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The Google-Facebook Online Ad Cartel is the Biggest Competition Problem

By far the biggest competition problem facing U.S. antitrust and regulatory authorities is the Goobook Ad Cartel, the unaccountable dominant chokepoint for monetizing most online news, content, products and services.

The evidence is compelling that Google and Facebook have colluded to divide up and corner the online advertising market, and consequently, have deterred competition, devalued property and work, dehumanized privacy, and depressed economic growth and employment.

This unprecedented market power and winner-take-all outcome in such a vital sector of the economy is a direct result of purposeful U.S. non-enforcement of antitrust laws for online platforms, and the lavishment of most every public policy advantage upon them that one could imagine. 

Let’s first examine Google and Facebook’s massive monopolies, then their collusion, and then who is harmed and how.

Google & Facebook’s Massive Monopolies

Google commands ~90% market share of mobile search and search advertising.

It protects those monopolies with an anti-competitive moat around Alphabet-Google by cross-subsidizing the global offering over 200 expensive-to-create, products and services for free, i.e. dramatically below Google’s total costs.

Those many expensive subsidized products and services make Google’s moat competitively impregnable, because no competitor could afford to recreate them without a highly profitable online ad business, and the Goobook ad cartel forecloses that very competitive possibility.

After several years of investigations, EU antitrust authorities have charged Google with abuses of dominance in three different competition cases: search discrimination; android tying; and online advertising exclusions. Final rulings are expected in 2017.

Facebook commands an estimated ~80% share of the social media market via its command of the world’s top four messaging apps (sans China) -- Facebook , Messenger, WhatsApp, and Instagram -- that provide unmatchable data insight into the intimacies of what most people share with whom and why.

When Google+ was competing in social with Facebook, Google+’s then competition in social helped Facebook to get antitrust regulators to approve its acquisitions of Facebook’s other main social competitors, Instagram in 2012 for $1b, and WhatsApp in early 2014 for $19b.

When Google+ stopped competing with Facebook later in 2014, Facebook had succeeded in eliminating its top three fastest-growing potential competitors in social advertising.  

Google, YouTube, and Facebook are the #1, #2, and #3 websites in the world per Alexa. Of the 19 Android apps with a billion downloads, Google commands 15 and Facebook the other 4. They both command roughly 2 billion users each. And together their dominances are appreciated with a market valuation of almost a trillion dollars.

Google is the only place where: all users can find all information, video, and news; and all advertisers, publishers, and app developers can monetize most all Internet users.

Facebook is the only place where: most all Internet users can socially network with most all other Internet users; and all advertisers, publishers and app developers can monetize most users shared intimacies.

Google & Facebook’s Collusion

In 2011 after Google CEO Larry Page launched Google+, its comprehensive social sharing alternative to Facebook, Facebook CEO Mark Zuckerberg communicated to all Facebook employees that Google+ was “an existential threat” to Facebook.

By the end of 2012, Google blogged that: “Google+ is the fastest growing network thingy ever. More than 500 million people have upgraded, 235 million are active across Google.”

In early 2013, Facebook launched its alternative to Google search, called “Facebook Graph Search” in partnership with Microsoft’s Bing search engine.

Then in 2014, Google and Facebook obviously, abruptly, and relatively quietly, chose to no longer directly compete with one another.

In the first half of 2014, Google reversed course in social, defunding Google+, ending its forced integration, and announcing the shutdown of Orkut, Google’s 300 million user social network.

In the second half of 2014, Facebook quietly dropped its Facebook Graph Search alternative to Google search and its search partnership with Microsoft’s Bing.

Why the abrupt reversal in 2014 from the top priority, “existential” direct competition between Google and Facebook, to not directly competing with each other?  

Google and Facebook either independently made immaculate conclusions that they could be more profitable not competing, or they collusively concluded they could optimize monopoly profits by de facto dividing up the online ad market into each other’s respective search and social advertising monopolies.

Since search advertising excels in lead generation and local business visibility, while social media advertising excels at building brand awareness and interactivity with consumers, Google and Facebook are very aware that they each are de facto essential platforms to advertisers.

Goobook’s advertiser customers obviously would prefer search and social advertising integrated for one-stop, customer-optimizing advertising campaigns and competitively offered by both Google and Facebook at competitive prices, so advertisers would have some modicum of choice.

However, Google and Facebook had both the monopoly power and mindsets to dictate to their advertiser customers what was optimal for their own respective monopoly profits, i.e. providing search and social advertising as separate Google and Facebook monopoly platforms at monopoly prices, rather than integrated search and social ad platforms at competitive platform prices.   

Regardless of whether Google and Facebook independently or collusively abandoned competing with the other in their core advertising businesses, the main public evidence of the predictable outcome is damning.

The Goobook ad cartel’s market share of online advertising growth has increased from less than 70% in 2014 to roughly 85% today per Morgan Stanley estimates based on data from the Interactive Advertising Bureau and company reports.

Going forward, analysts project Google and Facebook to jointly and increasingly capture most all revenue growth in online advertising.

This isn’t how a competitive global market behaves in a couple of years’ time.

Those who believe that market forces can overcome government-coddled, massive monopolies in search and social advertising, now must imagine how some yet-identified, innovative unicorn start-up can out-search-advertise Google, out-social-advertise Facebook, and also out-compete the trillionaire, Goobook ad cartel over the next decade.

Those who imagine there will be more innovation from a Goobook ad cartel than from competition, now must imagine how unicorn competitors will have the market incentive and opportunity to monetize their innovations when Google and Facebook’s online monetization monopolies and the Goobook online ad cartel command such massive leads, and unmatchable network effects, data-sets, and financial resources.    

Goobook Cartel Harms

Users: In online advertising, users are not Google and Facebook’s customers.

Consumers and their private intimacies are the core product that Google and Facebook indirectly sell to advertisers without their meaningful knowledge, choice or control.

It is not coincidental that recently Google reneged, and then Facebook reneged, on similar consumer privacy and data protection promises they made to get their big acquisitions approved by antitrust authorities, i.e. Google’s acquisition of DoubleClick, the world-leader in global ad-serving in 2007, and Facebook’s acquisition of WhatsApp, the world’s fastest growing messaging app in 2014.

Without any competitive or governmental accountability to care about consumer protection, it should be no surprise that the dominant Google and Facebook online ad platforms let the following happen.

They both enabled, promoted and profited from widespread “fake news,” which many have claimed influenced the recent election.

They long resisted fighting terrorist use of their platforms to recruit terrorists and to encourage terrorist attacks.

They continue to resist cooperation with law enforcement to decrypt their software or devices when presented with a court order.  

And they remain routinely unresponsive to consumer complaints about privacy, security, discrimination, and inappropriate or dangerous content.

Advertisers: Goobook’s customers – advertisers -- pay higher ad prices and have less cohesive and effective ad campaigns under the Goobook ad cartel than they would have if Google and Facebook continued to compete.

No material competition to keep them honest, also means Google and Facebook can avoid third party accountability for the core advertising activity metrics that they use to charge for their ad services.

It has gotten so bad that Facebook recently had to admit that it has been substantially overstating its video view metrics.   

Content Owners and Providers: While Google’s AMP and Facebook’s Instant Articles offerings speed up delivery of content to mobile devices, they also have the big downside of requiring that copyrighted content be hosted on Google and Facebook’s own servers rather than hosted on the content-owners’ servers -- to get fast downloads and get read by users.

Thus, the Goobook ad cartel is dictating a classic win-win for them and a lose-lose situation for their copyrighted content provider suppliers – because the Goobook ad cartel has the market power to dictate it, and apparently, an insiders’ confidence that U.S. antitrust authorities have their backs on this.

This power play also prevents content owners and competitive content providers from seeing on their own distribution platforms the business-critical data about how their content is being used and by whom -- data that they used to collect and control on their own servers.

This is a huge competitive disadvantage in online advertising and it also anti-competitively devalues copyrighted videos, images, news, music, and other valuable copyrighted content.

Google and Facebook have long been the biggest corporate proponents of the Internet as public commons where information should be accessed for free without payment or permission required.

This self-serving position means they expect and force a predatory wholesale price of zero for using copyrighted content on their dominant platforms.

Google-YouTube has long been the Internet’s biggest enabler and tacit supporter of video piracy, and Google as a corporation has well-earned a reputation of stealing from competitors.

Facebook is now drawing fire for misappropriating artists’ publicity rights by selling artists names as advertising keywords on Facebook.

The added market power of the Goobook ad cartel emboldens and empowers Google and Facebook to be even more hostile to intellectual property rights to maximize their monopoly advertising profits.     

Conclusion

In short, the Google-Facebook online advertising cartel is by far the biggest competition problem facing U.S. antitrust and regulatory authorities today.

It appears to be the direct result of a de facto U.S. non-enforcement antitrust policy for online platforms, to advance a public commons outcome where all content should be free to access without payment or permission, indirectly and frictionlessly paid for by online advertising.

This de facto U.S. antitrust enforcement preference for favoring commons-based, abundance-assumed, digital models that depend on giving consumers free content, products and services, with or without online advertising, over scarcity-based, economic business models where consumers pay a market price, in an economic market, for at least for some of what they use, is a profound antitrust enforcement bias that is demonstrably anti-competitive, uneconomic, anti-property, anti-employment, and anti-growth.  

It should be no surprise that a de facto current U.S. antitrust policy that implicitly favors free-content models over paid content models, ultimately produces monopolies and monopolies colluding in cartel behaviors that are hostile to property rights.

Monopsonies de facto forcing property owners to offer their property for sale at a wholesale price at zero, is anti-competitive and predatory.  

Free is not a price, it’s a subsidy or a loss.

 

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Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an internetization consultancy for Fortune 500 companies, some of which are Google competitors, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.” Cleland has testified before both the Senate and House antitrust subcommittees on Google and also before the relevant House oversight subcommittee on Google’s privacy problems.

 

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