Alphabet Inc.’s Google has tweaked its advertising auctions to ensure it meets revenue targets, sometimes increasing ad prices by as much as 5%, an executive for the company testified Monday at a federal antitrust trial.
(Bloomberg) — Alphabet Inc.’s Google has tweaked its advertising auctions to ensure it meets revenue targets, sometimes increasing ad prices by as much as 5%, an executive for the company testified Monday at a federal antitrust trial.
Jerry Dischler, vice president for Google’s advertising products, said the company frequently makes changes to the auctions it uses to sell search ads – the text and shopping promotions that appear at the top of a results page in response to user queries. Those changes can involve increasing the cost of ads or minimum spending on an ad, known as the reserve pricing, he said. Even when those “tunings” impact ad prices, Google typically doesn’t tell advertisers, Dischler testified.
“We tend not to tell advertisers about pricing changes,” he said.
In one May 2019 email, Dischler and his team discussed how they were “shaking the cushions” to find potential changes to the ad auctions that would ensure Google met the revenue targets that Chief Financial Officer Ruth Porat had conveyed to Wall Street for the quarter.
“My goal was to get creative so we could meet our quota,” Dischler said.
The Justice Department alleges that Google has illegally maintained a monopoly over online search by paying billions of dollars to web browsers and smartphone manufacturers to ensure it’s the preselected option for users accessing the web. As part of those deals, Google pays Apple Inc., Samsung Electronics Co. and others a share of the revenue it earns from search advertising.
About two-thirds, more than 60%, of Google’s total revenue comes from search ads, Dischler said, and in 2020 that amounted to more than $100 billion. Every year since 2012, the company’s search ad revenue growth has been in the “high teens,” according to documents shown by the Justice Department Monday. The exact numbers were redacted.
In response to questions by DOJ lawyer David Dahlquist, Dischler acknowledged that he said in a sworn 2020 interview that some of the auction changes led to 5% increases for the typical advertiser. He also said that it was “possible” that some changes led to price increases of as much as 10% for some queries.
But Dischler said Monday he believes most advertisers would move to rivals like Meta Platforms Inc. or ByteDance Ltd.’s TikTok if Google tried to increase prices by 15%.
“It would be a dangerous thing to do,” he said.
Dischler acknowledged, however, that he didn’t have any reason to believe that even with a 15% increase Google wouldn’t keep enough advertisers so that the company’s revenue still rose.
One change that increased Google’s revenue, known as RGSP, switched the auction so the runner-up was given the top advertiser slot and the actual winner the second spot, according to Dischler. Oftentimes major advertisers like Amazon.com Inc. or Booking Holdings Inc. win any ad auctions where they bid and take the top slot, Dischler said.
With RGSP, “we flip them,” Dischler said. “Otherwise, Amazon always shows up on top.”
Dischler said he didn’t know if the change led advertisers to place higher bids, but it increased Google’s revenue.
A Google spokesman at the trial declined to comment on Dischler’s testimony.
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