Google adtech dominance exposed; Australia watchdog plots regulatory crackdown

Australia's competition watchdog has called for new regulations to address Google’s dominance in the adtech industry, after an 18-month inquiry exposed "ineffective" competition and opaque practices that are driving up the price of adtech fees and undermining trust in the sector.

Google oversees 90% of ad impressions in the market, while adtech providers retain nearly a third of programmatic adspend, according to the report.

The inquiry was conducted by the Australian Competition and Consumer Commission (ACCC), which has been probing multiple aspects of the internet economy in Australia. A landmark digital platforms inquiry published by the ACCC in December 2019 sparked the creation of a contested news media bargaining law that was passed in February this year. The law requires platforms including Google to pay media outlets to carry their news reports on their platforms. The ACCC is also conducting a separate five-year inquiry into markets for the supply of digital platform services. 

The regulator first began investigating the adtech industry in March 2020. In January it published an interim report in which it discussed the scale of Google's services in the adtech supply chain, among other issues, and called for feedback on proposals to address them.

The final report, published Tuesday (September 28), states that Australia's existing competition laws "are not sufficient" at addressing issues in the adtech industry, and calls for the ACCC to be given powers to develop "new regulatory solutions" to specifically address Google’s dominance.

ACCC chair Rod Sims said in a release: "We have identified systemic competition concerns relating to conduct over many years and multiple ad tech services, including conduct that harms rivals. Investigation and enforcement proceedings under general competition laws are not well suited to deal with these sorts of broad concerns, and can take too long if anti-competitive harm is to be prevented."

"We recommend rules be considered to manage conflicts of interest, prevent anti-competitive self-preferencing, and ensure rival adtech providers can compete on their merits," he added.

The inquiry singles out Google as the main culprit of the adtech industry's competition, pricing and transparency issues. The search giant is the only provider across the full adtech supply chain that also sells ad inventory on its own properties, including YouTube, Gmail and Google Search. The ACCC report suggests that Google controls a majority of every service in the adtech supply chain in Australia. It further estimates that more than 90% of ad impressions traded via the adtech supply chain in the market in 2020 flowed through at least one of Google's services.

Sims commented: "Google’s activities across the supply chain also mean that, in a single transaction, Google can act on behalf of both the advertiser (the buyer) and the publisher (the seller) and operate the ad exchange connecting these two parties. As the interests of these parties do not align, this creates conflicts of interest for Google which can harm both advertisers and publishers."

Multiple factors have contributed towards Google's position, the report stated, including its access to large volumes of first-party data, its access to exclusive inventory, and its ability to integrate its adtech services. Google has entrenched its position through the acquisition of adtech firms such as DoubleClick, AdMob and AdMeld, as well as sources of media inventory, like YouTube.

The ACCC said the widely-held perception in the industry—based on its interviews with advertisers, publishers and other platforms—is that Google uses its first-party data gathered from Search, Maps and YouTube to provide targeted advertising via its adtech services in a way that provides it "unparalleled advantage". Google submitted to the ACCC that it does not use its first-party data to provide targeted advertising through its adtech services on inventory that it does not own. But its messaging is "ambiguous", the ACCC said, recommending that Google should amend its public material so that it clearly describes how it uses first-party data to provide adtech services.

In addition, the report found that Google has used its position to preference its own services and shield them from competition. For example, Google prevents rival adtech services from accessing ads on YouTube. The tech giant has also refused to participate in publisher-led header bidding, an industry innovation aimed at increasing competition for publishers’ inventory. It previously allowed its services to have a ‘last look’ opportunity to outbid rivals, the report stated.

"Google has used its vertically integrated position to operate its adtech services in a way that has, over time, led to a less competitive adtech industry," Sims said. "This conduct has helped Google to establish and entrench its dominant position in the adtech supply chain."

A lack of competition has led to "an inefficient adtech industry" that is the likely cause of high adtech fees, the ACCC report suggested.

The report estimates that at least 27% of programmatic ad spend in Australia was retained by adtech providers in 2020.

This translates to higher costs for both publishers and advertisers "which is likely to reduce the quality or quantity of online content and ultimately results in consumers paying more for advertised goods", Sims said.

The complexity of the supply chain is also contributing to a lack of transparency on pricing and operations, making it difficult for advertisers and publishers to detect misconduct. The report identified specific transparency issues with Google’s publisher services.

The ACCC has recommended that Google should be required to provide publishers with information about the operation and outcomes of its publisher ad server auctions. Should it fail to do so, new regulations should be put in place, it said.

The regulator has recommended the industry establish standards, requiring adtech providers to publish average fees and take rates to enable comparisons across different providers and services. It also recommended an industry standard to enable full and independent verification of the services advertisers use in the supply chain.

In addition, the ACCC wants the power to develop and implement special measures to address competition issues caused by an adtech provider’s data advantage, such as data separation or data access requirements to address the competition risks that may arise from the use of first-party data.

The report focuses on the purchase of ads through open display channels, rather than closed channels such as Facebook's family of apps.