Facebook and Google "Secret Deal" Will Help Them Control Online Advertising

Created:
September 21, 2020

It is estimated that the global online advertising market will hit 389 billion dollars in 2021, and the "usual suspects" in this huge game are of course Google, YouTube, TikTok, Facebook, Instagram, and a few others.

The New York Times obtained some very interesting information about a secret deal that Facebook and Google supposedly made to control the online advertising market. We are already accustomed to all kind of deals between companies. They usually do such deals to increase their profits.

In this particular case, we are talking about the main 2 players in the online advertising market, and the subject is extremely hot.

Back in 2017, Facebook revealed that they are testing a new way of selling ads online and that they will "fight" for the control of the online advertising market. Two years later, Facebook announced that they will be joining an alliance of companies and that they will abandon their own plans.

Why did they abandon their own project and stop fighting for the pole position? They never clarified this aspect, but probably the tens of antitrust lawsuits convince them stop making steps in that direction. In this article from Wall Street Journal, you can read that Google and Facebook are both investigated for the potential abuse of their power in the internet economy - Google to dominate search and advertising, and Facebook to dominate social media. Of course they both denied so.

And things get even more interesting.

Several executives at six of the partners in the alliance said to NYT that Facebook received from Google a significant advantage over the other partners in the alliance. This is not unusual, the biggest shark to get the best conditions.

The "Jedi Blue"

Jedi Blue is the code-name of the Google and Facebook secret deal.

It refers strictly to a segment of the online advertising named programmatic advertising.

To put it short, programmatic advertising is a way to automatically buy and optimise digital campaigns, rather than buying directly from publishers.

In 2021, 88% of digital display marketing in the US is projected to be done via programmatic advertising.

To make Google less powerful, a new advertising method appeared and it is called header bidding.

The NYT explains:

In the milliseconds between a user clicking on a link to a web page and the page’s ads loading, bids for available ad space are placed behind the scenes in marketplaces known as exchanges, with the winning bid passed to an ad server. Because Google’s ad exchange and ad server were both dominant, it often directed the business to its own exchange.
Header bidding provided a workaround that allowed news outlets and other sites to solicit bids from multiple exchanges at once, increasing competition and leading to better prices for publishers. In an attempt to prevent significant losses from the new method, Google developed an alternative called Open Bidding that allowed other exchanges to simultaneously compete alongside Google. Google would then receive a fee for every winning bid.

The NYT writes:

The threat of Facebook, one of the biggest ad buyers on the internet, supporting header bidding was a grave concern at Google. The draft of the complaint reviewed by The Times cited an email from a Google executive calling it an “existential threat” that required “an all hands on deck approach.”
Facebook announced in March 2017 that it was testing header bidding with publishers like The Washington Post, Forbes and The Daily Mail. Facebook also took a jab at Google, saying the digital ad industry had been handing over profits to “third-party middlemen who make the rules and obfuscate the truth.”
Before Google and Facebook signed the deal in Sept. 2018, Facebook executives outlined the company’s options to Mark Zuckerberg, its chief executive, according to the draft of the complaint: hire hundreds more engineers and spend billions of dollars to compete against Google; exit the business; or do the deal.

Read more at the New York Times here.

Conclusions

Are we winning something from these secret deals of Facebook and Google? Will we pay less for advertising? Will it be more effective, meaning that for the same invested money we will get better results?

For sure the whole world is paying huge attention on this subject, and soon we will for sure find out more details.