From users to investors, how Google’s ad trial impacts you

Note: Transcripts are automatically generated from episode audio, and are not fully corrected for spelling, grammar, and formatting.

ARIELLE GARCIA: The business model of the internet is digital advertising. So by controlling these tools, Google’s effectively controlling the business model of the internet. Marketers are paying for bad data to reach fake people on unsafe sites while newsrooms shutter and democracy hangs in the balance. A lot of that, as the DOJ alleges, has to do with Google’s conduct.

This is the first and biggest step to creating a healthy information ecosystem.

BOB SAFIAN: That’s Arielle Garcia, director of intelligence at ad watchdog Check My Ads. For the past three weeks, Arielle has been attending the U.S. government’s high-profile antitrust trial targeting Google’s advertising business.

In today’s episode, Arielle takes us through the case against Google, and why it matters not just for Google investors and ad industry folks but for everyone who uses the internet.

Spoiler alert: Arielle is deeply critical of Google and believes some harsh remedies are in order. Wherever you stand on the case, Arielle provides a rich education on what too often is an overlooked part of our digital interaction. So let’s get into it. I’m Bob Safian, and this is Rapid Response.

[THEME MUSIC]

I’m Bob Safian. I’m here with Arielle Garcia, director of intelligence at digital advertising watchdog Check My Ads. Arielle, thanks for being here.

Copy LinkUnderstanding the allegations against Google

GARCIA: Yeah, thank you for having me.

SAFIAN: So we’re here to talk about Google. Earlier this year, a federal judge ruled that Google’s search business is an illegal monopoly. The penalty phase there is still to come. Meanwhile, last week, Google successfully challenged a $1.7 billion fine from European regulators in the wake of losing a different challenge against a $2.7 billion EU fine. In the midst of all that, Google’s the target of another U.S. antitrust trial about its ad business. You’ve been in Virginia covering that trial. For those who aren’t ad industry insiders, can you explain what the allegations are and kind of how we’ve come to this place?

GARCIA: Yeah, so back in the old days, the way that ads were bought was that literally you’d have your agency team calling publishers and trying to buy ad space. Today, much of that is automated, right? And so what this trial is about is Google’s monopolization of the ad tech. What the DOJ is focused on, in particular, is they allege that Google has monopolized three separate markets within the ad tech industry. The first is publisher ad servers, which is what publishers use to manage their inventory. The second is advertiser ad networks, which are basically the advertisers’ buying tools, the ad exchange that connects the two. The last claim is that they tied their products together. Now, why does that matter?

The business model of the internet is digital advertising, right? So by controlling these tools that are used to buy and sell ads, Google’s effectively controlling the business model of the internet. They have an outsized say in what content gets funded and what doesn’t, and as newsrooms are shuttering. A lot of that has to do, as the DOJ alleges, with Google’s conduct.

SAFIAN: I just want to make sure I understand. This is like Google is on all sides of these transactions, right? They are facilitating the buying on the part of advertisers.

They are facilitating the placing of those ads, from advertisers to publishers. They’re running the marketplace in between. And in the process of doing that, the allegation is that they’re diverting that business to their own properties and, in some ways, devaluing other competition.

GARCIA: We haven’t even gotten to the diverting to their own and operated in this trial, although that could be a whole different episode, but this is more about how they’re extracting money from all sides along the way. They’re taking over 30 cents of every ad dollar that’s spent. That is an overcharge, the brunt of which is predominantly borne by publishers. And that’s kind of what’s at the core of the trial.

SAFIAN: This is what’s driven their stock price up so much, a dominant business, which sort of every business aspires to in certain ways, but it has gotten dominant to a point that it has negative implications for the industry.

GARCIA: And that’s democracy, ultimately, right? I was surprised because I didn’t think that we would necessarily hear that argument explicitly in court, but there was a very short deposition read in where one of the witnesses talked about how basically a healthy digital ad market is central to democracy because of the fact that it funds journalism.

Copy LinkArielle Garcia’s background and perspective

SAFIAN: Your personal background is not as a lawyer or as a traditional journalist. You come out of the advertising world. Can you explain what Check My Ads is and sort of what perspective you bring to this trial?

GARCIA: Yeah. So, not a hashtag lawyer, which is absolutely correct, but I did go to law school, have my JD, so I do have legal education. Before joining Check My Ads earlier this year, I was at UM Worldwide, which is a global media agency, for 10 years.

I loudly resigned from that job in no small part due to Google’s pervasive dominance. And then I came to Check My Ads, where I am the director of intelligence leading research.

Our mission is to dismantle the disinformation economy and to create a healthier digital ad market. This trial is critical for us because when we think about the norms that are dysfunctional today, those norms cannot move until Google moves.

Copy LinkThe implication of Google’s ad model

SAFIAN: Because the business model incentives encourage misinformation and disinformation?

GARCIA: That’s the simplest way to put it, but it’s also the reverse, right? Which is that every dollar that the incentive structures set up to be pushed to clickbait is a dollar that doesn’t go to real content, real information, and quality content.

SAFIAN: Gotcha. And because there isn’t an incentive necessarily in the way Google has set up a system. And again, these are the allegations. I’m just saying because the incentives are set up in a certain way, Google is perfectly okay to have things placed in clickbait areas as opposed to reaching the user that the advertiser is actually targeting.

GARCIA: So, in this particular trial, I don’t know that the DOJ goes quite that far, although today is probably the closest we’ve gotten to hearing that.

From the DOJ’s perspective, it’s really about the conflict of interest, the value extraction, the coercion, the removal of autonomy so publishers can’t control their own business, the harm to advertisers from both overcharging and less effective ads because Google kind of artificially restricted their access to ad inventory. So the DOJ’s woven a really tight case together.

But of course, our particular interest in this expands beyond that. The way that I’ve been talking about this is there are things that come out in the trial and in the evidence that might be a footnote on this case, but that have far-reaching implications for the industry.

Copy LinkThe atmosphere inside of the courtroom

SAFIAN: You’re there in court every day. I’m curious what the courtroom itself is like, who there is watching. Can you set the scene for us?

GARCIA: First of all, there are no electronics permitted in the building. There’s no food or water permitted in the courtroom.

Someone described the seats as a chiropractic nightmare. So it is not the most comfortable setting.

In terms of who’s watching, so the courtroom, there’s three sides to it. On the right-hand side, you have the DOJ’s counsel and team.

In the middle, you have Google’s, and then on the left-hand side, you have the press. Everything else behind the first few rows is open to the public. Google’s people usually dominate the middle section. The DOJ has markedly fewer people. More of the press was there certainly for opening arguments; it’s kind of died down.

And then you have people like me that I am, are not exactly journalists, but that are covering it for one reason or another.

SAFIAN: The way trials seem on TV, they’re rarely as dramatic in real life. Are there any particular moments overall that you feel like, “Oh, this was a TV moment?”

GARCIA: So the DOJ called a publisher witness, Stephanie Lazer.

She said something to the effect of, “I’m talking about every feature that they have shoved down our throat over the past however many years.”

A couple of days later, they play a recording of the meeting during which Google rolled out these unpopular changes to a group of publishers. And we hear Stephanie voice the same concerns that she explained during her testimony. And we hear Google being dismissive.

So that was very impactful.

Copy LinkHow deleted internal communications are impacting the case

SAFIAN: How much is internal electronic communication driving the case? I mean, I saw reports of emails where an employee compared Google’s ad business to a bank owning the New York Stock Exchange. I know there aren’t electronics allowed in the courthouse, but they are in the courtroom in some way.

GARCIA: The DOJ filed an adverse inference motion at the start of the trial. Basically, what Google had done was their employees failed to preserve the chat evidence.

That it’s called spoliation. That has been looming over the trial this entire time.

There would be so much more if Google had actually preserved the evidence they were supposed to.

On DOJ’s side, they have managed to find chats that weren’t deleted. They have found emails that basically reflect their true internal strategy discussions and real thoughts, right?

So their case is driven largely by those internal strategy documents and internal comments.

So, yeah, the communications are a huge factor in this.

Copy LinkGoogle’s defense strategies

SAFIAN: What does Google say in defense of all of these allegations? How do they describe what their dominance means and has done? I’m sure they’re trying to spin that as being advantageous in some ways.

GARCIA: Yeah, they’re doing a few things. What’s favorable to them is to distance themselves from the facts and the people that have real experiences with them.

They would prefer to make a very narrow, legal, technical argument, right?

SAFIAN: You know, how I was explained was that the DOJ says there are these three separate markets, and Google has monopolized each one and then tied these two together. Google is saying, “No, no, no, no, no. This is all one big market where we have plenty of competitors.”

GARCIA: The DOJ’s case is focused on open web display ads. So the boxes on websites where banner ads are placed typically, right? Google is saying, “Well, there are boxes with ads on Facebook.” And that’s the type of game they’re playing. They’re trying to say that there are reasonable substitutes, they’re trying to say that these things are interchangeable, and as a result, they face a ton of competition.

So that is one of the things that they’re doing. The second is, where the DOJ is saying that they tied products together and that they engaged in exclusionary conduct to basically restrict the choices of publishers and advertisers. Google is saying, “Whoa, whoa, whoa, we have legitimate reasons for doing that.”

They run through their buzzwords of inventory quality, safety, security, malware, spam, privacy, ad fraud, and they say that “No, no, no, we didn’t want to work with other exchanges because our inventory is vetted and we take quality very seriously.”

And then they also, which is probably the most egregious one that came up today, they’re basically saying that they are uniquely positioned to be able to drive standards that benefit everyone in the industry.

It’s this super weird guardians of the internet thing, and I don’t see a realm in this universe where that will land the way that they want it to. It sounds again just kind of like they are admitting that they have control, but alas, that is not the first time we’ve seen that in their defense.

Copy LinkInside the DOJ’s cross examination of a Google employee

SAFIAN: You mentioned, before we started recording, that Google presented some trust and safety stuff today, and the cross-examination was spicy. Can you take us through what you’ve heard today?

GARCIA: Yeah, sure. So they called a witness who is a longtime employee on their ad spam team, and so what this witness was talking about was how much Google invests in trust and safety and ads quality more broadly. He talked about all that they did to fight against invalid traffic and protect advertisers from ad fraud.

SAFIAN: So that all sounds like good stuff.

GARCIA: It sounds great, which is why the DOJ gets up there and asks him if he has seen the reports of there being ads running on sanction sites in Iran, sanction sites in Bosnia, and then he asked if he’d seen the report that shows that 48 percent of traffic on fake news comes from Google.

And naturally, this guy had not seen the reports. He is not part of the machine, as another Google witness called it. He is kind of insulated from the commercial decisions that are being made. So I don’t think that it was intentional misrepresentation. I think he knows what he knows and then he does not know what he does not know.

Copy LinkPotential outcomes of the trial

SAFIAN: As you talk about the evidence at this trial, it sounds pretty damning and difficult for Google. One potential outcome could be the breakup of Google, which has been speculated about. How realistic is that?

GARCIA: I believe that it’s realistic. So what the DOJ proposed is the sell-off of, at a minimum, the sell side of their ad tech business.

So that’s the publisher ad server and like, so GAM, Google Ad Manager Suite, is inclusive of the ad server, and now the ad exchange, they tie them together.

So at least that resolves in their mind, the conflict of interest. I think if Google thinks that they can get the remedy to just be the spinoff of the sell side business; that’s something that they’ve been like dangling since at least 2022. They just recently offered it in response to, I think it was publisher litigation in Europe or the UK, I forget, the other day. So they’ve been preparing for that.

I do think that even they think that it’s quite likely that that could be an outcome. My hope is that it does not stop at just the sell side of the ad tech business, because in order to be future-looking we have to address Chrome, Android, and their broader plan.

SAFIAN: Arielle definitely wants Google to be cut down to size. And not just because of the government’s specific charges in the trial. After the break, we’ll talk about some systemic implications of the current ad marketplace and what it means for advertisers, investors, and other tech businesses. Stay with us.

[AD BREAK]

Before the break, Arielle Garcia of ad watchdog Check My Ads gave us an on-the-ground view of the Department of Justice’s antitrust trial targeting Google’s ad tech business. Now we talk about what’s at stake for Alphabet investors and other tech businesses, and what’s coming next in the courtroom. Let’s jump back in.

Copy LinkImplications for advertisers and the general public

SAFIAN: Give us a picture of what’s at stake beyond the industry insiders for businesses that buy advertising, which many of our listeners are for consumers, and then I guess for Alphabet investors, which is almost everybody these days through funds and retirement.

GARCIA: Yeah. I mean, look, I think from an Alphabet investor perspective, I already read analysis about how a divestiture would actually benefit shareholders. Like they would spin off these businesses into businesses that are pretty big in and out. Like, they will be okay. For advertisers, this is so important. This is the opportunity to fix the broken incentive structures that advertisers have been paying the price for forever, right?

And to be honest with you, that’s the case whether or not Google has to divest the sell side business, because this case, this trial has thrown into the spotlight all of these things that are going to catalyze calls for regulation.

So for advertisers, yeah, this is an opportunity to seize control of your ad spend and to actually get some transparency into what you’re paying for and how your ads are performing. For the general public, fixing the digital ad business model is fixing the internet. So this is the first and biggest step to creating a healthy information ecosystem and a sustainable future for journalism.

SAFIAN: The skeptic in me about all this, like the advertising business has always been a little bit based on smoke and mirrors, right? Like you’re reaching a certain audience that isn’t quite there. And everybody knows that whether you’re talking about buying TV ads or buying what used to happen in the magazine business or now digital. I don’t want to side too much with Google, but it’s like, are advertisers holding digital channels to standards that they haven’t held any other media channel to?

GARCIA: My broader missive is marketers are paying for bad data to reach fake people on unsafe sites while newsrooms shutter and democracy hangs in the balance.

SAFIAN: Doesn’t sound great the way you say it that way.

GARCIA: We don’t know what Google actually has, right? So there’s the illusion that they have all of this great data. And so marketers are like, “Oh yeah, yeah, yeah. Then we’ll just trust you.” Every time you just trust them, like the problem gets bigger and bigger. There’s only so much a magazine is misrepresenting.

There was one witness, a Google witness, that talked about how a conservative amount of ad dollars that don’t go to working media is 50 cents of every dollar. That’s conservative. So, I mean, the waste is just on a different scale, and it’s impossible to verify because Google is such a black box.

So what this is about, what there’s opportunity for, is shining some light in what were dark corners. What happens from there? I mean, it’s about empowering advertisers. It’s not going to miraculously fix everything, but it also paves a way for there to be incentives for other ad tech companies to compete on quality.

SAFIAN: From the point of view of publishers and journalism, the trends over the last 10 years have been crushing. There just isn’t a reward for producing information that is trusted and deep; you don’t get financially rewarded for it.

GARCIA: I mean, and in the same way, there’s not an incentive for ad tech companies to actually be transparent, to actually vet inventory, to actually weed out clickbait, right? Like, there’s not. And why, right? The why with that really, really starts with the norms that Google sets and the fact that Google can get away with it.

Copy LinkImpact on other tech companies

SAFIAN: If Google’s not vetting their inventory, for example, how in the world would any of these companies that are so much smaller than Google? Google is very good at representing themselves as this very buttoned-up, pro-advertiser, great partner on paper. So, I mean, I hear you, it’s easy to be skeptical, but for me, it’s a monumental opportunity to hit reset on what’s really broken. Should other big tech companies be worried watching this trial, or does trouble for Google just help Meta and others step into the space?

GARCIA: This is already reinvigorating calls for regulation like the America Act, which would apply not just to Google, right? One of the things that this trial is putting pressure on, and the dialogue resulting from the trial is putting pressure on, is that model of sitting on all sides.

And that model has just metastasized. Like, Google legitimized it, now holding company agencies are more and more critical to the revenue they bring in. So that model of sitting on all sides is going to face pressure. And that’s going to apply to even more than just big tech companies and ad tech.

SAFIAN: So it’ll apply to the big agency houses as well?

GARCIA: Could well, because I don’t see a world where you can address the fundamental conflict of interest of sitting on both sides and institute a duty of care without agencies making their way into that conversation.

Copy LinkThe connection with the search ruling

SAFIAN: And does this ad trial intersect with the search ruling in the spring that happened, or is it completely separate?

GARCIA: The topics are linked. The trial is not. If you think about Google’s monopoly on the ad network side, on the advertiser side, basically what they did was they had built up all of this unique demand, i.e., all the advertisers that you search, and then they’re like, “Hey, don’t you want to advertise on websites too?”

But beyond that, the trials themselves are not linked timelines.

SAFIAN: And the remedies that each of the judges might impose would be separate, or would there be potentially some overlap or collaboration?

GARCIA: That’s honestly a question I ask myself all the time.

The DOJ is well aware of the fact that these two things are happening at the same time, but there’s no coordination between the judges.

SAFIAN: And, the remedy phase for this trial and for the search trial might align and they might not align.

GARCIA: They don’t align. Someone sent through the other day the updated timeline for the search trial, and I believe that it’s not going to be done until 2025.

SAFIAN: So, even though the search ruling came first, the remedy will come in the ad area before it comes in the search?

GARCIA: Yeah, it could well.

Copy LinkNext steps in the trial

SAFIAN: So, what happens from here with the trial? What are the next big moments we should be looking out for?

GARCIA: Yeah, so Google’s expected to wrap up its defense this week. Then there will be rebuttals, and then apparently there’s a break before closing arguments and then a verdict.

SAFIAN: Is a verdict from a judge, from the judge, instantaneous, or can the judge take weeks, months, however long to make the decision?

GARCIA: The Eastern District of Virginia is known as the rocket docket and has absolutely lived up to its name. This judge, in particular, wants to waste no time. Two weeks in, she was already saying that this is dragging.

I don’t think it will take her very long to deliberate. I don’t see it taking her more than a few weeks, but we really don’t know about this.

SAFIAN: Well, this has been fascinating.

Thank you so much for taking the time and explaining it to me and to our listeners.

Listening to Arielle, it’s hard not to be skeptical about Google’s dominance of the digital ad market. It’s also hard not to be a little skeptical of her. She’s certainly not shy about her distrust of the company.

What seems clear is that regardless of the trial’s outcome, the case is already creating momentum for change. The information that the government has brought forward brings hidden practices into the light that can’t be ignored. Where it all ends is still plenty up in the air. Let’s hope the spirit of Google as an ambassador of innovation wins out over the quest for power. As someone once said, “Don’t be evil.”

I’m Bob Safian. Thanks for listening.