Australia has turned into one of the key regulatory battlefields for Big Tech – see for example the ongoing acrimonious fight over the news media code, with Google and Facebook threatening to pull out of the country if the proposed code enters into force. In the meantime, following up on its Digital Platforms Inquiry (report released in 2019) the Australian Competition & Consumer Commission (ACCC) is conducting an inquiry into the arcane realm of ad tech, which seems to have caught the attention of regulators across the world including the US, the UK and the EU (hint: they are all zeroing in on Google as the chief ad tech player).
Just yesterday the ACCC released an interim report on its ad tech inquiry (the Final report is to be submitted to the Treasurer by 31 August 2021). Back in June Damien and I submitted an exhaustive response to an expert report commissioned by Google which claimed that ad tech exhibits the “hallmarks” of a fiercely competitive marketplace. We are glad to see that the ACCC has vindicated our research, finding that “[a] lack of competition and transparency in the digital advertising technology supply chain is impacting publishers, advertisers and consumers and needs to be addressed.” This finding is in line with similar conclusions reached by other regulators, including the CMA in its monumental report on its online platforms and digital advertising market study. Of course, the report released by the ACCC is an interim one (and thus subject to change) but we would be surprised if none of its preliminary findings make it to the final report.
In a nutshell, the interim report’s key findings are the following:
- Google has a unique position of strength across the ad tech supply chain, with estimated market shares between 50-60% and 90-100%, depending on the ad tech service concerned, while also being protected by data-related barriers to entry.
- Google is likely to have the ability and incentive to favour its own related business interests (self-preferencing). The particular practices examined by the ACCC are all well-known; (a) Google restricting access to YouTube inventory; (b) Google channeling Google Ads demand to AdX; and (c) Google preferencing AdX.
- Google is likely to suffer from conflicts of interests, e.g., because in many cases it acts on behalf of both the buyer and the seller in the same transaction. (Note: such conflicts of interests would be unthinkable in the financial world).
- The ad tech supply chain suffers from opacity – opacity which extends both to the prices charged by ad tech vendors (publishers do not know how much advertisers pay to buy their inventory and vice versa) and the performance of various ad tech services. The ACCC estimates that on average the aggregate ad tech fees make up for 28% of ad spend in Australia but this is likely a very conservative estimate as it does not include a series of fees. In any event as the ACCC notes in a more competitive marketplace prices could be lower.
- Efforts to increase transparency have met resistance from actors like Google, which increasingly invokes user privacy to justify its stance (think of the Privacy Sandbox, currently the subject of an antitrust investigation by the CMA). The ACCC will examine further the (real or claimed) tension between user privacy and transparency and competition. We are glad to see the ACCC is adopting a sensible and synthetic approach to this thorny issue, similar to the one we advocated for in our latest paper, that is scrutinize claims based on (often nebulous) privacy considerations and push for policies that protect privacy without impairing competition.
- The ACCC is also closely following the recent Texas lawsuit which alleges that Google entered into an unlawful market sharing and price fixing agreement with Facebook (for a recap see here).
Google’s significant presence across the whole ad tech supply chain, combined with its significant data advantage, means Google is likely to have the ability and the incentive to preference its own ad tech businesses in ways that affect competitionRod Sims, ACCC Chairman
The ACCC is now seeking stakeholder feedback on various proposals it has put forward in the interim report to address the competition and transparency concerns in the ad tech chain. The ACCC has suggested a number of interesting proposals which seem inspired by the work of the CMA and the Commission’s DMA proposal, such as data separation mechanisms (Damien and I have argued in favor of such solutions as they can improve both competition and privacy, but acknowledge they may result in a loss of efficiency), rules to manage conflicts of interest and self-preferencing, as well as measures to increase transparency in the ad tech supply chain.
Conclusion: ad tech is here to stay.
P.S. In other news, Google keeps working on the Privacy Sandbox, claiming that its proposal for ad targeting (called FLoC or “Federated Learning of Cohorts”) is nearly as effective as cookie-based targeting. For the moment it’s still unclear whether this claim has merit / is supported by robust data, and the Twitter meltdown is real.