On May 19, Eastern Time, Utah Republican Senator Mike Lee (Mike Lee) represented him with Texas Republican Senator Ted Cruz (Ted Cruz), Democratic Senator Amy Klobuchar (Amy Klobuchar) ) and Richard Blumenthal, who introduced the Competition and Transparency in Digital Advertising (CTDA) to the Senate.
The Act restores and protects competition in the digital advertising market in two main ways: 1. prohibits large digital advertising companies with annual digital advertising turnover exceeding $20 billion from having more than one component of the digital advertising ecosystem; 2. requires processing more than 50 Mid-sized and large digital advertising companies in $100 million digital advertising deals adhere to a number of obligations, including acting in the best interests of their clients, seeking the most favorable terms for their clients, establishing transparency requirements, and setting up firewalls around data sharing, among others, to protect its customers and competition order.
If the bill passes, Google, Meta and Amazon may have to divest most of their advertising businesses, such as helping companies buy and sell ads, ad auctions, and all digital advertising-related businesses. And because Google is the biggest player in the digital advertising market, it could be the most affected.
Origin of CTDA
The Internet platform economy is a typical economic format consisting of bilateral or multilateral markets, with significant network effects, including direct network effects and indirect network effects, which gather consumer users and/or merchant users in different markets (both below). user). The demand of consumers in one market depends on the number of users in the other market (indirect network effect), or the number of users with similar needs in the same market (direct network effect), and there is a highly dynamic linkage between two or more parties.
For this reason, Internet platforms often adopt a zero-pricing model to attract consumers to enter, so as to obtain an ever-increasing and increasingly solid user base, so as to maintain the same market with similar needs, or the other market with different needs. strong attraction for users.
Taking the digital advertising market as an example, Internet platforms provide free content and services to consumers on one side of the market, attracting them to enter. With the increase in the number of users, the platform holds more and more user information and attention resources. For advertisers on the other side of the market, user information and attention represent the needs of consumers and potential customer discovery space, attracting them to advertise on the Internet platform, and the Internet platform has thus become an important role in the digital advertising market. .
Senator Mike Lee believes that digital advertising is the lifeblood of the Internet economy. Under the zero pricing model, consumers only need to pay attention to enjoy high-quality products and convenient services. Free social platforms, payment platforms, video websites, news media, etc. have become an indispensable part of modern people’s daily life. It is highly dependent on the Internet platform. Advertisers, on the other hand, rely on the huge user base held by the platform to obtain consumers’ personal information through the platform to understand their consumption preferences, so as to place accurate advertisements on consumers and pay fees to the platform, which greatly improves transaction efficiency and Business opportunity. It can be said that the digital advertising market has injected a strong impetus into the development of the Internet economy.
As one of the Internet giants, Google, which started as a search engine, has a huge user base and holds a large amount of user personal data, which is more attractive to advertisers than other platforms. In addition to directly providing ad serving services on its own platform, Google also uses its middle position in the two-sided market to provide intermediary services for ad buying and selling. One Google employee even described Google’s advertising business as “Goldman Sachs or Citibank owns the New York Stock Exchange,” implying that the Google-owned digital advertising ecosystem has the power to gain control over the digital advertising market, thereby Negative impact on competition in this market.
In the case of Google’s dominance, its attractiveness to advertisers has gradually shifted to a high degree of dependence on Google. While squeezing the living space of other digital advertising platforms, Google also has a larger role for advertisers. independent pricing power, which undermines fair competition in the digital advertising market.
In December 2020, the attorneys general of ten states, including Texas, launched an antitrust lawsuit against Google, mainly accusing Google of anti-competitive behavior in advertising technology, by establishing a monopoly position, controlling pricing, conducting market conspiracy, and behind-the-scenes manipulation Advertising market bidding.
Mike Lee believes that the lack of competition in the digital advertising market means that monopoly rents will be imposed on every advertiser. For a long time, technology giants represented by Google have controlled the entire digital advertising ecosystem at the expense of the interests of advertisers, publishers and consumers, and dominated the digital advertising market, which is not conducive to the healthy development of the market. Therefore, this bill is proposed to formulate rules to restore and protect competition in the digital advertising market, create a fairer, more open and free playing field, and promote innovation.
Google’s Six Veins Excalibur
Google’s dominance in the digital advertising market is so significant that it can be said that no other company can match it. According to the financial report, Google’s revenue in the first quarter of 2022 is about 68 billion US dollars, of which advertising revenue exceeds 54.6 billion US dollars, a year-on-year increase of 22%, which is about another digital advertising giant – Facebook’s parent company Meta’s advertising revenue in the quarter was 27 billion. Double the dollar, this is the result of Google’s advertising revenue growth has slowed down significantly compared to the fourth quarter of last year.
So how does Google’s digital advertising business work? In the digital advertising ecosystem, Google actually plays two roles, one is the advertising platform, and the other is the middleman between advertisers and advertising publishers.
As an advertising publishing platform, Google’s advertisements include search, display, video, application, smart, local and discovery advertisements. The most important types are the following four types: first, search advertisements, which are based on keywords entered by users. For output, it appears on the Google search engine result page, and advertisers bid with each other to obtain the search result page advertising space or the ranking displayed in the search results; the second is display advertising, which is displayed on websites, YouTube and Google Maps, which is owned by Google. And Google App Store display advertising images, and search advertising is different from the direct needs of users, display advertising is based on user data held by Google, and uses machine learning to identify new users who are similar to existing users, so as to discover potential users and expand advertising. Audience, increase influence; third is video advertising, similar to display advertising, showing brands to target groups and expanding influence; fourth is shopping advertising, based on keywords searched by users, on the basis of search advertising, further display Product pictures, names, prices, reviews, and other information to attract people to buy. At the same time, Google also provides services and technical tools such as ad data tracking.
As an intermediary, Google also provides digital advertising market participants with a variety of products including Google Ads, Google Marketing Platform, etc., provides advertising buying services for marketers, advertising sales services for publishers, and provides both parties. Trading platform to profit from it. At the same time, Google also provides platforms such as AdSense, Ad Manager or AdMob, through which application developers can provide advertising space to advertisers and manage advertisements, and the revenue obtained needs to be shared with Google.
It can be seen that Google’s huge digital advertising business is based on the large amount of users and user data it holds, and relies on powerful machine learning and algorithm analysis capabilities to maximize the value of big data in advertising and marketing.
Based on the economy and technology of the core business of the Internet, Google has formed its platform ecosystem around the advertising business, combined with the interest chain formed by the Google social platform, shopping platform and online publishing platform, and continues to bring benefits.
It should be noted that the influence brought by Google’s strong ecosystem based on advertising business may not only be limited to the field of market economy, but can also further influence public opinion and bring political power to Google. For example, after the Ukraine conflict erupted in February, Russia’s communications censors accused Google of spreading false and misleading and inflammatory digital ads on the video site YouTube to promote the claims of the Western camp. Google also blocked access to Russian state media and satellite news agencies across Europe under an EU sanctions order.
Robert Epstein, a senior research psychologist at the American Society for Behavioral Research and Technology, also believes that Google has a powerful ability to sway the outcome of U.S. elections, and its search algorithms can easily influence the voting preferences of swing voters.
Therefore, Google’s absolute dominance in the digital advertising market and its growing economic and political influence have caused concern among politicians. The large digital advertising companies and enterprises with more than a part of the digital advertising ecosystem required in the CTDA require that the annual digital advertising transaction exceeds 20 billion US dollars. In fact, the main target is Google, requiring it to give up other than basic advertising. Derivative businesses such as advertising technology tools and products, trading platform services, etc.
However, whether the bill can be passed, how it will be implemented after it is passed, and what the implementation effect will be, remains to be tested in practice.
What signal does CTDA release?
Before the CTDA was proposed, Google was already facing multiple antitrust investigations and lawsuits in the United States.
In October 2020, the U.S. Department of Justice launched an antitrust lawsuit against Google, arguing that it has monopolistic behavior in search and advertising. That same year, attorneys general in 35 U.S. states also accused Google of using anticompetitive behavior to maintain its monopoly on search and advertising. Ten Republican attorneys general have also launched an antitrust lawsuit against Google for misuse of advertising technology, with prosecutors from six other states joining the prosecution in 2021.
In the EU, Google is also facing multiple antitrust lawsuits.
In June 2017, the European Commission ruled that Google had abused its dominant position in the search engine market in 13 countries of the European Economic Area by illegally manipulating shopping ad searches and punished it. In March 2019, the European Commission accused Google of using technical means to favor its own online advertising display technology services, distorting market competition, and fined it 1.7 billion US dollars. In June 2021, the EU launched a formal antitrust investigation into Google to assess whether it violated EU regulations by favoring its own online display advertising technology services to the detriment of competitors.
Combined with the multiple anti-monopoly lawsuits that Google has faced in Europe and the United States, the “Digital Services Law” and “Digital Market Law” that have been passed by the EU in legislation, as well as the proposal of the US CTDA this time, reflect that the United States, Europe and other economies are further strengthening Antitrust regulation.
The proposal of CTDA this time reflects that the United States has taken another step in combating the monopoly of technology giants. This strong regulatory situation was reflected in the Trump era. When he was in office, he signed an executive order, vowing to Hit web companies like Google with Section 230 of the Communications Decency Act.
Incumbent U.S. President Joe Biden also said during his campaign that if elected, he would create a new department within the Justice Department to review large-scale mergers and acquisitions that have occurred and are about to happen. After Biden took office, Columbia University law professor Tim Wu, who is known for advocating stronger regulation and antitrust, was appointed to join the White House National Economic Council, and Columbia University Associate Professor Lina Khan was appointed as the Federal Trade Commission (Federal Trade Commission). FTC) chairman, and the new White House Competition Council (The White House Competition Council) to coordinate and strengthen competition.
It is worth noting that Google, which pursues elitism, has always had close ties with the Democratic Party, while CTDA was jointly proposed by Democratic and Republican senators, which may show that under the intensifying trend of populism in the United States, the radicals and moderates within the Democratic Party are divided. Still further divided, the two parties are converging on antitrust attitudes towards tech giants.
Some anti-monopoly law experts commented that if the CTDA is passed, it will be the biggest change to the US anti-monopoly law in a generation. Throughout the history of American antitrust, there have been Brandeisism, Chicagoism, Post-Chicagoism and Neo-Brandeisism.
In the past few decades, the United States has been influenced by the Chicago School, which believes that the purpose of anti-monopoly is to prevent the loss of economic efficiency, and the government should reduce its intervention in the market. Law enforcement agencies only interpret the Sherman Act and the Clayton Act based on narrow consumer welfare standards, and pay more attention to whether suspected monopolistic behavior will trigger price increases for consumers. However, the emergence of new economic formats such as the digital economy and platform economy, the application of data and algorithm technology, the application of new business models such as zero pricing models, and the rise of technology oligopolistic companies have brought new ideas to the antitrust enforcement concept based on the Chicago School. The challenge has changed the previous consensus that anti-monopoly supervision only focuses on economic efficiency and consumer welfare, and has also subverted some of the traditional concepts of American political parties on the control of large platform companies.
However, from the perspective of the existing market regulation framework, it is difficult to regulate Google’s digital advertising business. Anti-monopoly investigations and anti-monopoly lawsuits filed in the United States and the European Union often take several years of judicial procedures. Even if a judgment is made, Google can appeal again. The fine is a drop in the bucket for Google’s profits, and the deterrent is not enough. Therefore, the action relief effect of litigation is not obvious enough, and it is difficult to effectively restore and protect market competition. The CTDA has formulated clear prohibitions. If it can be passed, it may be able to directly split Google’s digital advertising business, and more accurately and effectively achieve the role of protecting market competition. However, there are also many objections that the bill will reduce the efficiency of the digital advertising market.
At the same time, Google’s strong economic and technological strength should not be underestimated. Even if the CTDA is passed and Google’s digital advertising ecosystem is dismantled, it may incentivize competition in the opposite direction. This can also be observed from the formulation and early implementation of the Sherman Law, the first antitrust law in the modern sense in the United States. That is, it seems that federal legislation is used to regulate large enterprises, but objectively, it stimulates regulation objects to be faster. It better adjusts its business model, clarifies the unclear points in the process of regulating market competition behavior, and enables the regulated object to better focus on its compliance development. It can be said that every major anti-monopoly legislation in the United States does not restrict the development of the regulated object, but instead regulates and encourages the regulated object to develop better. Don’t simply think that regulation is a restriction.
In reality, Google has achieved its current algorithm technology and computing power advantages after years of development optimization and data precipitation. Such technical capabilities are also the key to Google’s dominant position in the digital advertising market. Even if the CTDA passes, it cannot simply change this. fact. Moreover, as one of the leading US technology companies, the US authorities do not want to see Google’s global competitiveness undermined with a single bill. On the contrary, the United States prefers to see more companies like Google created and developed, which of course must include supporting the more standardized and healthy development of the current Google. With the advantages of data and algorithm technology, Google, which has strong financial and technical strength, may find another way to develop new business models and technologies in the digital advertising market, thereby gaining a new market advantage.