Skeletons in the Closet? Google-Facebook Involved in Secret Online Advertising Deal

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If you can’t beat ‘em, join ‘em. And when two titans happen to decide upon an alliance, there are bound to be questions regarding the nature of it. Now, the instance of a behind-closed-doors deal unearthed between Google and Facebook is one that threatens to go beyond our line of sight.

Once again, tech giants, Google and Facebook have become entrenched in fresh trouble. A coalition of state attorneys generals, led by Texas’ Ken Paxton, have decided to file an antitrust lawsuit against Google.

The bolt from the blue, which has the backing of Texas and nine other states, has accused Google of striking an under the table deal with Facebook for unfairly leveraging monopoly in its ad-tech business.

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The stunning claim comes on the back of documents uncovered by the Texas attorney general’s office as part of the ongoing multistate suit. This leads us to a few interesting questions, many of us are trying to find the answers of:

  • While this would present another headache for the companies already battling out on multiple fronts, how much water do the complaints carry?
  • Is it just another lawsuit out of the basket ordinaire’ or are the circumstances unfolding have a bigger scope than we initially seem to understand?

Let us delve deeper to find out more.

Behind the Lawsuits

The litigation case filed has alleged that Google was at the center of buying and selling display ads across the web.

For a full understanding, if we stretch back our memory to 2017, Facebook had said then that it was testing a new way of doing online advertising. Less than two years into the pledge and Facebook made a dramatic U-turn and instead teamed up with Google for online advertising. And it is precisely this development that has stirred up a storm now.

It is claimed that Google and Facebook in fact struck up a deal in 2018 to start giving the social media giant’s advertiser clients the choice to place ads within Google’s network of publishing partners. Executives at 6 of the more than 20 partners in the said alliance have reportedly provided some startling evidence that reveals that the agreements they had with Google were devoid of the bountiful terms that Facebook enjoyed.

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Based on the fact that all the smaller advertisers have cried foul that the search giant in fact handed Facebook a significant advantage over the rest of them, the deal surely looks a bit dubious. But let’s move onto how the companies have responded to the allegations to gather a fuller picture.

What the behemoths say

Google and Facebook have both strenuously refuted to being part of any hush-hush deal. Putting out a statement saying that FAN (Facebook Audience Network) was merely a participant in its Open Bidding Program. Google has further sought to water down the claims, saying that the bidding program did not mete out preferential treatment to Facebook.

Facebook has also responded by saying that agreements like the one with Google helped increase competition in ad auctions and benefit advertisers and publishers both in the long term.

While both the behemoths have effectively dismissed the claims saying that the complaints have arisen due to misinterpretation, are the deals just commonplace or to thwart competition will become clearer by looking at the crux of the matter.

What they colluded about

The lawsuit against goofily codenamed ‘Jedi Blue’ is based around automated ad technology called “header bidding”.

Routing digital ads into a live auction, header bidding is a way for publishers in the form of websites and apps to sell their ad space online. The bidding process allows multiple advertisers to bid on the same ad spaces simultaneously, with the publisher recognizing the highest bidder’s offer and thus placing its ad. The header bidding was seen as a viable alternative to Google’s ad-placement system, which runs the auction in a sequence known as “waterfalling” instead.

It is here that the plot thickens. The thing is, with more bids from the widest array of sources, the rates go up proportionately.

Facts point out that by 2016, around 70% of all major publishers used header bidding from a variety of smaller advertising technology companies. In 2017, when the social network introduced its own header bidding for its ad-selling tools, it also allowed Facebook to take small cuts of ads sold across the web and on mobile phones. Add to it the cut generated from not just their properties like Instagram, but opening up the bidding process to other exchanges meant that it entered into direct competition with Google themselves.

From which it then PULLED OUT.

The evidence disentombed paints that the picture that the timing and the nature of the pull-out were triggered by Google’s understanding of the severity of the looming challenge to their advertising dominance.

By creating a program to “secretly let its own exchange win”, it formed a kinship with Facebook to let it sell ads on mobile apps quicker and threw other plum advantages in ad auctions. By cutting a deal at the highest level, it diffused a sure threat to its revenue streams.

While the deal was done to fortify both companies’ market power, it increasingly looks that the lawsuit may have found chinks that were papered up.

All things said and done, Google and Facebook accounted for more than half of all digital advertising spending in 2019.

If the nature of this deal is indeed proven to be manipulative, it would spell even more turbulence for two of the biggest companies on the planet.

While this lawsuit is not the first, and certainly not the last looking at the spate of things, Both Google and Facebook are under intense scrutiny, which has stemmed from a distressing precedent for antitrust practices.

Both companies are also currently shouldering the burden of other cases. For Google – Just recently, The US Department of Justice’s separate antitrust lawsuit over its ads and search business. For Facebook – it finds itself embattled in two simultaneous lawsuits, one from the Federal Trade Commission and the other focusing on its acquisitions of Instagram and WhatsApp.

With so many needled poking around, the time to come is forbearing of strain for both. Perhaps the best thing for both would be to come clean, lest market dominance aside, it may fall short of containing the dwindling trust of its users.

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