The latest week of the DOJ vs Google trial was the most intricate yet. The DOJ completed their investigation into the perils of competing with Google for Search Engine dominance, before addressing Google’s main revenue-driver head-on. Calling on a variety of expert testimony, the DOJ sought to explain exactly how Google generates money from advertisement and how this practice is anti-competitive.
Microsoft Revisited
In Monday’s arguments, the DOJ completed a line of attack from Week 3 by calling in one of their highest-profile witnesses to date; Microsoft CEO Satya Nadella addressed the challenges of competing with Google in the Search market — confirming other Microsoft testimony from the week before. Nadella emphasised the role Google’s Revenue Share Agreements and defaults played in preventing rivals (Bing, in Microsoft’s case) from competing fairly. In Nadella’s view, these ‘troubling dynamics’ have forced Microsoft to shelve potential AI-driven innovations to their search engine until Google’s dominance wanes.
The results of this strand of the DOJ’s argument clearly indicate the inhibitive effects of Google’s market power on innovation in Search Engines. Ultimately, it is the duty of regulatory agencies to take measures to protect innovation — what these measures will be, it is too early to say just yet.
Search Quality and Revenue Quantity
The DOJ lifted the lid on the mechanics of Google’s highly profitable advertising auctions from Tuesday onwards; this process had largely remained a black box until the testimony from this week. The DOJ called two key witnesses to the stand: Sridhar Ramaswamy, a former Google ad executive turned search engine founder, and Professor Michael D. Whinston — an expert witness. Ramaswamy was questioned on Google’s ability to drive revenue collection through the advertising auction. A memo from within the Search Ads Quality team reveals that Google had targeted a 20% increase per annum in Search Advertising revenue.[1] But the internal and external ‘headwinds’ that the memo describes suggest that this target had become a goal in itself rather than an indication of performance by 2019. Dr Adam Juda, Google’s VP of Product Management regarding search ads quality, denied in his testimony that Google had the ability to influence Search Ads revenue — even in the face of a document about ‘Price Tuning’ from his team which states: ‘“Tuning” == adjusting the cost of different types of clicks and impressions.’[2] The function of ‘tuning’, as another internal slide deck from 2018 points out, is ‘to extract value more directly’ from auctions with little competition.[3]
Serious implications follow from the DOJ’s evidence on this point: firstly, the fact that Google is able to raise their prices without losing advertising customers is a worrying display of their dominance of the Search market; there are no competitors with whom Google must compete in order to keep their prices down, which leaves them free reign to set the prices they choose.[4] The DOJ’s evidence also indicates that drops in advertising quality for Search users has a similarly negligible effect: Whinston’s expert testimony diagnoses the low consumer response to drops in quality as a key marker of Google’s unequal market share — once again exhibiting the power of defaults that has recurred throughout the trial so far.[5]
Some Ads are More Equal than Others
In his analysis of Google’s dominance of the Search Market, Whinston unearthed another key facet of Google’s advertising model — that it does not compete with the advertising businesses of social media platforms and other sites with specific search engines. Whinston contrasted the purposes of Google’s search ads and platform ads: there is a widespread awareness in the advertising industry that the advantage of Search ads is that they capture the customer at the point of agency.[6] And so they have a more direct link to sales than ads on Facebook, which are, according to Whinston, ‘typically aimed at goals like awareness and branding’.[7]
And so Whinston’s expert testimony debunks Google’s claims that their business model is somehow at risk from other big platforms. Not only is there evidence that Google does not think in this way, but Whinston also provides industry analysis suggesting that advances in Facebook’s advertising business forces no concomitant reduction in Google’s.[8] They exist in separate markets.
As Whinston’s analysis and Ramaswamy’s testimony indicate from this week, general search is a market over which Google has near-total control — to the detriment of consumers, advertisers and competitors alike.
[1] https://www.justice.gov/d9/2023-10/416939.pdf.
[2] https://www.justice.gov/d9/2023-10/416883.pdf.
[3] https://www.justice.gov/d9/2023-10/416889.pdf.
[4] Whinston’s expert testimony covers this point, https://www.justice.gov/d9/2023-10/416945.pdf p. 39.
[5] https://www.justice.gov/d9/2023-10/416945.pdf, p. 45.
[6] The DOJ also produced a slide deck from Hulu, a streaming service, which makes this point on p. 7.
[7] https://www.justice.gov/d9/2023-10/416945.pdf, p. 32.
[8] https://www.justice.gov/d9/2023-10/416945.pdf, p. 11. An email exchange about ad pricing from 2019 flags up the problem of a lack of competition in Google’s ad strategy.
Header Image courtesy of Trac Vu on Unsplash (licensed for free via Unsplash Licence).