How Google altered a deal with publishers who couldn’t say no

Google changed the rules of its publisher ad product in a way it knew online websites selling ad space would protest in order to gain back more control in the ad tech market, the Department of Justice alleged on the trial’s fourth day in its antitrust case against the company.

Through the testimony of a former Google executive, internal company emails, and a recording of a contentious 2019 meeting with Google’s publisher customers, the DOJ painted a picture of a company that ignored its customers’ preferences to strengthen its own business position, knowing they had few real alternatives. Google’s attorneys countered that executives listened to customer feedback and made some adjustments, even though it kept the core of the change in place.

The story of one Google feature rollout, to the Justice Department, indicates the tech giant faced so little competition in certain parts of the advertising tech market that it could unilaterally set terms. Making changes that negatively impacted customers without losing business could indicate monopoly power — and the government claims that rather than choosing Google’s products because of how good they were, publishers simply couldn’t leave.

The change at issue was called unified pricing rules (UPR). Prior to UPR, when publishers put ad inventory on their sites for sale through a publisher ad server, they could set different floor prices for the ad exchanges that would bid on those ad spaces. That means a publisher like The Wall Street Journal could set a different minimum bid it would accept from Google’s AdX ad exchange than it would from a different exchange, like PubMatic. Google knew that publishers would often set higher price floors for AdX than other exchanges, according to documents presented in court.

One reason Google understood this to be the case, according to internal emails at the time, was that publishers valued diversifying ad revenue sources to decrease their reliance on Google. In emails shown in court, Google executives recognized publishers set a higher price floor for AdX as part of a strategy to essentially “push google harder.” The emails agreed it was a rational decision. “Publishers have been willing to tolerate some revenue loss in exchange for reduced dependence on Google as a whole,” said one slide deck.

But with UPR, Google eliminated that choice. The new rules meant publishers had to set the same floor price for every exchange. Stephanie Layser, who worked in programmatic advertising at Wall Street Journal parent company News Corp at the time Google rolled out UPR in 2019, testified earlier this week that she told Google she thought UPR was “in the best interest of Google and not in the best interest of their customers.”

That was the setup for a testy meeting in April 2019 in New York City, where Google broke the news of UPR to publishers it invited to an announcement event. The DOJ played clips from a recording of that meeting, where several publishers, including Layser, complained about the feature.

Felix Zheng, who led programmatic advertising at IBM Watson Advertising at the time, told Google executives that taking away the kind of “control” they had with price floors was “something that’s very hard to give up.” Jana Meron, who led programmatic and data strategy at Business Insider at the time, said, “It hand-ties us.”

If publishers decided they wanted to switch because they didn’t like UPR, Layser said in the meeting, it didn’t seem like they’d be able to fully access Google’s advertiser network outside of Google’s ad exchange, AdX. In response, Rahul Srinivasan, a former Google employee who worked on sell-side products at the time, said that was a fair point.

Google executives recognized the rollout would be challenging to communicate. Sam Temes, a product and sales executive, highlighted a concern that communicating “even more spend shift into AdX will be tricky.” Martin Pál, an engineer, worried UPR would “generate pushback from publishers who may view the move as us taking away functionality they are rather attached to and consider critical to their business.”

In a statement to The Verge, Google disputed that framing. “We introduced Unified Pricing Rules and other updates as a way to improve the transparency and fairness of the auction and help publishers achieve their goals,” Google spokesperson Peter Schottenfels said on Thursday. “During the rollout, we made changes and introduced new features in response to publisher feedback. As we heard in court today and from the DOJ’s own expert yesterday, the result was that publishers saw increased revenue.”

During cross-examination, Google’s attorney pulled up an August 2019 email describing “Improved” market perception of UPR “due to continued dialogue with publisher partners and the press, and incorporation of some publisher feedback into product changes.” That fall, another internal document showed, Google said publishers saw a “neutral to positive impact on revenue.”

Google rolled out the news of UPR in 2019 with some other changes it anticipated publishers would like, including switching from a second-price to first-price auction (where the winner pays their bid, rather than the price the runner-up bid, which generally results in higher ad sale revenue).

The DOJ tried to characterize Google’s bundled announcement as pairing good news with bad to soften the blow for publishers. Srinivasan testified on Thursday that executives’ understanding that “some publishers might be upset by UPR” was just “one of many factors” that led them to launch it alongside the first-price auction. He added that Google believed the different pricing rules “were less relevant in a first-price world.”

In a May 2019 email exchange, a colleague noted some “difficult PR” after the announcement and asked if Google could change to the first-price auction without removing price floor controls. Srinivasan responded that “the primary internal objective” was to compete on equal footing among exchanges. Moving to the first-price auction, he wrote, “provides us additional justification to remove some [of] these controls.” In the end, however, at least some publishers were left feeling shortchanged — and now they’re getting their day in court.