Why are none of Google’s many paid experts not publicly defending Google and Facebook’s 2014 decisions to stop competing against each other in search and social? And why are they not trumpeting the pro-consumer, pro-innovation, and increased efficiency benefits of accelerating their digital advertising dominance since those decisions?
The silence is telling, and maybe even suspicious, given the DOJ cartel enforcement “what to look for” primer.
Also telling is the pile of evidence that continues to accumulate that the Google-Facebook ad cartel is colluding and the collusion is crushing competition. [This piece will add to the evidence pile chronicled over the last year: 8-3-16; 10-21-16; 1-2-17; 2-5-17; 5-18-17; and 7-20-17.]
For new readers, here is a quick synopsis. Company collusion to divide up a market is per se illegal under antitrust law. After fiercely competing directly in search and social, in 2014, Google and Facebook quietly stopped competing against each other directly. Shortly thereafter, Google and Facebook’s market share gains jointly accelerated significantly. Apparently, Google and Facebook have become a de facto digital advertising cartel that has illegally divided up the market and allocated customers. Google is specializing in lead generation, local business visibility, hard news, and jobs. Facebook is specializing in brand awareness, interactivity, and soft content like entertainment and lifestyle. Advertisers, publishers and users have all been harmed. Finally, DOJ has a criminal cartel enforcement program that grants leniency only for the first individual or company to report illegal collusion.
What’s the new ad cartel evidence from second quarter earnings?
It was another great quarter for the ad cartel.
Google (which is 88% advertising) grew revenues at a 21% annual rate, or +$17b for an annual total of $99.3b. Google grew ad revenue growth via a 52% increase in ad volume largely via YouTube.
Facebook, grew revenues at a 47% annual rate, or +$10.6b for an annual total of $33.2b.
Tellingly, half of Facebook’s revenue growth came from the pricing power of a 24% increase in the average ad price per the earning call. The other half came largely from Instagram, Facebook’s “Snap-killer,” and the emerging top social competitor that the FTC allowed Facebook to buy in 2012, guessing wrong that it would not “substantially lessen competition.”
Many refer to Google and Facebook as a “digital duopoly,” because Google-Facebook will command 61% of the $83b in U.S. Internet advertising market in 2017 per eMarketer (Google 41% and Facebook 20%).
However, Google-Facebook are much more than a “digital duopoly.” Their behaviors indicate a de facto digital ad cartel that apparently colluded to stop directly competing in 2014, and since has colluded to divide the market to capture most all digital ad revenue growth.
How much digital ad growth is the cartel capturing? Previously, Morgan Stanley estimated they jointly will capture 85% ad growth share, and two other estimates put the cartel’s joint ad revenue growth at 99%, Digital Content Next and Pivotal Research.
Recent earnings strongly confirm these cartel capture revenue estimates.
Google and Facebook have grown their ad revenues ~$26b over the last twelve months. The only digital ad provider of size that has some significant ad growth is Microsoft, which reported 8% growth in its search advertising revenue or +~$.5b in annual ad revenue growth. (Remember Google apparently kneecapped Microsoft as a serious search competitor when its apparent collusion with Facebook got Facebook to scuttle its Microsoft-Bing search offering on Facebook, robbing it of the scale of the #3 most-visited site in the world. This effectively forced Microsoft to forfeit the mobile search advertising market to Google, and settle its regulatory disputes with Google around the globe.)
The other competitors of note are: Verizon-Oath, which rolled up Yahoo and AOL, whose ad revenues are smaller than Microsoft’s and are not publicly reported; Twitter, which suffered -5% revenue growth; Snap, which is still small and apparently struggling to grow in the face of Facebook-Instagram’s Snap copycat growth; and Pinterest, which is also small and apparently struggling to grow in the face of Android’s Pinterest copycat visual search growth. There are lots of other even smaller players, but their small sizes pre-determine that they do not have the scale, scope, and reach necessary to capture significant ad share to matter competitively in the near-to-medium future.
What 2Q17 earnings confirm is that the Google-Facebook ad cartel is capturing roughly 96% of digital ad growth, i.e. Google captured 57%, Facebook 39%, Microsoft 2%, and other 2%.
These concentrated shares at these accelerated rates, and with this systematic efficiency, reek of cartel behavior – especially when combined with the chronicled, substantial and widespread, harms to advertisers, publishers and consumers.
In addition to the apparent cartel joint market share gains, market division and customer allocation, what evidence, “tells,” or behavioral clues are there of potential illegal collusion here?
Let’s start with understanding the foundation of this digital duopoly that’s apparently colluding.
What are customers’ identity preferences for signing in to the top ~160,000 websites? Overall, 93% use a social login and 7% use an email login. Of the 93% that sign with a social login, 53.1% sign in with Facebook, 44.8% with Google+, 1% with Twitter, .6% LinkedIn and .3% Yahoo -- per Loginradius’ Q216 report. As for social sharing popularity, Facebook has 57% share, Twitter has 18%, Google+ 9%, LinkedIn 5%, and other 11%.
What is the antitrust/cartel relevance here? Its two-fold.
First, if Twitter enjoys ~18% of the user sharing, why does Twitter capture <7% of social revenues among Facebook, Twitter, Snap and Pinterest, and none of the revenue growth? And why is Twitter effectively waving the white flag of surrender that they can’t grow digital advertising revenues in this cartel environment, by signaling they are testing a $99 a month subscription service for small businesses to promote their tweets?
Second, if Google+ still is involved in ~9% of social sharing, why does Google not leverage that obvious revenue opportunity with pursuing social advertising via Google+ like Facebook does and Facebook-Instagram does successfully and profitably?
This is curious (suspicious?) when much of Facebook’s current outsized capture of digital ad revenue growth is propelled by Facebook-Instagram’s revenue growth, which is based on advertising shared photos/videos, at the exact same time that Google Photos is the fastest-growing photo service in the world by far – much faster than Instagram or Snap.
Google Photos has gone from zero users in May 2015 to 500m users in May 2017 and users’ “images can easily be shared with social networks (Google+, Facebook, Twitter) and other services,” per Wikipedia.
The question for antitrust investigators is why did Google abruptly and effectively exit social advertising in 2014? Was is unprofitable? If so, why do many of the Google+ social functions continue to operate, grow and improve without a direct social monetization effort?
What’s even more curious (suspicious?) is how Google recently redesigned its news feed in ways that clearly limits its ability to compete directly with Facebook.
Business Insider described it this way. “Google’s feed is similar to Facebook’s in function, but minus many social elements. Content doesn’t surface according to what others in a user’s social circle are reading or have shared and there aren’t any native functions for commenting or liking a post. … the lack of social features on Google’s feed limits its ability to challenge Facebook. Part of what makes Facebook’s news feed attractive is the personal endorsement and comments that users often add to stories they share. Google’s feed won’t appeal to users who value having their friends’ commentary on shared links within a news feed.” [Bold added.]
Not only was it suspicious when Google and Facebook quietly stopped competing with one another, it remains suspicious when Google purposefully excludes social functions, that their users could benefit from, and that Google could monetize, given the tremendous digital ad growth engine that Facebook’s news feed generates.
Why is Google going out of its way to handicap itself so it can’t compete with Facebook in social advertising?
It appears that they understand what cartelists learned before them, that dividing up a market and allocating customers optimizes revenue growth and profitability.
If imitation is the sincerest form of flattery in a competitive market, why is Facebook-Instagram copying Snap’s storytelling functions, and why is Google-Android copying Pinterest’s visual search, but Google won’t copy social sharing functions on its dominant newsfeed, when Facebook has proven that it can generate rapid revenue and profit growth?
If Google had not agreed to stop competing directly with Facebook, Google would be exploiting the social revenue growth opportunity in its mobile news feed.
In short, the digital advertising monetization engine for much of the content sector suffers under an apparent Google-Facebook digital advertising cartel that harms advertisers, publishers, and users.
We await Senate confirmation of President Trump’s nominee for DOJ Antitrust Division Chief, Makan Delrahim, who testified under that: “To the extent that companies with market dominance take anti-competitive actions to stifle competition, vigorous and timely antitrust enforcement is appropriate. If credible allegations of antitrust law violations are made, such allegations will be investigated if I am confirmed.”
Mr. Delrahim’s confirmation cannot come soon enough.
***
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 before the relevant House oversight subcommittee on Google’s privacy problems.
Online Winner-Take-All Platforms Antitrust Series
Part i: Why Did Google & Facebook Stop Competing with Each Other? [8-3-16]
Part ii: Google’s Information is Power, Info-poly Power [9-18-16]
Part iii: What No Bids for Twitter Tell Us about Google-Facebook & Online Advertising [10-21-16]
Part iv: Five Worst Google Antitrust Decisions [11-4-16]
Part 1: America’s Indefensible Media Concentration Double Standard [12-5-16]
Part 2: The Google-Facebook Online Ad Cartel is the Biggest Competition Problem [1-12-17]
Part 3: Twitter & Snap Evidence Confirm Goobook Ad Cartel Crushing Competition [2-15-17]
Part 4: Look What’s Happened Since the FTC Stopped Google Antitrust Enforcement [3-13-17]
Part 5: Google Antitrust Implications of Makan Delrahim as DOJ Antitrust Chief [3-28-17]
Part 6: Trump Administration Implications for Google Antitrust in EU, US & Markets [4-7-17]
Part 7: 6 Reasons Trump DOJ Will Take Lead from FTC in Google Antitrust Enforcement [4-13-17]
Part 8: Google-Russia Antitrust Deal Has Big Implications for EU Cases, Trump DOJ [4-19-17]
Part 9: Google Takeaways from Trump Antitrust Chief’s Senate Confirmation Hearing [5-11-17]
Part 10: New Evidence Google Facebook Ad Cartel Crushing Competition Market Failing [5-18-17]
Part 11: Alphabet-Google Big Takeaways from Trump Antitrust Chief’s Senate Answers [6-1-17]
Part 12: Trump Administration Lets Last Google Government Guardian Go – Michelle Lee [6-9-17]
Part 13: The Internet Association Proves Extreme US Internet Market Concentration [6-15-17]
Part 14: Why Amazon-WholeFoods Will Attract Serious Antitrust Scrutiny [6-16-17]
Part 15: Why US Antitrust Non-Enforcement Produces Online Winner-Take-All Platforms [6-22-17]
Part 16: The Trump DOJ “Slam Dunk” Antitrust Case Against Alphabet-Google [6-28-17]
Part 17: How the Google-Facebook Ad Cartel Harms Advertisers, Publishers & Consumers [7-20-17]
Part 18: How Amazon and Google Are Two Peas from the Same Monopolist Pod [7-25-17]
