Recently unsealed court documents feature explosive allegations that Google suppressed publisher ad revenue by up to 40%.
Over the weekend, we mentioned how multiple US states have appealed their case against Google. Multiple media reports, at the time, suggested that Google and Facebook colluded to effectively control the online advertising market. We noted how none of those allegations are anything new. Unfortunately, those media reports apparently missed a big story brewing from the amended complaint.
As it turns out, the amended complaint recently made public accuses Google of suppressing publisher revenue through a now formerly secret program called “Project Bernanke”. According to Google’s own admission as per the filed legal documents, the project saw publishers ad revenue suppressed by up to 40%. The allegation is, of course, part of the overall allegations that large tech giants like Google and Facebook were distorting the ad market to their advantage. If these allegations are true, and they will very likely be tested in court, this could be the biggest scandal Google has ever faced.
As people who have dealt with Google advertising knows, ads work on an auction basis. Ad placement is conducted via a bidding system. The advertiser who wins that bid gets to display their ad in that space. Those who don’t win apparently still has to pay for their efforts to get that advertisement placed. Google takes a 20% fee and the rest is supposed to go to the publisher.
What Project Bernanke allegedly did was manipulate the auctions to favour those who took out advertising via a Google approved service. It would basically tell the publisher that the other bids for that ad were much lower than reported, therefore, this is all the ad revenue the publisher gets out of it. In turn, Google would then report back the real numbers to the advertiser, getting them to pass along the money in the first place.
What Google would then do is take the surplus money that would otherwise go to the publisher and “release” the funds so they could use those funds to pump up bidding powers of advertising they want to favour. Some people consider this action to be a case of overcharging the advertiser and underpaying the publisher.
Techdirt published an article and attached the legal court documents in question. The allegations are so stunning, even Mike Masnick (who has seen some pretty screwed up things over the years) could seemingly hardly believe this actually happened:
The second really interesting bit in the case is the part I would argue is even more damning against Google, and if it’s shown to be true, I hope that Google is significantly fined and banned from this practice. Politico’s antitrust reporter Leah Nylen did a wonderful job breaking down the claims about how Google’s “Project Bernanke” supposedly worked and if this is what Google did, it sure sounds like straight up deceptive practices, bordering on fraud — and Google should probably need to pay out a lot of money to publishers who had Google ads on their site at the time.
That certainly looks like a combination of deceptive practices and something close to fraudulently taking money that was supposed to go to publishers. At the very least, this revelation is absolutely going to lead to some publishers filing a separate civil suit against Google demanding their cut, and possibly having it turn into a class action lawsuit. Hell, I’d bet advertisers are going to file a similar suit noting that they overpaid for ads as well.
Given some of the other information in the complaint, there are some hints as to how Google got to this point. The description above sounds pretty damn evil, but there’s a kind of dumb and dangerous internal logic. Google realized that it was starting to lose ad auctions to 3rd party systems quite a lot, and the original point of Bernanke was apparently not to steal money from publishers, but to have Google start winning more auctions. So, the initial idea behind Bernanke seems to have been to inflate bids to try to win more auctions — and in those cases you can see a kind of logic to dropping certain bids from the auction as they were “artificially” inflated in order to win more auctions. Though… that’s still pretty sketchy.
Again assuming this is accurate, this is, to put it mildly, fucked up. It’s just out and out greed by the ad team, and it completely fucked the advertising market for tons of news organizations that relied on such things. I mean, as described in the complaint, this is so evil it’s almost stupid. Google would have been much better off simply admitting that it was taking a much larger cut of the ad revenue than cooking up this ridiculous scheme.
So, yeah, I’ll be reading the answer to this amended complaint carefully to see if there’s some alternative explanation, but based on what’s in this complaint, this is not just the strongest antitrust claim against Google, but one that Google should very much lose. There are lots of claims out there of bad behavior by various tech companies, and much of it is misrepresented or misleading. But if this is accurate, it’s incredibly damning and Google should be in serious trouble for it.
For those who think all of this seems far fetched, here’s the legal document in question (PDF – 242 pages). Here’s an excerpt (page 106/PDF page 112):
Google’s secret Bernanke program surreptitiously switched AdX from a second-price auction to a third-price auction on billions of impressions per month. Bernanke dropped the second-highest bid from the AdX auction when the two highest bids were above the floor and from Google Ads advertisers. The price to be paid, then, was the lower third-place bid. With Bernanke, AdX ran third-price auctions rather than second-price auctions.
304. To illustrate, suppose a USA Today impression is up for auction and the three highest returned to AdX are: a Google Ads bid of $19 on behalf of a car dealership, a second Google Ads bid of $18 on behalf of a hospital, and a third bid of $9 from a non-Google buying tool on behalf of a law firm. In a second-price auction, the dealership’s $19 bid wins and the clearing price is $18, which nets the publisher $14.40 ($18 minus Google’s ~20 percent exchange fee). Bernanke drastically changes the result for the publisher. Under Bernanke, AdX drops (i.e., disregards) the hospital’s second-place $18 bid; so even though the dealership’s $19 bid will still win, the clearing price is now only $9, which nets the publisher a mere $7.20 ($9 minus Google’s ~20 percent exchange fee). The following diagram illustrates the operation of Project Bernanke:
305. Google examined some of the effects of its secret Bernanke program, finding that it drops any given publisher’s revenue by upwards of 40 percent. Stating the obvious, one Google employee observed: “Bernanke is powerful.” Publishers had no idea Google was dropping second highest bids and impacting their revenues in this way.
306. Incredibly, even after dropping these second-highest bids under Bernanke, Google Ads nevertheless charges the winning bidder as if the second-highest bid had remained in the auction. For instance, in the example above, the dealership would pay $18 with and without Bernanke; the difference is what Google would pay out to the publisher ($14.40 before Bernanke, $7.20 with Bernanke). Google retains the difference and moves it to a separate “pool,” which it then uses to inflate the bids of advertisers bidding through Google Ads to help them win impressions they would have otherwise lost to advertisers bidding through non-Google buying tools.
Of course, one of the big questions we had was whether this was exclusively in the US or if it affected people in other countries. We couldn’t tell based on the documents whether this was a US thing or an international thing.
Still, the documents are clear in their accusations that they hurt both the publisher side of things and the advertiser side of things:
Bernanke hurt advertisers, too. It caused advertisers to pay the price of the actual second-highest bid instead of the third-highest bid (i.e., the bid that Google reported as the second highest and paid to publishers after extracting its 20 percent fee). Bernanke also harmed advertisers by manipulating and inflating their bids. The small advertiser bidding through Google Ads wants their bids routed in a way that maximizes their return on investment. For instance, a local doctor might want her ads displayed on sites that are likely to lead to new patients by reaching a relevant audience (e.g., on medical websites). Bernanke could route the doctor’s bids to less relevant sites and audiences (e.g., on sports websites), merely to help AdX beat out other exchanges. This increases the cost of the doctor’s campaign and lowers her return on investment.
So, why is this so breathtaking? Well, think about how many websites use things like Google Adsense. It’s what a lot of websites use to help pay for things like server costs, domain names, paying employees, and whole host of other things. It’s generally the ad network of choice largely because the perception is that there really is no real other choice to be had. Case in point in this, Techdirt, themselves, couldn’t find a replacement ad network after pulling their Adsense ads from their site. They have far more resources to work with then someone like us or your average non-tech related website.
So, you multiply this number of websites with the number of years that this has been going on, and you got a pretty big tally running.
What’s more is the number of people who took out ads in the first place. It can range from anywhere between some random website hawking some random snake oil product all the way up to big retailers and corporations advertising their products and services. The consequences in dollar figure is nothing short of staggering here.
Obviously, we should point out that none of the allegations have been proven in court. Still, what is shown in these documents is pretty alarming. What’s more is that this is part of some seriously high stakes stuff. Either the many State Attorney Generals and the legal teams working on behalf of all of these US states is being untruthful in all of this, thereby undermining their own anti-trust case against Google, or Google really did do this and did something this colossally stupid and evil to manipulate their own advertising system to their own benefit when they could have been upfront about their fees in the first place. Both scenarios stretch the imagination here.
If these allegations are true, it’s extremely disheartening to see. From my perspective, I’ve been working extremely hard to try and build this website and make it more useful for you, the readers. I’ve had to resort to basically make do with less, cutting every expense corner imaginable just to make this whole site plausibly viable. Paying for server costs hasn’t been easy. Doing this for nearly 10 years now has felt like a massive test of endurance on my part. Hearing about this and realizing that there was a possibility that I had this massive boat anchor on my success is disheartening among other things.
I look at the numbers and think about what an added 40% could’ve done for me. I could have spent that money on getting server costs fully paid off, then saved up the cash to hire people to make this site better on a number of angles. That, in turn, would’ve easily meant more traffic and, subsequently, more ad revenue to feed back into the system. What’s more is that I could have been gradually making steps towards making this a full time career, thereby living the dream and finding ways to benefit my own community in the process. Instead, I’m still hoping that, someday, the site will pay off the server debt as I basically continue to this day to volunteer my own time and pour my heart and soul into this project. I’m almost beyond words in all of this.
I’ll continue to pour over these documents as it’s all so much to take in at this point. Still, this story only threatens to go nuclear at this point thanks to these allegations. I personally haven’t felt this overwhelmed since the PSN hack of 2011 – only this story has the potential to have affected me personally which is a rather unpleasant twist in all of this.
Drew Wilson on Twitter: @icecube85 and Facebook.
