Advertising: the secret agreement between Google and Facebook

Advertising: the secret agreement between Google and Facebook

Following the signing of an agreement including several confidentiality clauses, the Mountain View giant ended up in court after being charged of abuse of monopoly: here below is what was hidden inside the secret agreement

In 2017 Facebook started experimenting new ways to sell digital advertising spaces. The results might have endangered Google’s hegemony over online ads. Nevertheless, less than two years later, the social network backed off and signed an agreement with a pool of companies trying to set up a similar project together with Google. Facebook has never explained the reasons of such turnaround, but the evidence provided during an antitrust trial promoted by ten US Attorneys General last month, showed how Google accepted to sign with Facebook, its bigger competitor with regard to digital advertising, a really advantageous deal (Behind a Secret Deal Between Google and Facebook).

Google: many privileges for Facebook

The details of the deal have been censored in the report presented to the court last month. But they were readable in the draft of the same report examined by the New York Times before. The top managers of six out of the over twenty partners of such alliance, who releases their statements upon condition they would remain anonymous, told the newspaper that the agreement with the Mountain View giant did not display many of the generous benefits given to Facebook. And this is already a proof of an unequal treatment between Facebook and their companies (10 States Accuse Google of Abusing Monopoly in Online Ads).

A risk for competitors?

The disclosure of such agreement between the abovementioned giants has renewed the concerns related to their habit to join forces to crash competitors. What we are talking about is often secret and private agreements with several confidentiality clauses which protect the most crucial contents. Google and Facebook explained it is a common and harmless practice in the digital advertising field. Julie Tarallo McAlister, Google’s spokesperson, argued that the charge stemmed from a “misinterpretation of the agreement and many other aspects of our digital advertising activities”. Christopher Sgro, Facebook’s spokesperson, claimed such agreements, differently from what people may believe about them, “boost competition in advertising auctions” to the advantage of both marketers and advertisers (Inside the Google-Facebook Ad Deal at the Heart of a Price-Fixing Lawsuit).

Programmatic: “Jedi Blue” secret pact

However, figures are clearer than opinions: Google and Facebook controlled over 50% of investments in online ads in 2019. The agreement between Facebook and Google, codename “Jedi Blue”, relates to an increasingly popular sector of the digital advertising market: programmatic adv. Online ads attract hundreds of millions of dollars of annual revenues and automated sales of advertising spaces account for over 60% of the total. During the milliseconds separating a user’s click from the moment ads are loaded onto a page, the bids for the available advertising space are located into the so-called exchange platforms. Finally, the winning bid is sent to a server. Both Google’s exchange platform and ad server are dominant (Research: Untangling Header Bidding Lore).

Header Bidding and Open Bidding

An alternative method called “Header Bidding” has been created in order to reduce the dependence from Google adv platforms. Websites request different bids from different platforms at the same time, thus boosting competition and leading to better prices. According to an estimate, in 2016 over 70% of publishers have adopted such solution. Google has immediately put forward its alternative called Open Bidding, creating a pool of platforms. Open Bidding enables companies to compete simultaneously, and the browser gets paid a commission on every winning bid (This new technology is changing web advertising).

All the advantages go to Facebook

Facebook has claimed to have taken part in Google programme but without being granted any special benefit, such as extra speed or a guaranteed “winning rate”, to be successful in the auctions. In this market, in which milliseconds count, speed is crucial. Facebook had 300 milliseconds to bid for ads, according to the court documentation. The other partners managers claimed they could only make use of 160 seconds each. The guaranteed winning rate was actually the element which led to the charge of unlawfulness. Not only: Facebook invoiced directly the websites which would publish the ads while Google used to filter prices information for the majority of the other partners thus creating a barrier between the participants to Open Bidding and the websites owners. Google has accepted helped Facebook in getting to know who would view the ads and consequently identify 80% of mobile users and 60% of web users (Facebook and Google have been accused of striking a secret, illegal advertising deal).

Adam Heimlich, CEO of Chalice Custom Algorithms, a consultancy, claimed the agreement generated a huge advantage for Facebook, as if he could “start a tournament directly from the finals”. A metaphor which clearly illustrates the monopoly achieved by Google and Facebook whose position and independence will be difficult to even scratch, despite all attempts to limit them made by the judicial system.

Will the digital advertising world find a way to promote competition or will power be more and more often in the hands of just a few players? Tweet @agostinellialdo

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