

They're not nearly as complicated as some of the remedies discussed in the search case, which is probably beyond the scope of this podcast.

Ari:

but yeah, they could be spun out.

Ari:

And what would happen?

Ari:

What would be interesting here?

Ari:

Well, it would be really interesting if Google ads.

Ari:

Which is the largest demand source for advertising in the world in the history of the world, could no longer exclusively deal with Google ad X, the supply side.

Ari:

what if Google ads when they wanted to run a banner ad or a video ad had to go out there into the marketplace?

Ari:

Think about that.

Ari:

Think of that as crazy.

Ari:

Go into the marketplace and pay proper prices for their inventory.

Ari:

They want to buy for their advertisers.

Ari:

It'd be great, right?

Ari:

so that would be really interesting and, it would probably be really good for Google because these two divisions, the, the net, well, what's called the network business has been declining actual revenue declines.

Ari:

It's the lowest profitable.

Ari:

Lowest profitability of any Google division.

Ari:

It's a massive pain in the ass legislatively and from, you know, privacy and everything else.

Ari:

And, you know, Google's not in a position where they have a lot of, bandwidth to do new things.

Ari:

There feel like the company feels like it's sluggish, like they need to focus more.

Ari:

I think it'd be the best thing that ever happened to them.

Ari:

Spin it out, put some restrictions on the spun out company.

Ari:

So it can't recreate the monopoly, get that Google ads demand bidding into every publisher's exchange that, that.

Ari:

is clean and works according to their requirements and see the CPMs rise across the board.

Brian:

So is this harmed innovation?

Brian:

Do you think in, in digital advertising?

Ari:

I think it has.

Ari:

I think it has.

Ari:

If you have competitors who literally can't sign up customers because they don't have the Google Ads demand, how could they compete?

Ari:

How could they innovate?

Brian:

Yeah.

Brian:

So I guess this like a new landscape would, I mean, look, these things are always tied up forever.

Brian:

That's not you know, at the end of two weeks, I'm going to have a new digital ad system.

Ari:

I hope so, or else I'm going to have to sit on those benches for forever.

Brian:

Any bombshells that you, you expect, testimony?

Ari:

I can't imagine there being any bombshells.

Ari:

I think that, I don't know of any disgruntled former Google employees.

Ari:

I guess I'm the closest to a disgruntled former Google employee, but I'm

Ari:

not even disgruntled.

Ari:

I like the company.

Ari:

I've Gmail open right now.

Ari:

and I think most of the.

Ari:

Folks on the Google side who are testifying are either current or former employees who will be relatively positive in the way they try to spin things.

Ari:

I'm not expecting anything that's a breakthrough.

Brian:

Yeah.

Brian:

and I guess like for publishers, I mean a lot of this, as you said, like there is like this sort of factor like, you know, of, of, you know, Google was always, you know, partners with publishers.

Brian:

and, and at the same time it was a bit of a fraught relationship on a lot of different levels.

Brian:

Because Google is just so powerful, like I always remember, you know, it would always be like a reporter who was asking someone who was doing anything in the digital ad market.

Brian:

Well, why won't Google do this and just kill you?

Ari:

Right.

Brian:

They're always saying, well, Google's the environment.

Brian:

They're not the competition.

Brian:

And I think that's, you know, part of the issue that a lot of this antitrust is, is dealing with.

Brian:

Is a lot of these markets are incredibly concentrated.

Brian:

and that is, you know, a fact of life in this market.

Ari:

Yeah, I think that if you took the counterfactual and Google had never Done any of this and they had operated, you know, more even handedly and and the market had evolved sort of a different way.

Ari:

I'm not sure that publishers lives would be that different.

Ari:

maybe it'd be a little more, choice of monetization.

Ari:

Maybe there were more choice of technology, a little innovation.

Ari:

But short of someone like Meta going all in on publishers, which they very much have said they don't want to do, I don't see anything radically changing for publishers.

Ari:

They would still be on the wrong side of declining audience, of more anonymity, of, more commoditization, of, you know, consumer interest moving to social.

Ari:

Those are all factors that.

Ari:

You know, you can't pin on Google.

Brian:

Well, they lost the UGC at the end of the day,

Ari:

That is a big part of it.

Ari:

Yeah.

Brian:

you know, I mean, and that's, you know, like people voted with their attention at the end of the day

Ari:

And it's not like they didn't have their chance.

Ari:

I mean, news Corp owned my space.

Brian:

that's true.

Brian:

We could do an episode on that too.

Brian:

We should do it.

Brian:

I already have a name for it.

Ari:

what's the name?

Brian:

468 by 60.

Ari:

That's the name of your, that's new podcast called four 68 by 60.

Ari:

It's just like me and you and four other old dudes listening to it.

Brian:

We can do an abacus episode.

Brian:

we've

Ari:

Yeah, I would prefer like a madman style TV show but taking place entirely in 1996 in Flatiron District of New York Where everyone is just like have you heard I got a new compact laptop and I could get 400 bought on it And they're like, oh man, that's gonna be the future governments are gonna fall man when I can email my representative It's gonna change everything.

Brian:

Well, I, for one, am very excited for this trial to lead to a little bit of a walk down memory lane because I have to go into the guts of the history of the stuff, but thank you for, walking us through this and again, a big endorsement of Markitecture.

Brian:

I'm a loyal listener and reader, so thank you Ari.

Ari:

Thanks for having me going into this with my eyes open.

Ari:

I'm gonna do my best to pretend I'm a journalist.

Brian:

Okay.

Brian:

You'll do fine.

Brian:

All right.

Brian:

Thanks Ari.

Next Episode All Episodes Previous Episode

About the Podcast

Show artwork for The Rebooting Show
The Rebooting Show

Listen for free