May 23, 2022 9 min read

The bill that could break up Google and shake up ad tech

The bill that could break up Google and shake up ad tech
Table of Contents

A bipartisan group of senators introduced a new bill to rein in Google and any other company aspiring to dominate all sides of the programmatic advertising ecosystem. If passed into law, the Competition and Transparency in Digital Advertising (CTDA) Act will impose strict rules on ad tech companies that meet certain monetary-based thresholds.

The bill outlines two rulesets: one for companies with more than $20 billion in revenue per year and another for companies with more than $5 billion in revenue per year. It is crucial to understand how the bill defines revenue:

the greater of—‘‘(i) the sum of the clearing prices of all digital advertisements bought or sold from or through a digital advertising exchange;‘‘(ii) the total value of the gross advertising spending managed by a buy-side brokerage; or (iii) the total value of the gross advertising sales managed by a sell-side brokerage.

In a separate overview published alongside the bill, the senators more succinctly clarify that the rules apply to companies "if they process more than [$20 or $5] billion in digital ad transactions."

So this is not net revenue but all gross spend or sales flowing through an advertising platform. The $20 billion threshold will only apply to the big dogs of digital advertising: Google, Facebook, and Amazon. The next biggest player, The Trade Desk, processed $6.2 billion in total platform spend in 2021, so they would only fall into the $5 billion rules group for now.

Let's explore the rules behind each threshold and what they will mean for the companies that would have to adhere to them.

Disclaimer: Please note that this is not legal advice. I am sharing my interpretation of the bill, and everything in this article is a matter of personal opinion.

Ownership rules ($20 Billion)

The bill establishes three rules for companies that process more than $20 billion in digital advertising transactions. The bill targets Google directly with each of the rules, but any company that hits $20 billion in platform ad transactions would need to follow the regulations.

These rules are pulled from the overview rather than straight from the bill but convey the same points in a more digestible/non-legalese manner. I will reference select parts of the bill for context and clarification.

1. Ad exchange owners cannot own [a] supply-side platform or demand-side platform.

My first thought here is that many people could consider a supply-side platform an ad exchange according to the bill's definition of an ad exchange:

DIGITAL ADVERTISING EXCHANGE.— The term ‘digital advertising exchange’ means a person who constitutes, maintains, or provides a marketplace for or facilitates bringing together buyers and 1 or more sellers of digital advertisements, or for otherwise performing with respect to digital advertising the functions commonly performed by a digital advertising marketplace.

Do supply-side platforms not bring together buyers and sellers of digital advertisements? SSPs connect to DSPs and bring together their clients (buyers) with publishers (sellers). This definition seems too broad and could preclude any SSP from engaging in their ordinary business.

2. Supply-side platform owners cannot also own a demand-side platform, and vice versa.

Assuming The Trade Desk ever made it to the $20 billion club, would this prevent them from running OpenPath? Would it thwart any DSP from going directly to a publisher? The bill defines an SSP (referred to as a sell-side brokerage):

SELL-SIDE BROKERAGE.—The term ‘sell-side brokerage’ means a person in the business of effecting transactions on digital advertising exchanges, including by offering software or services that assist in serving or displaying digital advertisements, for other sellers.

In the case of OpenPath, would The Trade Desk (a DSP) fall under the bill's definitions of a Sell-Side Brokerage and a Digital Advertising Exchange? They are bringing together buyers and sellers (ad exchange), and their OpenPath prebid adapter would be "effecting transactions" on their platform (SSP).

3. Buyers and sellers of digital advertising cannot own a demand-side platform or supply-side platform (except to sell their own advertising inventory).

So a company cannot buy or sell ad space anywhere if they own a DSP or SSP? The bill does not even mention if you buy or sell on your own DSP or SSP. The language in the bill states that a company cannot:

own a buy-side brokerage or a sell-side brokerage if that person is also a buyer or seller of digital advertising space.

So DSP or SSP owners cannot acquire new customers via advertising? It would make more sense if they prevented buyers or sellers from participating on an SSP/DSP that they control to eliminate the possibility of any funny auction business — but that still feels like an overreach.

What if an SSP bundles together inventory in a group deal ID on behalf of multiple publishers, is that considered selling inventory and violating this rule? I think the language in the bill needs further clarification to crystallize what regulators want to prevent.

This rule is probably a response to Project Bernanke, where Google allegedly introduced a questionable third-price auction mechanic when two Google Ads advertisers bid in the same AdX auction. So are they considering Google a buyer of digital advertising if they buy on behalf of a client (a Google Ads advertiser)?

So yeah, we get it, senators — Google sucks. Google owns GAM, AdX, and DV360, which creates many opportunities for anticompetitive activity since they control every side of the digital advertising equation. If this bill became law, it might force Google to divest (sell-off) significant portions of its advertising business to stay in compliance.

The digital advertising industry would stand to gain by breaking up the most significant player in ad tech since their competitive advantage of seeing every side of an ad transaction could cause revenue to flow to other sources. But these rules could effectively cap the size of ad tech businesses that play on the supply and demand side.

Microsoft's Xandr comes to mind as another company with buy and sell-side products, and we've already discussed The Trade Desk's OpenPath product as potentially flirting with breaking these rules. If either of these companies ever reaches the $20 billion threshold, they would have to divest components of their business if the bill became law.

We have seen evidence come to light where Google allegedly secretly manipulated ad auctions with Project Bernanke. These surreptitious auction mechanics may have prompted the senators to create the next set of rules targeting companies with a lower monetary threshold.

Best interest and transparency rules ($5 Billion)

The bill establishes obligations "to protect their customers and competition" for companies that process more than $5 billion in digital advertising transactions.

1. They must act in the best interests of their customers, including by making the best execution for bids on ads.

This rule seems fair to me. SSPs and DSPs need to ensure that they always put customer interests ahead of their own.

One example here could be if an SSP sourced deals on behalf of a publisher, they couldn't prioritize that deal ahead of any other sources if the publisher stands to earn less revenue.

2. They must provide transparency to their customers so that those customers can verify they are acting in their best interest.

This rule appears to directly respond to Project Bernanke, where Google publicly stated that they operated second-price auctions when they allegedly did not.

So how do customers keep SSPs and DSPs honest? The bill requires:

Upon written request from a brokerage customer, a buy-side brokerage or sell-side brokerage shall supply to that brokerage customer, within a reasonable time, information sufficient to permit the brokerage customer to verify compliance of the brokerage with its obligations

The bill outlines what information an SSP or DSP must provide. Some highlights for SSPs and DSPs are below (not an exhaustive list).

SSPs must provide:

  • Unique and persistent identifiers that identify each unique digital advertising space for sale
  • All bids received and winning price, date, time
  • Creative advertiser domain, size, format
  • Nature of data collected from any brokerage customer or users of the customer and how the SSP used the data
  • Order or bid routing practices and processes
  • Source and nature of any compensation paid or received with transactions

DSPs must provide:

  • All bids won by the buy-side customers and the maximum allowed bid of the advertiser
  • Creative advertiser domain, size, format
  • The bid submitted to the ad exchange, winning price, and whether the ad served/rendered
  • Order or bid routing practices and processes
  • Source and nature of any compensation paid or received with transactions

SSPs and DSPs do log and provide some of this data. Still, if this bill became law, I would anticipate the platforms to productize methods for customers to easily pull the data bundled together to satisfy the requirements of the law.

3. If allowed to operate on both sides of the market, the company must erect firewalls to prevent abuse and conflicts of interest.

If a company is not subject to the ownership rules established at the $20 billion threshold, then it must:

Establish, maintain, and enforce written policies and procedures reasonably designed to ensure that their buy-side brokerage, sell-side brokerage, digital advertising exchange, and role as a buyer or seller of digital advertising, where applicable, operate separate and independent from one another and transact business at arm’s length.

This rule might be the most interesting of the bunch to me. On the surface level, it reads like the buy and sell-side must act in self-interest without considering the other, but the bill does not divulge too much detail on how companies should pull this off.

Does this mean that companies must maintain a strict organizational corporate structure that separates the buy and sell-side? Will ad platforms with buying and selling teams need to treat their coworkers as just another client? What technical information can they share?

This rule could immediately impact companies like The Trade Desk when considering OpenPath and possibly Xandr with their Monetize (sell-side) and Invest (buy-side) products if they process > $5 billion in ad transactions.

I wondered about the conflict of interest that TTD may face with OpenPath, where a company that historically only served advertisers would now have to serve publisher interests:

With OpenPath, The Trade Desk looks to cut out SSPs and buy inventory directly from publishers. There is an unspoken implication in this move. The Trade Desk would now need to cater to advertisers and publishers, which could strain their existing SSP relationships and focus on advertisers.

If TTD had to firewall their separate buy and sell-side businesses, their DSP business could use the legislation as cloud cover. They could ensure advertiser clients they are legally required to serve buy-side interests.

4. They must provide fair access to all customers with respect to performance and information related to transactions, exchange processes, and functionality.

The bill would establish more concrete rules around ad platforms providing inside information to some clients and not others.

This rule sounds like a reaction to the Jedi Blue agreement between Google and Facebook. Google allegedly provided Facebook with unfair auction information advantages in exchange for Facebook not pursuing header bidding.

As far as enforcement goes for any of these rules, the Wall Street Journal reported that if the bill became law:

it would be enforced by the U.S. Department of Justice and state attorneys general. It would allow customers to sue ad tech giants for violations such as failing to be transparent or act in their best interest.

The threat of CTDA

This bill will create significant challenges for any sizeable programmatic advertising business and might be the most realistic threat that Google's gargantuan ad business has faced.

A Google spokesperson told the Wall Street Journal:

“Breaking those tools would hurt publishers and advertisers, lower ad quality, and create new privacy risks. And at a time of heightened inflation, it would handicap small businesses looking for easy and effective ways to grow online. The real issue is low-quality data brokers who threaten Americans’ privacy and flood them with spammy ads.”

Privacy! Inflation! Data brokers! Spammy ads!

Google seems to be throwing out any negative buzzword to detract from the fact at hand that they dominate the industry. The spokesperson did not detail how this bill threatens privacy or why data brokers are relevant when considering anticompetition. Maybe they will expound on their position with a more cogent response soon.

Breaking apart a behemoth could allow other participants to grow — but now, all the smaller players will have to cope with stringent transparency rules. Transparency is good for publishers & advertisers, but it will create significant new overhead for SSPs and DSPs.

The firewall rules may overstep a bit in that the buy and sell sides of a business should be able to strategize together as long as they act in the best interests of their respective customer sets.

The fair access rules may reveal too much proprietary information in an industry where many ad tech companies with very similar businesses sometimes integrate with competitive platforms. Some companies would love the opportunity to peer into a frenemy's technical and business practices.

Perhaps the bill creates a set of untenable rules that will require revision, but it certainly should be cause for concern for any company that meets or plans to achieve the revenue thresholds for each set of rules.

Photo by Samuel Schroth on Unsplash

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