The Australian Competition Authority, the ACCC, has published the final report of its digital advertising services inquiry.
The inquiry, which comes following the ACCC's investigation into digital platforms,
finds that the Australian ad tech supply chain suffers from "systemic competition concerns". In particular, the report finds that Google represents between 70 and 100% of the market for each of the four main ad tech services, and that its vertical integration in the ad tech supply chain creates conflicts of interests that harm advertisers. The ACCC has therefore proposed a number of measures which could ultimately improve transparency and competition across the advertising supply chain.
The Australian government will now respond to the report and indicate the extent to which it will follow the ACCC's recommendations.
The digital advertising services inquiry was launched in February 2020 following the ACCC's investigation into Digital Platforms, the latter of which identified numerous concerns surrounding the complexity and opacity of the ad tech supply chain. The objective of the inquiry was to assist in increasing transparency in the ad tech supply chain and determine whether any competition issues exist, as well as how to solve them. The ACCC's Digital platform investigation, which is aimed at considering broader sector specific rules to apply to digital platform markets, is still underway and due to conclude in 2025.
Main findings of the ACCC'S digital advertising services inquiry:
Google's presence in the Australian ad tech supply chain: According to the inquiry, Google's share of impressions for each of the four main ad tech services (publisher ad servers, SSPs, ad networks, DSPs) was between 70 and 100% in 2020. Where revenue information was available, Google's share of revenue was reportedly between 40 and 70%. The ACCC notes that "no other provider imposes a significant competitive constraint on Google".
Google's vertical integration creates conflicts of interests that harm advertisers: In relation to a single transaction, the ACCC inquiry notes that Google acts on behalf of both the advertiser (the buyer) and the publisher (the seller) and operates the ad exchange (SSP) connecting these two parties. The report notes that advertisers and publishers are therefore unable to switch easily to competing providers as Google's services are now considered 'must haves'. The ACCC also states that Google is able to use its publisher ad server to favour its own SSP over rival SSPs, thereby putting the interests of its own business over the interests of its publisher customers.
Google's use of first party data for targeted advertising: The inquiry found that Google's access to data has contributed to its 'dominance' in ad tech. Despite Google's claims that it does not use first-party data to provide targeted advertising services, the report notes that even if Google is not currently relying on first-party data in the supply of ad tech, there is nothing that would stop Google from doing so in the future. The inquiry found that the widespread perceptions about how Google uses its first-party data in ad tech may be distorting competition in the supply of ad tech services in favour of Google.
Google's self-preferencing: The ACCC considers that Google has engaged in self-preferencing behaviour which has lessened competition in the supply of ad tech services. It alleges that Google has:
o Restricted the purchase of YouTube inventory to its own DSPs;
o Directed demand from its DSPs (particularly Google Ads) to its own SSP;
o Used its publisher ad server to preference its own SSP over time;
o Restricted how its SSP works with third-party ad services; and
o Used its control over auction rules in its publisher ad server to advantage its other services.
Weak competition contributes to high ad techfees: The ACCC considers that ad tech fees are higher than they would be if the supply of ad tech services was more competitive. It notes that high ad tech fees could also increase advertisers' costs with consequential effects for the price of goods or services sold by such businesses.
Lack of transparency in ad tech: Finally, the ACCC notes that the complexity of the ad tech supply chain leads to transparency problems for advertisers and publishers, who have no visibility over the total fees and charges by tech service providers across the supply chain. According to the inquiry, this undermines trust in the ad tech supply chain, and limits the ability of advertisers and publishers to make informed decisions about how to optimise the sale and purchase of ad inventory. For Google specifically, the ACCC found several issues, including that it:
o Restricts advertisers' ability to measure the performance of its DSP services when they serve ads on YouTube;
o Does not provide publishers with enough information about auction outcomes to measure the performance of its publisher-side services; and
o Does not provide sufficient information on the take rates of Google Ads to understand and compare pricing.
The ACCC puts forward a number of recommendations to address these concerns:
Google should be more transparent about how it uses first-party data to provide ad tech services: The ACCC believes this would promote competition by enabling advertisers to make more informed decisions about their choice of ad tech providers.
The ACCC should be empowered to develop sector-specific rules to address conflicts of interest in the ad tech supply chain: Such rules could be aimed at managing conflicts of interest, preventing anti-competitive self-preferencing and addressing transparency concerns. Other rules could include prohibitions on anti-competitive bundling and/or tying of services and obligations to provide non-discriminatory access to ad tech services. The ACCC notes that such powers would be particularly important in light of the potential impacts of Google's Privacy Sandbox proposals on competition.
The ACCC should be empowered to develop rules to address competition issues caused by ad tech providers' 'data advantage': This could include data separation measures (e.g., preventing an ad tech provider from using first-party data to provide ad tech services on third-party sites) and data access requirements (e.g., with regards to ad tech providers' first-party data).
The industry should establish standards on ad tech pricing transparency and on the independent verification of demand side platforms services: If these standards are not effective, the ACCC could introduce measures to address transparency issues.
The ACCC should be empowered to develop rules to improve transparency in the pricing and performance of ad tech services: Measures could include common transaction IDs, or requirements to publish prices and take rates in a standard form.
The Australian government will now respond to the report and indicate to which extent it will follow the recommendations proposed. The recommendations echo those put forward in the UK Competition and Markets Authority's recent online platforms and digital advertising market study as well as those introduced in the EU Digital Markets Act proposal.
Recent WFA research has revealed that 75% of WFA corporate member respondents encounter a lack of data sharing when working with large online advertising platforms such as Google and Facebook and that advertisers are concerned about the vertical integration of Google in the ad tech supply chain.
Regulatory developments such as those mentioned above could therefore address some of these concerns. In order to influence these developments, WFA has developed a policy position on advertisers' access to data in the digital advertising market. We have also been meeting with key EU policymakers to advocate for WFA's position in the context of the EU Digital Markets Act and will continue to do so as negotiations on a final regulation progress.
What does this mean for New Zealand? The issues raised in the report are not unique to Australia. ANZA has consistently argued that New Zealand’s regulator should be a fast follower of the ACCC and will be reminding both the Commerce Commission and Ministers of this now the report has been released.