3 details advertisers need to know about the Google search ruling

Google intentionally and consistently raised ad prices with respect to its text ads during auctions and took great care to avoid advertiser blowback.

That was just one revelation about Google’s business practices from a U.S. federal judge’s ruling on Monday, which found that the company “is a monopolist” and illegally maintained its monopoly over search.

“The only apparent constraint on Google’s pricing decisions are potential advertiser outcry and bad publicity,” Mehta wrote in the judgment. “Google, however, has managed to avoid those pitfalls by ramping up its pricing incrementally. […] Many advertisers do not even realize that Google is responsible for the changes in price.” 

Google President of Global Affairs Kent Walker said in a statement on Monday that the company plans to appeal the ruling.

“This decision recognizes that Google offers the best search engine, but concludes that we shouldn’t be allowed to make it easily available,” Walker said, in part. “As this process continues, we will remain focused on making products that people find helpful and easy to use.”

The Current sifted through the 277-page ruling to pinpoint the biggest revelations marketers should know — from Google growing its market share in online search through default distribution agreements with device makers to intentionally raising prices and manipulating auctions to “degrading” its search text ads product in a way that gave advertisers less control.

1. Google’s market share in search stifles competition

Last September, before the trial was set to begin, Google President of Global Affairs Kent Walker wrote in a blog post that Google competes “hard” for its placement in device makers’ browsers, and that those manufacturers choose Google “based on the quality of our products.”

But Judge Mehta found in the ruling that there is “no genuine” competition for those contracts, as Google’s market share in search vastly exceeds its closest rival. Mehta wrote that Google’s share was at nearly 90% in 2020, while Bing’s market share is less than 6% today.

“Google understands there is no genuine competition for the defaults because it knows that its partners cannot afford to go elsewhere,” Mehta wrote.

Further, Mehta observed that Google’s distribution agreements with those device makers limit its rivals’ potential ad revenue, as advertisers that testified admitted to allocating spend based off the percentages of market share, which hinders rivals’ ability to invest in improved products and compete.

2. Google intentionally raised ad prices

Nearly eighty percent of Google parent company Alphabet’s revenue comes from digital advertising, Mehta noted.

But Google adjusts its ad prices through “pricing knobs,” including “squashing.” Mehta defined this as raising the bid of the runner-up, which puts pricing pressure on the top bidder, who then has to pay more to win an ad auction.

“Google believed that it could increase ad prices because its pricing was below what advertisers would be willing to pay for an ad,” Mehta wrote.

Mehta said that Google’s assertion that this practice helps smaller advertisers “is not borne out by the record,” as the majority of ad revenue is from the same placements before and after squashing.

“Google’s pricing decisions also reflected an understanding that increasing its revenue in the ways discussed might occasionally come at a cost (or no improvement) to advertisers,” Mehta wrote.

Mehta observed that Google avoided criticism from advertisers for price increases by avoiding transparency.

“Google therefore endeavored to raise prices incrementally, so that advertisers would view price increases as within the ordinary price fluctuations, or ‘noise,’ generated by the auctions.”

3. Google has “degraded” its search text ads product

Mehta wrote that Google’s search text ads product has “degraded” in two ways: Advertisers don’t receive as much information in search-query reports as they previously have, and advertisers can no longer opt out of keyword matching.

On the first, Mehta wrote that Google removed in 2020 the one-click threshold for search query reports, meaning that they no longer included queries that resulted in a single ad click. Mehta called Google’s reasoning of privacy concerns “suspect.”

These less-informative search-query results “negatively impacted advertisers, who already have limited insight into how Google’s auctions work,” Mehta wrote.

“Without the single-click information, Google thus not only constrained advertisers’ ability to withdraw keywords but also to identify negative keywords to remove themselves from undesirable ad auctions.”

On the second reason of keyword matching, it “created thicker auctions at the expense of advertiser control.” One example noted in the ruling is that about 25% of advertisers had opted out when Google began including misspellings in matches.

“These are arguably small changes, but they reveal Google as a monopolist unconcerned about product changes that have decreased advertisers’ autonomy over the auctions,” Mehta wrote.