Yesterday, the French competition authority (“Autorité de la concurrence”) handed down a landmark decision finding that Google has breached Article 102 TFEU and the equivalent provision of French competition law through anticompetitive conduct in ad tech. The Autorité imposed on Google a fine of €220 million and rendered binding a series of commitments (“engagements”) proposed by Google.
The decision was adopted within the context of a so-called “transaction procedure” available in France (a sort of settlement), according to which Google agreed not to contest the charges of the Autorité, without however explicitly admitting its culpability.
The decision (currently available only in French) is the culmination of an investigation launched in response to a complaint we filed on behalf of News Corp just two years ago, in June 2019 (two other news publishers, namely Le Figaro and Group Rossel, also filed a complaint in September 2019). Damien and I were impressed by the efforts of the investigation services of the Autorité – they should be commended for making sense of the complex ad tech ecosystem at the heart of online display advertising and completing such an investigation in less than two years.
What the Autorité found
The Autorité found that Google has engaged in two abuses: (a) it has used its dominant publisher ad server DoubleClick for Publishers (“DFP”) to favour its ad exchange AdX; and (b) conversely, it has used its ad exchange AdX to favour its publisher ad server DFP. Both practices have been in place since at least 2014 (the earliest date for which the Autorité could find reliable data to calculate market shares) and are still in existence today (more precisely, at least until 30 September 2020, which is the date when the SO was sent to Google). Both practices are likely to have, and have already had significant anticompetitive effects in the markets for ad exchanges and publisher ad servers, respectively, and inflicted significant harm to the economy.
The Autorité imposed a fine of €220 million (reduced by reason of the transaction procedure) and made binding a series of commitments voluntarily offered by Google.
The importance of the decision
The significance of the Autorité’s decision cannot be stressed enough. Google may have not formally “pled guilty” but it accepted not to contest a decision which establishes that it has breached competition law (and the gravity of the infringement is very serious per the Autorité). This is probably one of the very rare occasions where Google has capitulated – and this is perhaps because it knew it could not easily get around the Autorité’s findings of wrongdoing (supported in many cases by damning internal documents). In addition, one should not forget that Google is right now subject to a series of investigations across the world that focus on the same or related issues, including the UK, the European Commission, Italy, Australia – and perhaps more importantly, the US, where the fight in court with the coalition of US States led by Texas is expected to be brutal. But France has now delivered a very detailed decision of 104 pages which Google does not contest, setting a precedent for other regulators. If anything, Google will have quite a hard time convincing regulators or judges that it has not breached competition law in ad tech, at least when it comes to the issues covered by the French decision.
The decision in more detail
I will now go through the decision in greater detail – the discussion is technical I am afraid but I will do my best to decode it in a couple of paragraphs. These are issues on which Damien and I have published extensively, hence some readers of the blog may be already familiar with the complex ad tech ecosystem.
The Autorité first discusses the various actors in the ad tech supply chain, namely publisher ad servers (which are used by publishers to manage their ad space), ad networks (which purchase ad space from publishers and sell it to marketers; these have been largely replaced by ad exchanges), ad exchanges / SSPs (for “Supply Side Platforms”; these are electronic marketplaces organizing real-time auctions for ads), DSPs (for “Demand Side Platforms”; these are used by marketers to connect to various SSPs and purchase ads in the auctions), and advertiser ad servers (which are used by marketers to manage and monitor their campaigns). The Autorité then explains the different methods of interoperability between publisher ad servers and ad intermediaries (namely ad networks and ad exchanges/SSPs). These are the following:
- The waterfall: under the waterfall setup, when an impression is available for sale, the ad server calls only one ad intermediary at a time. The various intermediaries (ad networks, SSPs) are ranked by publishers according to the estimated revenue they will bring. Each time an impression is available, the ad server will call the intermediary ranked first; if the latter does not sell the impression, then the ad server calls the intermediary ranked second and so on until the impression is sold. This process is inefficient and results in less publisher revenue, as it means that the various intermediaries cannot compete with each other in real-time.
- Dynamic Allocation: a DFP feature which made up for the inefficiencies of the waterfall system, but only for AdX. Under this feature, DFP contacts AdX before any other intermediary, and gives it the opportunity to win the impression. Importantly, when calculating the floor for the AdX auction, DFP uses the estimated price of the intermediary ranked first (in a simplified scenario, if the publisher had estimated that the first intermediary would bring in 1.00 revenue, DFP would contact AdX and communicate this as the “price to beat,” unless the publisher had chosen to set a higher floor for AdX, e.g., 1.20). This allowed AdX to cherry-pick impressions ahead of rivals, at artificially low prices (since it competed against the estimated prices of rival intermediaries).
- Header bidding: dissatisfied with the asymmetry of Dynamic Allocation, rival ad intermediaries developed “header bidding,” a tool that allows publishers to have a unified auction among participating intermediaries in real-time before the ad server (almost invariably DFP) is called. Header bidding became very popular with publishers, as it brought them significantly more revenue. However, Google has not participated in header bidding (in fact, we know that Google viewed it as a competitive threat which it tried to quash). In addition, and until September 2019, the functioning of Dynamic Allocation resulted in AdX having a so-called right of last look over header bidding (in particular, after the header bidding auction was over, DFP would call AdX and give it the opportunity to win the impression if it could solicit a bid slightly above the price from header bidding). In September 2019 Google changed its products to move to a unified first price auction (previously AdX ran a second price auction) and reportedly dropped its “last look” advantage. Even so, it introduced new features to tilt the playing field to its favour (discussed below).
- Open Bidding: Google’s response to header bidding, launched officially in 2018. Open Bidding is an auction organized by Google whereby third-party SSPs may compete with AdX in a real-time auction. However, such SSPs are subject to a series of disadvantages (including a revenue share charged by Google).
The relevant markets and Google’s dominance
The Autorité defined two relevant markets that matter in this case: (a) an EEA market for ad servers for web and app publishers (the “market for publisher ad servers”); and (b) an EEA market for platforms for the sale of non-search related ad space (which I will refer to as the “market for SSPs”).
- The Autorité considered that there is a separate market for publisher ad servers, which is distinct from the market where SSPs are active (contrary to Google’s arguments). It then held that Google has a dominant position in this market with its DFP ad server, based inter alia on its very high market share ([50-60]% across the EEA in terms of value since 2014 and [60-70]% as of 2019) and the existence of barriers to entry.
- The Autorité also considered that there is a separate market for SSPs, which does not include DSPs. It held that Google has an at least “preeminent” position in this market, based, among others, on its revenue compared to rivals. [In my view the Autorité could have found Google dominant in that market – yet in any event, the approach it adopted did not prevent it from sanctioning Google’s conduct in that market, as discussed below]
Using DFP to favour AdX
In the first place, the Autorité held that Google has abused its dominant position in publisher ad serving by applying to third-party ad sales platforms (SSPs) less favourable contractual and technical conditions than those applied to its own technologies. As mentioned above, third-party SSPs may interact with DFP through various methods; yet, regardless of the precise method, they are always subject to a disadvantage compared to AdX. In particular:
- With respect to SSPs integrated in the waterfall, AdX has the ability to submit a bid for each impression, as well as the ability to bid in real-time, while rivals are captive of the prices estimated by the publisher;
- With respect to SSPs integrated in header bidding and prior to Google’s migration to a unified first-price auction in September 2019, Google used the bids of rival SSPs to adjust the behaviour of AdX. This resulted in three advantages:
- (a) the right of last look over header bidding;
- (b) the dynamic revenue share functionality (a functionality which allowed AdX to adjust its revenue share on a per-impression basis in response to the competitive intensity it faced from rival SSPs; this was not-replicable by rivals, as only Google had access to rivals’ bids by virtue of its control of DFP); and
- (c) the ability to optimize AdX (it was found that Google used DFP to monitor the deployment of header bidding and the behaviour of rivals to favour AdX).
- With respect to SSPs integrated in header bidding for the period after the switch to a unified first-price auction in September 2019, Google has introduced new changes to disadvantage rivals, namely (a) the Unified Pricing Rules (which prohibit publishers from setting different price floors for each SSP – something which could be used to place greater pressure on AdX); and (b) the “minimum bid to win” information (a piece of information on the outcome of the auction which is shared only with AdX buyers and Open Bidding participants, but not with SSPs integrated through header bidding).
- With respect to SSPs integrated in Open Bidding, these suffer from a series of disadvantages vis-à-vis AdX, namely (a) a limited targeting ability; (b) a prohibition of leveraging demand from their own DSPs when participating in Open Bidding; (c) inability to support innovative ad formats; and (d) a revenue share charged by Google.
The Autorité found that these advantages are likely to have, and have already had significant anticompetitive effects, in that they have limited the attractiveness of third party SSPs and their ability to compete against AdX. Google’s AdX has been able to win a significant volume of impressions which, absent its advantages (e.g., last look, dynamic revenue share) would have been allocated to rivals. This has deprived rivals of the associated revenue. In addition, Google’s conduct has allowed it to retain a high revenue share (20%) without this hindering its growth, at a time when all other rivals have had a lower revenue share or were forced to significantly reduce it. Finally, the Autorité observed that Google’s conduct did not appear to be objectively justified.
In legal terms, the Autorité qualified Google’s conduct as a form of leveraging of market power from the market of publisher ad serving to that of SSPs, which has had anticompetitive effects in the latter market (the Autorité notably referred to the CJEU’s recent decision in Slovak Telekom, the Google Shopping decision of the European Commission, as well as earlier case law on leveraging abuses e.g., Tetra Pak and Microsoft).
Using AdX to favour DFP
The Autorité also held that Google has used AdX to favour DFP, in that it applies to rival ad servers less favourable technical and contractual conditions than those applied to its own technologies. In particular, publishers using a rival ad server cannot access AdX demand in real-time, not least because AdX does not participate in header bidding (one could speak of a form of technical tying, in that AdX exhibits limited interoperability with third-party ad servers).
This more favourable treatment is likely to have, and has already had, significant anticompetitive effects in the market for publisher ad servers. Coupled with the fact that AdX is the only platform able to fully access demand from Google’s DSPs (Google Ads and DV360 – which are the most important programmatic buyers and thus must-have for publishers), this has created switching costs for publishers and locked them into DFP, while reducing the ability of rival ad servers to compete. The Autorité noted, among others, that DFP’s already dominant position has been further strengthened (its market share grew by ten points during the period under review) while rivals have exited the market. Finally, the Autorité observed that Google’s conduct did not appear objectively justified, and rejected the reasons Google put forward for not participating in header bidding [Note: this is in line with the position of the CMA in its July 2020 seminal report on digital advertising].
In legal terms, the Autorité similarly qualified Google’s conduct as a form of anticompetitive leveraging. The only difference is that, as mentioned above, the Autorité did not contend that Google is dominant in the market for SSPs. Even so, the Autorité relied on case law (Tetra Pak as well as French case law) according to which, conduct on a non-dominated market (here: the market for SSPs) which has effects on the dominated market (here: the market for publisher ad servers) or on the non-dominated market itself may be found abusive under “special circumstances”. These special circumstances may lie in the fact that the two markets are very closely interrelated (which was the case with respect to the markets for publisher ad serving and SSPs) and the dominant firm has a preeminent position on the non-dominated market.
The fine and the commitments
Google proposed to the Autorité to follow the transaction procedure, whereby Google would not contest the findings in the decision and in return get a discount in the fine imposed (€220 million). Google also voluntarily proposed a series of commitments, which the Autorité made binding.
To address the first grievance of the Autorité, Google committed to the following:
- First, make technical changes so that in the future SSPs integrated in header bidding will have access to information on the outcome of the auction (e.g., the minimum bid to win).
- Second, allow publishers to set different price floors for ads deemed to belong to sensitive categories.
- Third, commit not to use information on rivals’ bids to adjust its own behaviour, subject to certain exceptions.
- Fourth, provide a three-month notice to publishers prior to rolling out important product changes, subject to certain exceptions.
These are interesting proposals, even though it is still early to comment on their ability to restore competition (especially since they are subject to certain exceptions).
To address the second grievance of the Autorité, Google committed to modifying already existing configurations to help publishers using a third-party ad server to access AdX demand in real time. While this does not go as far as Google participating in header bidding (this would have probably been too big a concession for Google to make), it has the potential to lower the switching costs for publishers using DFP. Again, only time will tell whether this can help restore competition.
It should be noted that while the remedies are limited in France, Google indicated in a blog post that it will apply them more broadly, including some globally. My guess is that Google is doing so to appease, or even preempt regulators in other countries looking at these issues.