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We Need to Break Ad-Tech in Order to Preserve the News

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    This is part two of an ongoing, five-part series. Part one, the introduction, is here. Part three, about banning surveillance ads, is here. Part four, about opening up app stores, is here. Part five, about enshrining "end-to-end" delivery on social media, is here. Download this whole series as a single PDF.

    The news is in trouble. It’s not just the mass closures of newsrooms - it’s also the physical and ideological attacks on journalists.News websites are plastered with ads, but more than half of the money those ads generate is siphoned off by ad-tech companies, with the lion’s share going to just two companies, Google and Meta, whose ad-tech duopoly has allowed them to claim an ever-greater share of the income generated by ads placed alongside of news content.

    Once, tech platforms promised that “behavioral advertising” would be a bonanza for both media companies and their tech partners. Rather than paying commissioned salespeople to convince firms to place ads based on a publication’s reputation and readership, media companies would run ads placed by the winners of a slew of split-second auctions, each time a user moved from one page to another. 

    These auctions would offer up the user, not the content, to an array of bidders representing different advertisers: “What am I bid for the right to show an ad to a depressed, 19 year old male Kansas City Art Institute sophomore who has recently searched for car loans and also shopped for incontinence pads?” In an eyeblink, every ad-slot on the page would be filled with ads purchased at a premium by advertisers anxious to reach that specific user. And that user will like it! They will be grateful for the process and all the “highly relevant” advertisements it dangled under their nose.

    Such an arrangement has numerous moving parts. The “ad-tech stack” includes:

    •  A “supply-side platform” (SSP): The SSP acts as the publisher’s broker, bringing each user to market and selling their attention on the basis of their “behavioral” traits;
    • A “demand-side platform (DSP): The DSP represents the advertisers, consulting a wishlist of specific behavioral traits that each advertiser wants to target;
    • A marketplace: The marketplace solicits bids on behalf of the SSP, collects bids from DSPs, and then consummates the transaction by delivering the winning bidder’s ad to the SSP to be crammed into the user’s eyeballs.

    There are many companies that offer one or two of these services, but the two biggest ad-tech companies - Meta and Google - offer all three

    That means that there are millions of transactions every single day in which Google (representing a publisher) tells Google (representing the marketplace) about an ad-slot for sale; whereupon Google (representing many different advertisers) places bids on that ad-slot. Once  the sale is consummated, Google earns three different fees: one for serving as the seller’s agent, another for serving as the buyer’s agent, and a third for the use of its marketplace.

    What’s more, Google is also a major publisher, offering millions of ad-slots for sale on YouTube and elsewhere. It is also an advertising agency, buying millions of those selfsame ad-spots on behalf of its business customers.

    There are no parallels for this in the real world: imagine if the owners of the New York Stock Exchange were also a brokerage house and an underwriting bank - as well as owning several of the largest businesses on the exchange, and buying huge amounts of stock on its own exchange.

    Imagine if a real estate agent represented both the buyer and the seller, and also owned the listing service, and also bought and sold millions of houses, bidding against its own buyer-customers and competing for sales with its own seller-customers.

    Imagine if a divorce lawyer represented both parties, and was also the judge in the divorce court, and was also trying to match both of the soon-to-be-single parties on a dating service. 

    Owning the marketplace lets Google give preference to its own brokers, on both the advertiser and publisher sides. Being on both sides of the transaction lets Google tweak the bids and the acceptances to maximize its own revenue, by rigging the auctions to charge advertisers more and pay publishers less.

    It’s not just Google: Meta also operates a dominant, “full-stack” ad system, intimately connected to its multiple platforms, including Facebook and Instagram, where it competes with the publishers it brokers ads for. Just like Google, Meta represents buyers and sellers on a marketplace it controls, and rigs the bidding to benefit itself at the expense of both.

    Even worse, Google and Meta are alleged to have illegally colluded to rig the market, creating a system of nearly inescapable disadvantages, where sellers and buyers had nowhere to turn.

    The ad-tech market isn’t a market at all: it’s a big store con where everyone the publisher sees is in on the game: the buyer’s agent, the seller’s agent and the marketplace where they bring the publisher’s product are all run by a single company, or by two companies that have secretly agreed not to compete. If you can’t spot the sucker at the poker-table…you’re the sucker.

    That’s how ad-tech grew to consume more than half of all the ad dollars spent. They stole it.

    This needs to be fixed. The actually illegal stuff - market rigging - is the kind of thing that antitrust enforcers frequently look after. They’re on it.  

    But even if the ad-tech duopoly are ordered to halt their most obviously egregious conduct, it will not be enough. It’s not enough to make  the companies pinky-swear that they won’t use their power as agents for buyers and sellers in their own marketplace to enrich themselves at publishers’ expense.

    Ask any lawyer. Ask any judge. Ask any sports-fan. The only way to resolve a conflict of interest like that is to eliminate it. The referee can’t own the team. The team can’t own the referee. The judge can’t hear their kid’s case. Your lawyer can’t work for your opponent.

    And an ad-tech company can’t be the marketplace, the buyer’s agent and the seller’s agent. 

    That’s where the AMERICA Act comes in. Introduced by Sen. Mike Lee [R-UT], the bill is truly bipartisan, numbering among its co-sponsors both Sen. Ted Cruz [R-TX] and Sen. Elizabeth Warren [D-MA], and many other powerful senators from both sides of the aisle.

    Under the AMERICA Act’s provisions, companies like Google and Meta would be forced to sell off or shut down their demand-side (buyer) platforms and their supply-side (seller) platforms. No large company (processing $20 billion per year or more in ad transactions) that operated an ad exchange would be allowed to represent the buyers and sellers who used that exchange. Likewise, no buyer-side platform could operate a seller-side platform, and vice-versa.

    For smaller companies - those transacting between $5 billion and $20 billion per year in ad sales - the AMERICA Act establishes a duty to “act in the best interests of their customers, including by making the best execution for bids on ads,” and to maintain transparent, auditable systems so that buyers and sellers can confirm that this is the case. Companies that represent buyers and sellers would need “firewalls” between the two sides of the business, with still penalties for conflicts of interest.

    This kind of rule was once a bedrock of American competition regulation. When too-big-to-fail bankers and too-big-to-jail rail barons brought America to the brink of ruin, regulators imposed “structural separation” on these platform businesses, prohibiting them from competing with their own customers. 

    That meant that railroads couldn’t compete with the freight companies that shipped goods on their rails. It meant that banks couldn’t own businesses that competed with the companies they loaned money to. The railroads and the banks could swear that they would never “self-preference” but the temptation to do so is strong, and the chance of getting caught is low, and the consequence is the conversion of American industry to a planned economy run by a handful of cozy CEOs.

    For years, the ad-tech duopoly swore that they would never yield to the temptation to rig the game in their favor. But they couldn’t help themselves. That’s not surprising: conflict-of-interest rules don’t just exist to thwart the dishonest, they exist to steer the honest-but-fallible away from temptation. And whomst amongst us can claim to be infallible?

    For the news industry, the AMERICA Act is an incredible opportunity. Simply changing the distribution of ad-dollars - reducing the share going to the platforms to a more modest 10 percent, say - could give publishers a 20 percent increase in ad revenues, while reducing the cost of advertising by 20 percent. 

    That’s good for everyone. Giving publishers their fair share of ad revenue means they won’t have to plaster their websites with content-obscuring ads. Reducing costs for advertisers means that goods can be sold more cheaply. 

    The AMERICA Act affirms something that everyone understands in their bones: you can own the league, you can own a team, or you can referee the game - but you can’t do all three and still run an honest game.

    Download this whole series as a single PDF.


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