In a recent article, Wired questions whether Google’s advertising market should be regulated in a similar way to the stock market as the company continues to dominate the billion-dollar online advertising industry. As explained by one industry expert, “Google both runs the largest exchange and competes as the biggest buyer and seller on that exchange. On top of that, it also owns YouTube, one of the biggest suppliers of ad inventory, meaning it competes against publishers on its own platform. And yet there are no laws governing any of it.
In an article titled “Should Google’s Ad Market Be Regulated Like the Stock Market?” Wired questions whether Google’s online advertising business needs to be reigned in by regulators in a similar way to the stock market. Wired notes that around 50 million trades happen every day on the 13 U.S. stock exchanges combined, yet in the online advertising market tens of billions of transactions are made daily. One industry expert notes that Google runs the ad exchange and competes as the largest buyer and seller on its own exchange. She proposes that Google face the same sort of regulation as, for example, the New York Stock Exchange.
It may sound odd to refer to advertising as a market, but that’s what it is. The industry’s own terminology provides a hint: Publishers selling ad space, and advertisers buying it, do business on so-called “ad exchanges”; one of the biggest companies involved is called the Trade Desk. Whenever you load a web page, advertisers compete in an automated process called real-time bidding to show you their ad. Multiply that by billions of internet users around the world, loading many different pages and apps per day, and you can start to appreciate the scope. As antitrust scholar Dina Srinivasan puts it in a forthcoming paper, online advertising “is likely the most sophisticated of all electronic trading markets.” And yet, despite the market’s size and complexity—and unlike other markets—online advertising is almost completely unregulated.
A former digital advertising executive, Srinivasan gained attention last year for her paper “The Antitrust Case Against Facebook,” which laid out a novel theory of why Facebook’s market dominance can be bad for users even as it offers a free product. Now she aims to do something similar for Google—specifically, for the sprawling advertising empire that accounts for the vast majority of the company’s revenue. In her new paper, which will be published in the Stanford Technology Law Review, Srinivasan takes a deep dive into the inner workings of the digital ad market. The details are astoundingly complex, but the broad argument is straightforward. When you see an ad online, the odds are very high that the advertiser used Google to buy it, the website used Google to put the space up for sale, and Google’s exchange matched them together. In other words, Google both runs the largest exchange and competes as the biggest buyer and seller on that exchange. On top of that, it also owns YouTube, one of the biggest suppliers of ad inventory, meaning it competes against publishers on its own platform. And yet there are no laws governing any of it.
That regulatory vacuum, Srinivasan argues, has allowed Google to dominate the industry by doing things that are prohibited in other parts of the economy. “In the market for electronically traded equities, we require exchanges to provide traders with fair access to data and speed, we identify and manage intermediary conflicts of interest, and we require trading disclosures to help police the market,” she writes. Her proposal flows naturally from that observation: Apply those regulatory principles to digital advertising.
Srinivasan summarized her issue with Google’s ad dominance stating: “The problem is that Google controls all of these entities. So it’s running the marketplace, it’s acting on the buy side, and it’s acting on the sell side at the same time, which is a major conflict of interest. It allows you to set rates very low as a buyer of ad space for newspapers, depriving them of their ad revenue, and then also to sell high to small businesses who are very dependent on advertising on your platform. It sounds a bit like the stock market. Except, unlike the stock market, there’s no regulation on your ad exchange market.”
Read the full article at Wired here.