Matt Stoller: Google is stealing from Canadian newspapers and advertisers

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For 15 years, we’ve all been hearing a fake story about why newspapers around the world are dying. It goes like this — the internet killed the news, with old, slothful media companies being unwilling to adapt to new technology. The closer you look, the less sense this story makes. There are plenty of new media companies, everyone from the Huffington Post to BuzzFeed, digitally native firms with deep pockets and clever managers, who can generate huge amounts of web traffic, but aren’t able to sell the advertising to monetize it. And there is still advertising, lots of it. It’s just that the money for those ads isn’t going to the newspapers on whose sites they sit.

So, what is going on?

The real story of why newspapers are suffering can be found in an action in January by U.S. Attorney General Merrick Garland, when the U.S. Justice Department’s Antitrust Division, along with eight U.S. states, filed a suit to break up Google’s advertising business. According to American enforcers, the search giant has unlawfully engaged in “monopolizing multiple digital advertising technology products,” basically the software plumbing underneath most online advertising, and thus, the revenue that newspapers rely on. Google inflated its profits, redirecting advertising revenues from newspapers to itself.

It’s a complex story, but at the heart of it is what looks like theft. Most of us think of Google as a search engine, and it is. But Google has many other lines of business. This particular suit involves display ads on the open web, which are what you find on the Wall Street Journal or ESPN. These ads are bought and sold in an unusual manner. If a user goes to the site of a newspaper, unbeknownst to the consumer, a highly complex financial market kicks into gear. Newspapers no longer sell most of their advertising directly but have become integrated into a giant set of global auctions. In these auctions, advertisers bid for the right to place their ad not into a specific newspaper, but in front of a specific user. Money then changes hands, from the buyer of the ad to the publisher, with a set of middlemen each taking a cut. This happens in a split second, billions of times a day. At this point, online advertising is far bigger than the stock market in terms of the number of transactions.

Online advertising is bigger than the stock market in terms of the number of transactions

Well, guess who runs the software to manage this financial market? Google. And guess who takes the lion’s share of the revenue? Google.

There’s a decade-plus-long backstory to this scheme. In the mid-2000s, Google transitioned from its role as a search engine into the main intermediary of all online advertising. In 2005, Google had a lot of advertisers that were buying its search ads. It also started to let smaller websites put strips of ads up and gave them a share of the revenue. Ad industry insiders at the time realized that advertising was transitioning from a Mad Men-style set of local, regional and national markets to an automated set of marketplaces.

Google’s strategy wasn’t to remain a search engine, but to expand and control all online advertising. But the firm had a problem. It couldn’t break into the market for the space on big established publisher sites, because that market was already controlled by another near-monopolist, DoubleClick. DoubleClick had 60 per cent market share in the software used by publishers to manage how they sell ads on their site, or what’s known as an ad server. So, Google’s then-CEO, Eric Schmidt, did what every good monopolist does when in a lax policy regime: he bought his rival — DoubleClick — in 2007.

Google then had all the elements needed to organize the market. It controlled a lot of advertiser money because it had millions of advertisers who entrusted it with their campaigns through its search engine and ad network; it controlled most publisher ad space through its DoubleClick purchase; and it owned an exchange, AdX, which came with DoubleClick. It also had search data for most users, as well as DoubleClick’s vault of data. Over the next 10 years, Google tied all of these products together in a way meant to exclude rivals. And since ad pricing was opaque, Google could and did manipulate auctions to ensure that rivals delivered worse prices for publishers and ad buyers who used them.

Today, Google controls the brokerages on both sides, the exchange in the middle, the data, and the pricing. It manages where ad money flows, and to whom. According to its own internal analysis, Google takes 35 cents out of every dollar spent on advertising, an extraordinarily large sum across tens of billions of dollars of online advertising.

This lawsuit isn’t the only legal problem for Google. Google has monopolized multiple areas of commerce using similar exclusionary tactics, from search to app stores to maps. Google is facing at least five antitrust lawsuits from different U.S. government entities, and more in Europe. Google’s global revenue now exceeds US$220 billion, and it now makes key decisions on what human beings across the planet find when they go online and search. Were that power and money a result of pure innovation, one might still tremble at the massive power of such a dominant firm. That this power has come not just from innovation, but from the darker practice of monopolization, means policy-makers must act.

This advertising technology business, while not a majority of Google’s revenue, is a strategic area for the firm. And the stakes are quite high for our democracy. We all know newspapers are dying. This lawsuit shows the reason is not that publishers couldn’t adapt to the internet, but that Google is stealing their money.

So that’s the case. It’s about the tens of billions of dollars that flow from advertisers to publishers, and Google as the intermediary with very sticky fingers. The question for Canadian policy-makers and your Competition Bureau is: when are you going to act to protect your news publishers and advertisers?

Special to Postmedia News

Matt Stoller is the author of the blog BIG, which explores the history and politics of monopoly power. He is Research Director at the American Economic Liberties Project and the author of “Goliath: The Hundred Year War Between Monopoly Power and Democracy.”