As the US v. Google antitrust trial enters its second week, the spotlight is on Google's advertising practices. The Department of Justice (DOJ) is delving deep into the revenue generation mechanisms of Google Search, particularly its advertising model.
DOJ's Allegations and Executive Testimonies
As Bloomberg reports, the DOJ alleges that Google's market dominance allows it to hike ad prices without significant consequences. This claim is substantiated by Jerry Dischler, a Google ads executive, who testified about the company's ad pricing strategies. Dischler revealed that Google has, in the past, adjusted its auction process in ways that might have escalated prices by up to 5% for the average advertiser. In some cases, the increase could have been as much as 10% for specific search queries. Advertisers were typically kept in the dark about these price “tunings”, with Dischler noting, “we tend not to tell advertisers about pricing changes.”
Revenue Boosting Strategies
An internal email exchange from 2019 between Dischler and a former Google executive, Anil Sabharwal, sheds light on Google's strategies during revenue slumps. The email suggests that Google considered raising ad prices as a means to bolster search revenue during such periods. Dischler's email mentioned, “We are shaking the cushions” on ad launches. Additionally, the correspondence hinted at other revenue-boosting tactics, such as making Google Search more visible to Chrome users.
In 2019, Google reportedly earned $98 billion from search ads for its primary services, excluding YouTube revenue. Dischler confirmed that this figure surpassed $100 billion in 2020, with a significant portion of the growth stemming from mobile search. He also mentioned in court that a 10% price hike was the maximum they considered, stating that a 15% increase would be risky. However, even with such high rates, the overall revenue might still grow, even if it pushes some advertisers towards competitors like Meta or TikTok.
Implications for the Antitrust Case
The ability of Google to raise ad prices without facing substantial competitive backlash could strengthen the DOJ's stance that Google holds an unlawful monopoly. While the search engine itself is free for users, the DOJ can argue that other potential issues, such as compromised privacy standards, might have been addressed more effectively in a competitive search environment.
Dischler is set to continue his testimony in the ongoing trial, which is anticipated to extend into November. A verdict is not expected until the following year.
