How Google Ruined the Internet (According to Texas)

Illustration for article titled How Google Ruined the Internet (According to Texas)
Photo: Lionel Bonaventure (Getty Images)

Among all of the antitrust probes facing Google right now, the case dropped on Wednesday by Texas Attorney General Ken Paxton stands out for a few reasons. First, it focuses on the tech giant’s dominance in digital ads, rather than focusing on search the way that the Justice Department and more than 30 states have in their own recent cases. Second, it’s coming from an attorney general facing his own string of scandals. And third, despite said scandals, it does a really, really good job of breaking down exactly how Google became the digital ad behemoth that put it on regulators’ radars.

There are plenty of juicy details in the 130-page lawsuit—Google and Facebook did what with WhatsApp users’ data?—but we’re going to focus on just a few of the shadiest ways that Google secured its dominance over the years.

So what’s the tl;dr of the Texas case against Google?

The short version is that, according to the lawsuit, Google spent the past decade systematically dominating both sides of the ad market: it made deals that neither advertisers nor web publishers could refuse, and when that didn’t work, it forced their hand. The company then used its outsized role in both of these markets to milk the players involved for billions of dollars, building the Google ad empire we know today at the expense of the rest of the internet.

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The suit does a really good job of laying out exactly how we got here—but explaining that means explaining exactly how ads get served online. So if you’ll indulge me for a few minutes...

Ugh, fine, go ahead.

Thanks. Personally, I’m a visual learner, so I’ve always found it useful to follow along with a chart like this one. (Yes, I know it looks like maniacal nonsense, but stay with me.)

What you need to know is that large web publishers—the technical name for any site across the web with ad space to sell, from CNN to the New York Times, to Gizmodo dot com—rely on a specific intermediary called an “ad server” to help them get the biggest (ad dollar) bang for their (ad real estate) buck. The specifics behind the way this pricing happens are way too boring to explain, but what you need to know is that publishers typically stick with one ad server to manage their specific ad real estate—and they stick with that server for the long haul since switching over to a new one can disrupt the flow of ad dollars that publishers desperately need.

One of the primary jobs of an ad server is scooping up relevant intel about a particular web visitor so an ad can be targeted their way. So as an example, when I’m visiting a website about, say, cats on leashes, trackers on that page scoop up certain identifiers that are unique to my computer or phone. That dataset typically gets combined with other data from third-party vendors to give advertisers a better picture of who I am and the ads I “want” to be targeted with. That resulting data-glob gets broadcast onto what’s known as an “ad exchange.” Basically, these exchanges operate like auction clearing houses where advertisers can literally put down bids on a particular chunk of ad space, like the ones you may be seeing embedded in this article right here. And just like in real life auctions, whoever bids the highest wins the prize—in this case, the ability to show their ad in that given chunk of website space.

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Oh, and all of this is happening within a fraction of a fraction of a second.

Christ.

Yeah, nobody said digital advertising was fun. The important thing here is that, in general, publishers turn to Google to do this dirty work for them. One recent survey found that about 90% of most major publishers use Google’s native ad server, called Google Ad Manager (or GAM for short). Meanwhile, analysis from the technographic firm Datanyze show Google-owned ad exchange DoubleClick takes up more than 55% of the ad exchange market. To put that into context, most of its competitors have a market share in the single digits. And therein lies the problem.

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How did we get here?

When Google first entered the ad exchange market back in 2009 after acquiring DoubleClick, the company was facing pretty stiff competition from the likes of Microsoft and, believe it or not, Yahoo.

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Google had to wrest itself from its underdog position, and fast—so the company leveraged its biggest advantage at the time, which was its ad-buying tool aimed at small businesses, called Google Adwords. The suit points out that the company’s own numbers at the time estimated that close to 250,000 small businesses—think restaurants, doctors, plumbers, electricians—across the U.S. were paying Google a chunk of change to bid on ad space that appeared alongside results in the company’s burgeoning search engine, which, depending on who you ask, has arguably been a monopoly in and of itself since 2005.

In the decade since, that name’s changed from Adwords to simply “Google Ads,” and the number of customers exploded: In 2013, the suit states, there were close to 2 million advertisers using the service. Today, well, the numbers speak for themselves.

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Not long after the rollout of Google’s ad exchange and server duo, the company changed its policies so that these countless small advertisers looking to bid on Google’s ad space were also required to use that exchange and server to do so. And today, the millions upon millions of businesses that depend on Google ads are still stuck trading in Google’s exchange without any alternative tools to use.

As the suit puts it:

Google Ads [...] had market power over its small advertisers because those advertisers almost always use one tool at a time when bidding for ad space. When deciding which ad buying tool to use, most advertisers chose Google’s because it was the only way to purchase search ads and display ads on Google’s leading display network.

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But what about... just using more than one exchange?

Good question! Generally, ad-buying tools are routed through multiple exchanges that let advertisers bid on the largest supply of ad space for the best possible price—you know, the way a competitive market is supposed to behave. But as the suit points out, Google’s tools for advertisers mandate that any people trying to buy ad space across the vast Google Display Network exclusively use Google’s exchange to do so—even if third-party exchanges were offering access to identical ad space for a lower premium.

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Though the specifics are maddeningly redacted in the suit, it claims that Google published internal documents as far back as 2012 showing that the company imposed these routing restrictions “for the purpose of foreclosing competition.”

“As internal Google documents show, by coupling its ad server with its market power on the buy side, Google prevented customers from switching to competing ad servers and quickly cornered the rest of the market,” the suit says. Over the coming years, it adds, the company “effectively foreclosed” the ad servers it competed with prior. Even when Google did offer access to other exchanges through its products, like it did in 2016, the company “significantly and intentionally restrained” the way these bids were routed, per the suit.

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That sounds deeply scummy.

It gets even scummier when you consider how publishers were forced to respond. If a large news outlet (like, say, CNN) wanted a piece of this super lucrative ad dollar pie, then Google cleverly mandated that those publishers use that same proprietary adtech. One of the core ways the company swung this was programming its exchange so that any bids placed would only pop up on publishers licensing the company’s shiny new server, according to the lawsuit.

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Because publishers generally only use a single server at a time, and because Google had access to an enormous advertiser pool, you can probably figure out why it became a popular choice. As the Wall Street Journal reported in 2019, Google had access to a “fire hose” of ad dollars, and the company’s exchange was the only way to get full access to it.

And as the suit claims, when these publishers were strong-armed into using Google’s server, they were then “blocked from accessing and sharing information” about their ad inventory (the spots on their websites where they show ads) on any non-Google exchanges. So even if they wanted to sell their ad space through another service, the suit alleges, Google effectively told them that wasn’t an option.

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So, where does Facebook come into this?

In order to understand that, you need to understand yet another adtech buzz-phrase: “header bidding.” The nitty-gritty of how this operates doesn’t really matter here—in a nutshell, it was a technique adopted around 2014 by third-party adtech vendors, in part, to get on an even keel with Google. By putting a nugget of code on a given webpage, publishers were able to direct a person’s browser to tap into multiple exchanges directly, bypassing Google’s ad-server walled garden. This meant publishers got more access to exchanges, those exchanges had more access to ad space inventory, and nobody needed to pay Google to get that access.

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“With header bidding, publishers saw their ad revenue jump overnight simply because exchanges could compete,” the suit states. Naturally, Google was (allegedly) pissed. And Google was even more (allegedly) pissed back in 2017 when fellow tech giant Facebook announced that it would start working with publishers using this header bidding system.

This is where the whole “collusion” scandal comes in. According to the AG’s investigations, Facebook didn’t move into header bidding to compete with Google, but instead to “draw Google in” and force a deal. And it apparently worked: The following year, the two companies allegedly came to an agreement that Facebook would “curtail” its header bidding biz and instead route that ad business through Google’s ad platform instead. In return, Google promised that the Facebook Audience Network (FAN)—its third-party ad serving product you can read all about here—would get certain advantages that other platforms didn’t, according to the lawsuit.

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In short: According to the AG investigation, Facebook promised to tank its header bidding efforts, and in return, Google let Facebook bid on (and win) more auctions.

This all sounds slimy, but I hate digital ads and use an ad blocker. Why should I care about this case at all?

Because when a company controls the bulk of the ad market online, it can have pretty big ramifications offline. According to the suit, Google uses its grip on the market to extract a “very high tax of percent of the ad dollars” that flow through the web. And while the exact percentage is redacted, apparently the fees that were charged were high enough “that even Google” couldn’t internally justify charging them.

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Even if we don’t have the exact Google “tax,” we do know about the so-called “adtech tax”: Analysts estimated in 2019 that about 30 cents of every ad dollar spent online goes to intermediary adtech players like Google—and that number, which translates to billions of dollars per year, isn’t on course to get smaller anytime soon.

When those costs ratchet up, the advertisers might feel the brunt of it first, but digital blogs and news outlets—including the one you’re reading right now—end up feeling it, too. We get forced to load up on ads in order to recoup lost profits. When that doesn’t work, publishers just load up on low-quality clickbait and pray for the best. All the while, the web slowly morphs into something that sucks to look at, is obnoxious to use, and is built to benefit one specific company at the expense of everyone else.

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I cover the business of data for Gizmodo. Send your worst tips to swodinsky@gizmodo.com.

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DISCUSSION

Is there a part 2 where you explain how Google ruined the internet?

Sure, it sounds like Google gamed the system and took the lion share of the ad business. However bad that may be, that did not fundamentally change the internet, it merely changed who was getting rich from selling advertisements on it.