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The story behind the secret contract between Google and Facebook to take over the online advertising market

The story behind the secret contract between Google and Facebook to take over the online advertising market

In 2017, Facebook said it was testing a new way to sell online advertising that could jeopardize Google’s dominance of the digital advertising market. But less than two years later, Facebook moved away from its previous approach, announcing that it was joining a union of companies that support a similar effort by Google.

Facebook has never said why it backed out of the project, but evidence presented to the court by 10 state attorneys in the company’s antitrust case shows that Google has turned to Facebook, its closest competitor in terms of digital advertising revenue. And has offered a new contract to work together.

Details of the deal remain unclear, according to documents available to the Texas Judiciary. But the New York Times has been able to access the draft version of the case, in which details of the contract are not out of the question. Managers of at least six of the union’s 20 companies tell the Times that their deal is not as generous as the one between Google and Facebook, and that Google has given Facebook a huge advantage over other members of the union.

The executives, who have all spoken out on condition of anonymity so that their business relationship with Google is not compromised, say they did not know that Google had given Facebook such benefits. This apparent difference in Google’s approach to Facebook is not something that has been mentioned in official reports.

The deal between the two tech giants has raised concerns about how the tech giants will work together to prevent any competition. Such contracts also have clear consequences, and from the outset, winners and losers in different markets have been identified. These contracts are signed in secret and their main provisions are protected by non-disclosure agreements so that they are never heard by the public and regulators.

Meanwhile, Google and Facebook say that such contracts are common in the digital advertising industry and have not dealt with the formation of competition in the market.

Google and Facebook say such deals are common in the digital advertising industry and have not dealt with competition in the market.

Google spokeswoman Julie Taralo McAllister believes the recent lawsuit “turns this deal upside down, as well as various aspects of our advertising business.” He added that Facebook is the only company to participate in Google’s advertising program and, like any other company, is one of Google’s partners in the fledgling union.

Facebook spokesman Christopher Segro said that contracts such as the one between Facebook and Google “help increase competition in advertising auctions” and that this will ultimately benefit advertisers and publishers. He added that “any claim that such contracts harm competition is completely baseless.” Of course, the two companies have not been willing to talk specifically about the terms of the contract between them.

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The recent massive antitrust lawsuits against Google and Facebook have led to high-profile contracts between the big tech companies. In October, the US Department of Justice sued Google and went to the company for a contract with Apple that allowed Google search engine to be installed on the iPhone and other devices by default.

Sally Hubbard, a former assistant attorney general at the New York Courthouse Antitrust Unit and now a member of the Open Markets Institute, said: “But in many ways, they are strengthening each other’s monopoly.”

Google and Facebook accounted for more than half of total digital advertising revenue in 2019. In addition to displaying various ads on their platforms, such as the Google search engine or Facebook home page, websites, developers, and publishers have relied on these two companies to display ads on their own pages.

The agreement between Facebook and Google, codenamed “Jedi Blue” within Google, reflects the growth of an online advertising market called “planned advertising.” Online advertising generates hundreds of billions of dollars in revenue each year on various platforms, and 60% of them are implemented through automated advertising space sales processes.

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In the same milliseconds when the user clicks on a link and the destination page is loading, the advertising space is auctioned behind the scenes and in hidden markets, and the winning ad pops up from the destination server. This hidden market is called an exchange, and since Google has both an exchange and an advertising server, it usually directs businesses to its exchange.

In recent years, we have seen the emergence of a new method called “header auctions”, which was supposed to reduce reliance on Google’s advertising platforms. In this way, news agencies and other sites can auction their advertising space in several different exchanges, and not only will competition increase, but publishers will also have access to better prices. By 2016, over 70% of publishers had started using the technology.

Google, which saw Heather Auction as a serious competitor to its advertising business, developed an alternative technology called “Open Auction” that supports unions of various exchanges. While open auctions allow other exchanges to compete directly with Google, the search giant will charge a fee for each winning auction, and competitors say transparency will be less for publishers.

One of the main concerns of Google was that Facebook, as one of the largest buyers of Internet advertising, began to support waste auctions. According to a draft lawsuit filed by the Times, Google executives in the company’s internal emails considered the challenge an “existential threat” and took a comprehensive approach to addressing it.

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Facebook announced in March 2017 that it was testing header auction technology with publishers such as The Washington Post, Forbes and The Daily Mail. Facebook also verbally attacked Google, saying the digital advertising industry was “taking advantage of third-party men who set the rules and obscure the truth.”

Before the agreement between Google and Facebook was signed in September 2018, Facebook executives offered various options to Mark Zuckerberg, the company’s CEO. According to the draft lawsuit, Zuckerberg actually had three options: hire hundreds of engineers and spend millions of dollars to compete with Google, or exit the digital advertising business, or sign a deal with Google.

For many in the advertising industry, Facebook’s joining the Google Alliance meant turning their backs on waste technology. A Google Auctioneer partner said he was excited to be able to talk to Facebook about building an alternative to the Google Alliance, and was eventually left out of Facebook in 2018.

It was in a blog post on December 28, 2018 that Facebook announced that it had joined the Google app. But according to the draft lawsuit, Facebook did not disclose that Google provided specific information and benefits that would make it more successful in the auction. One of these benefits is a guaranteed “winning rate” similar to that of any of Google’s other partners.

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In an advertising market where even a fraction of a second is important, having an advantage in terms of speed can change everything. According to court documents, Facebook had 300 milliseconds of time to bid on an ad auction. But other executives at Google partner companies say they usually have 160 milliseconds or less to bid.

Facebook has another advantage: ‌ Direct financial connection to the sites where the ads are displayed. For the other partners, it was Google itself that controlled the pricing information, essentially drawing a kind of wall between the participants in the open auction project and the site owners, and kept secret how much money the winning site had ultimately received. This is what the managers of other companies say.

The agreement between the two companies was that Google would allow Facebook to better understand its advertising audience, recognizing 80 percent of mobile users and 60 percent of web users. But some of Google’s other partners say they have not received such help to understand who is targeting their ads.

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Adam Heimlich, CEO of Chalice Custom Algorithms, a data science and advertising consulting firm, said the deal had such benefits for Facebook that it basically allowed the social network to “start all the tournaments in the finals.”

Facebook promises Google that it will participate in at least 90% of the auctions if it recognizes the end user and viewer of the ads, and is committed to paying specific figures – for example, four years after the agreement, Facebook is committed to paying at least $ 500 million. It has been a dollar. Facebook has also demanded that information about its auction activities not be used by Google to manipulate auctions for its own benefit. Google has not granted such a privilege to any of its other bidding partners.

While both companies say the deal does not pose a concern in the field of antitrust, one clause in the agreement states that if regulators explore different aspects of the contract due to concerns about anti-competitive approaches, both parties should work together. “Cooperate” and “help” each other.

More interestingly, according to the draft complaint, the word “anti-trust” is used at least 20 times in the agreement between the two companies.

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