Clash of the titans: Google and US attorneys kick off ad tech trial with clash over defining the market

Are the technologies that power online advertising all part of one giant market, or are there distinct markets within the multibillion-dollar industry?

The answer is critical to Google’s defense in an antitrust case brought by the US Justice Department that went to trial on Monday in a packed Alexandria, Va., courtroom.

“Market definition, not just in this case, but in most antitrust cases, has potential to be outcome determinative,” said former DOJ antitrust attorney Dan McCuaig, who is now a partner with Cohen Milstein.

The highly anticipated trial comes on the heels of Google’s defeat in August an antitrust case where a Washington, D.C., judge ruled the tech giant illegally monopolized the market for online search engines.

For Google (GOOG), the broader the market, the more likely it can overcome federal prosecutors’ claims that it illegally monopolized markets for online advertising technology in violation of antitrust laws.

“The DOJ wants to slice and dice the market,” Google’s lawyer Karen Dunn of Paul, Weiss, Rifkind, Wharton & Garrison said in her opening statement. Dunn characterized the government’s claims as gerrymandered in order to eliminate the existence of substitute online advertising services that could broaden the market.

“I think it’s a clever play by Google,” McCuaig said. “I don’t think it ultimately carries the day.”

McCuaig said Google may have relied too strongly on a Supreme Court case involving American Express, in which the high court ruled that credit card networks were one market with two sides.

According to the DOJ, businesses that offer technology to automate sale and purchase of ads on the open web, or “open web display ads,” operate in distinct markets. The technologies are responsible for processing more than $24 billion in online ad sales each year.

Prosecutors claim that Google illegally monopolized three markets for open web display ads: the publishing ad server market, the ad exchange market, and the advertiser ad network market.

Together, the technologies make it possible for website owners to organize and offer display ad space on their web and mobile pages. For advertisers, they help evaluate those advertising opportunities. Exchanges then process auctions for the ad, in real time, most of which is automated using algorithms.

There is “no such thing” as a “tool for open web display ads,” Google lawyer Dunn told US District Court Judge Leonie Brinkema, who will decide the case.

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Instead, Dunn argued, ad tech tools are just part of a larger online advertising market that, in addition to algorithm-driven or “programatic” auctions, also includes digital ad deals negotiated human-to-human.

A single, two-sided market

That larger market, Google said, is a single, two-sided, rapidly changing one in which Google competes with other tech giants, including Microsoft, Facebook, Amazon, TikTok, Roku, Disney, and Yahoo Finance’s parent company Yahoo.

On top of that, Google said it also competes with ad tech companies that deal more exclusively in the businesses of supplying ad tech for publishers, advertisers, or exchange platforms.

However, on Monday, the government’s first four witnesses suggested that separate ad tech markets do, in fact, exist.

James Avery, founder and CEO of the ad tech company Kevel, testified that his company serves only the publisher side of the industry by building proprietary ad technologies for publishers. One goal of that type of technology, he said, is to make website owners less reliant on third-party ad tech, like Google’s publisher server DoubleClick for Publishers.

Avery said his company stopped trying to compete with Google around 2012, once he realized that he couldn’t overcome the tech giant’s rules that walled off rival publisher servers from accessing Google’s real-time inventory on Google’s exchange, AdX.

Avery added that his publisher-side technology does not preference exchanges unless a customer chooses to do so.

“We have no horse in that race,” Avery said, distinguishing Kevel’s market from other parts of the ad tech stack.

Another witness, Joshua Lowcock, president of the advertising data firm Quad (QUAD), testified that open web display ads, or “programmatic” display ads, are unique because they can be placed anywhere on the internet.

Those ads are different from ads run on platforms such as Facebook (META), TikTok, or Amazon (AMZN), which run their own auctions on proprietary “walled garden” ad tech software.

“Direct” transactions, otherwise known as human-to-human transactions, are another market still, Lowcock said, in that they are negotiated between real people.

“They are not substitutes,” Lowcock said about the different ad platforms.

Lowcock admitted on cross-examination that his firm had suggested that a client replace ad spending on programmatic ads with ads bought through social media platforms, which tend to own their own ad auctions.

Whether a consumer would substitute one product for another is integral to how Judge Brinkema will evaluate the DOJ’s suggested markets.

In theory, if a substitute exists, the market should be defined broadly enough to include it.

Andrew Casale, founder and CEO of ad exchange Index Exchange, testified for the government that exchanges are yet another part of the ad tech ecosystem, along with walled garden ad tech software that does not integrate with third-party exchanges.

“I view these as separate businesses,” Casale said. “We only compete in one business.”

One antitrust expert who talked with Yahoo Finance doesn’t buy what the Feds are selling.

Alden Abbott, a Mercatus Center research fellow and former general counsel for the US Federal Trade Commission, said that despite the DOJ’s claims, he views Microsoft, TikTok, Yahoo, and others as Google’s online advertising competitors.

“I don’t see how this is an antitrust problem,” Abbott said. “Where are the barriers to entry?”

Abbott and McCuaig said antitrust cases ultimately depend on the welfare of consumers, and the DOJ’s case fails if it cannot prove that consumers are harmed by Google.

One obstacle to proving consumer harm, they said, is that the publisher- and advertiser-side technologies have no independent consumer demand absent their counterparts.

“Where is a harm to consumer welfare?” Abbott asked. “Antitrust, in my mind, is not supposed to design a market,” Abbott said. “That’s not a role that governments should play.”

It’s uncertain how long the trial will last. Google’s case over the DOJ’s search monopoly claims lasted 10 weeks. Google will have a chance to call its own witnesses once the government rests its case.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.

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