American lawmakers introduced last week a proposed legislation that could force Google’s parent Alphabet and Facebook’s Meta to break up their advertising businesses. The proposed legislation, called Competition and Transparency in Digital Advertising Act, was put to the Senate and has bipartisan support.
At the heart of it, this law targets, what critics and experts say, the creation of the biggest monopolies of the digital economy, where revenues are dominated largely by advertising (with subscriptions being a distant second). The bill and its objectives lay bare what some of the problems are and how they could be resolved.
The ‘programmatic advertisement’ pipeline
The industry works on an automated advertisement buy-sell mechanism. Publishers, such as those who run websites or mobile applications, offer ad inventory. The inventory includes a variety of characteristics, such as the position of display, the frequency and the proportion of display it will get with respect to other ads. Advertisers, like companies or ad agencies, purchase these inventories through a bidding process.
To automate these processes are various platforms: publishers plug into what is known as a supply-side platform (SSP) where they can offer their inventories and set minimum bid prices. Advertisers, on the other hand, access the demand-side platforms (DSP).
And bringing it all together are ad exchanges, which work much like stock exchanges.
The Big Tech dominance
Google, largely, and Facebook and Amazon, have businesses that are dominant in all three areas of the pipeline: the DSP, the SSP and the exchange. In the case of Google, by far the largest player in the business, the DoubleClick ad publishing tool is a crucial supply side programme used by millions of websites and it receives bids in real-time from Google’s own exchange, known as AdX. And on the demand side, Google has a business called Google Digital and Video 360 (DV360).
Why is this bad?
The dominance in the entire ecosystem, paired with the dominance of their products (Google Search, Alphabet’s YouTube, Meta’s Instagram, etc.) in their respective domains make for a potent recipe that leads to monopolistic outcomes. In effect, this allows these companies unbridled influence on how ads end up on websites and apps around the world.
There have been allegations that this dominance has been abused. For instance, a lawsuit filed in Texas in 2021 alleged that Google ran a secret programme called Project Bernanke, through which it used past bidding data to allegedly give its own ad-buying business – or the DSP – an advantage over competitors.
Documents released as part of the lawsuit cited internal Google employee correspondences claim the company also misled publishers and advertisers about the pricing and processes, deflating sales for some companies and increasing prices for some buyers.
How will the law target this?
The proposed new law will make it illegal for companies to have a business in both, demand or supply side processes. This will mean that Alphabet, Meta and Amazon – all of which have similar businesses – will need to divest either demand, or supply-side ad businesses.
“When you have Google simultaneously serving as a seller and a buyer and running an exchange, that gives them an unfair, undue advantage in the marketplace, one that doesn’t necessarily reflect the value they are providing,” senator Mike Lee, who steered the bill, told WSJ. “When a company can wear all these hats simultaneously, it can engage in conduct that harms everyone.”
Will it work?
While there have been multiple legislative attempts to rein in Big Tech, the momentum to do so now has been unprecedented. Similar legislation is expected to be introduced in the House of Representatives this week, led by a Republican sponsor with the support of a Democrat, congressional aides told the WSJ.
At the heart of these attempts is a growing recognition that many of the acquisitions Big Tech companies have made during their global rise have now given an anticompetitive advantage. It is on this principle that Meta’s acquisition of Instagram and WhatsApp is under scanner, as is Google’s buying of ad companies such as DoubleClick and AdMob, as well as the video platform YouTube.
On their part, the companies have denied anti-competitive behaviour and said that breaking these up will reduce efficiency and cost-effectiveness in the industry, reducing profits for advertisers as well as publishers.
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