In an ongoing federal antitrust trial, Google’s advertising practices are spotlighted this week.
Jerry Dischler, Vice President for Google’s advertising products, testified that Google adjusts its advertising auctions to meet revenue targets.
These adjustments, including price increases of up to 5%, are carried out without informing the advertisers.
This testimony is part of a larger case in which the U.S. Department of Justice (DOJ) alleges that Google has unlawfully maintained an online search monopoly.
As the trial continues, Google’s pricing changes, its competition with Amazon, and the impact of its policies on advertisers are all coming into focus.
Inside Google’s Advertising Practices
Dischler revealed during a federal antitrust trial on Monday that the tech giant regularly changes its ad auctions. These modifications, aimed at selling search ads, are carried out without notifying the advertisers.
“We tend not to tell advertisers about pricing changes,” Dischler stated.
He disclosed that in May 2019, his team was working on finding ways to ensure Google met the quarterly revenue targets set by Google’s CFO, Ruth Porat. He warned that failing to meet these expectations would result in a negative market response.
Dischler expressed concern about revenue and that a significant drop in Google’s stock price could negatively impact employee morale, especially for teams living in high-cost areas.
Dischler further clarified his intent during the trial, stating his goal was “to get creative so we could meet our quota.”
‘Honest Results’ Policy
Dischler says over 60% of Google’s total revenue comes from search ads, amounting to over $100 billion in 2020.
However, he emphasized that Google maintains an “honest results” policy, and the search team responsible for unpaid search results can disregard suggestions from the ads team.
He explained, “Financial compensation shouldn’t impact the quality of the search results. Revenue is motivator, not a decider.”
Pricing Changes & Competition
Dischler admitted that some auction changes resulted in a 5% increase in costs for the average advertiser, with some even seeing price hikes of up to 10%.
Despite this, he believes that a price increase of 15% would lead most advertisers to switch to competitors such as Meta Platforms Inc. or ByteDance Ltd.’s TikTok.
“It would be a dangerous thing to do,” he cautioned.
Still, Dischler acknowledged that he had no reason to believe that Google wouldn’t retain enough advertisers to keep its revenue rising, even if prices were raised by 15%.
The Amazon Threat
Google is currently facing stiff competition from Amazon in the retail advertising sector.
Dischler admitted that consumer goods manufacturers have threatened to shift their ad spending from Google to Amazon, which is growing at twice the rate in retail advertising.
“Amazon is able to get better data than we are on the effectiveness of their advertising. That has caused budgets to shift,” Dischler said.
A Controversial Change
One specific change that boosted Google’s revenue, RGSP, altered the ad auction process so that the second-highest bidder would win the top advertising slot, with the actual winner taking the second spot.
Dischler revealed that while he didn’t know if this change led advertisers to place higher bids, it did increase Google’s revenue.
A Google spokesperson at the trial declined to comment on Dischler’s testimony.
Google’s Legal Headwinds
The U.S. DOJ alleges that Google has unlawfully maintained an online search monopoly by paying billions to web browsers and smartphone manufacturers to ensure Google is the default search engine for users.
As the antitrust trial continues, Google’s advertising practices remain under scrutiny.
With rising competition from Amazon in retail advertising and threats of advertisers switching platforms, Google faces challenges in balancing revenue motivations with fair business practices.
The outcome of the trial and advertiser responses to Dischler’s revelations will determine if adjustments are on the horizon for Google’s ad auctions and pricing strategies.
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