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Google and Facebook (allegedly) conspired to rip off pu...

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Google and Facebook CEOs (allegedly) signed off on ad collusion, lawsuit reveals

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Toby Shapshak is publisher of Stuff (Stuff.co.za) and Scrolla.Africa.

It couldn’t get any more explosive than this. The CEOs of Google and Facebook, the two biggest digital advertising giants, (allegedly) colluded to control the vast digital advertising marketing – especially involving publishers.

Both Google CEO Sundar Pichai and Meta CEO Mark Zuckerberg personally signed off on an “illegal price-fixing agreement” in 2018, according to a lawsuit filed by numerous US states.

Originally filed in December 2020, swathes of the lawsuit were blacked out but were unredacted this week with spectacular revelations. In one newly revelated email, which still obscures the names of people but not their titles, Facebook COO Sheryl Sandberg wrote to Zuckerberg that “we’re nearly ready to sign and need your approval to move forward”. In another 2018 email to senior executives, including Zuckerberg, she says this is “a big deal strategically”.

Even more shocking is that Google agreed that Facebook would win a pre-arranged quantity of the auctions, no matter what the other bids were.

The lawsuit, led by Texas Attorney General Ken Paxton, alleges that the agreement, codenamed “Jedi Blue” by Google, focused on what is known as programmatic advertising. This highly automated system allows advertising networks (including Google and

Facebook, as well as many others) to bid for the adverts on a publisher’s website.

When an alternative to Google’s own system emerged, called header bidding, which was more transparent and allowed publishers more control, Google tried to squash it.

“Google quickly realised that this innovation substantially threatened its exchange’s ability to demand a very large – 19 to 22% – cut on all advertising transactions,” the US states allege.

Instead, it offered its own alternative, called Open Bidding, which it (allegedly) colluded with Facebook to run. “Ultimately, Google and Facebook struck a deal executed at the highest levels. Following the agreement, Facebook curtailed its involvement with header bidding in return for Google giving Facebook information, speed, and other advantages,” according to the lawsuit.

It gets worse

“Google pocketed the difference between what it told publishers and advertisers that an ad cost and used the pool of money to manipulate future auctions to expand its digital monopoly.”

In a draft of the lawsuit, obtained by The New York Times, the US states wrote: “unbeknown to other market participants, no matter how high others might bid, the parties have agreed that the gavel will come down in Facebook’s favour a set number of times”.

Another internal Google email described this corrupt system as like having “insider information”.

It doesn’t look good for Zuckerberg – “the team sent an email addressed directly to CEO” during the negotiations, according to the lawsuit; while Sandberg emailed him to say they were “ready to sign and need your approval to move forward”. Although there is no similar email to Pichai included in the states’ case, it’s unlikely they would make the accusations without proof – or those details haven’t been unredacted yet.

This is a huge development in the yearslong attempts by the US government to rein in the unbelievable power that the big tech firms have created for themselves. Despite claims of their own business excellence, it seems the firms – which is increasingly being revealed – achieved this illegally.

“This idea that the major tech platforms are robustly competing against each other is very much overstated. In many ways, they reinforce each other’s monopoly power,” Sally Hubbard from the Open Markets Institute think-tank told The New York Times.

The media industry has a right to be aggrieved at these horrendous revelations. This lawsuit demonstrates (through emails) that Google and Facebook (allegedly) conspired to rip off both publishers and advertisers with this “illegal price-fixing agreement”. Not only did Google (allegedly) hinder a transparent advert bidding process, but it (allegedly) structured the process so it could win and claim a disproportionately high cut of the transaction fee.

All this while (allegedly) colluding with Facebook to win a set number of auctions, giving them advantageous speed in the bidding process. On top of this, Google then (allegedly) pocketed the difference that advertisers overpaid, making even more money for itself.

This “illegal price-fixing agreement” has significantly reshaped the media industry – forcing advertisers to spurn a direct relationship with publishers. Google in essence “illegally” undercut the actual digital properties from advertising themselves with this “illegal price-fixing agreement”.

This kind of collusion has had massive impacts on the media industry and online publishers – firstly having denuded them of direct (native) advertising – and now revealed to be so fraught with “illegal price fixing”. This is going to see much more reaction, not least from publishers who are likely to launch a class action claim should this lawsuit succeed.

The media industry has a right to be aggrieved … This lawsuit demonstrates (through emails) that Google and Facebook (allegedly) conspired to rip off publishers and advertisers. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.

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