Google Secretly Alters Ad Auctions to Boost Revenue Targets

Google has acknowledged that it modified ad auctions covertly to hit revenue targets. The search engine regularly modifies the auctions it employs to sell search advertisements, raising the cost of ads and reserve pricing for the typical advertiser by as much as 5%. A Google executive acknowledged that the price of advertising fluctuated during the auction process to satisfy revenue goals. This week, Google’s advertising tactics were highlighted in an ongoing federal antitrust trial.

Google’s Executive Testimony

According to testimony from Jerry Dischler, Vice President and General Manager of Google’s Advertising Products, the company modifies its ad auctions to achieve set revenue goals. These modifications include price hikes of up to 5% without the advertiser’s knowledge. He admitted to the U.S. Justice Department during the Antitrust Trial that the business may have raised pricing for some inquiries by as much as 10%. The testimony is a piece of a bigger lawsuit in which the US DOJ accuses Google of illegally maintaining a monopoly on online search. As the trial goes on, more and more details are emerging about Google’s pricing adjustments, its rivalry with Amazon, and the effects of its policies on advertisers.

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Advertising Practices of Google

During the federal inquiry, Dischler also disclosed that the internet behemoth frequently modifies its ad auctions. Without telling advertisers, these changes are made with the intention of selling search advertising. He also expressed worries about revenue and the potential impact on employee morale of a big decline in Google’s stock price. This applies particularly to teams in expensive areas. He also made it clear that his intention was to think outside the box so they could fulfill their quota. The majority of Google’s income comes from search adverts. According to Dischler, the corporation will make more than $100 billion from search ads in 2020. Since 2012, Google’s ad revenue growth, according to the DOJ, has regularly been in the high teens.

So I always knew this was the case, but to see it actually stated by the VP of ads is astounding!

And what do you think smart bidding is? A smart way for Google to be able to easily manipulate ad prices! SMH pic.twitter.com/rwvpCmWC0M

— Anthony Higman (@AnthonyHigman) September 19, 2023

 

Changes in prices and Increasing Competition

Dischler acknowledged that some adjustments to auctions led to a 5% rise in expenses for regular marketers. In certain cases, price increases reached 10%. Nevertheless, he thought that a 15% price hike would cause the majority of marketers to go to rivals like Meta Platforms Inc. or ByteDance Ltd.’s TikTok. Even so, he admitted that he had no reason to think that Google wouldn’t continue to attract enough advertisers to grow its revenue.

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The threat from Amazon

When it comes to retail advertising, Amazon is growing twice as fast. Amazon is currently posing a serious threat to Google in the retail advertising market. Dischler acknowledged that companies that make consumer goods have threatened to switch their advertising budgets from Google to Amazon.

Why do tweaking ad prices matter?

The argument made by the Justice Department that Google has an unlicensed monopoly may be strengthened if Google can increase ad prices without seeing considerable competition. Given that Google’s search engine is a free offering for users, the government is unable to apply this defense against Google itself. They can counter that greater competition might have addressed other problems like search industry privacy requirements.

Why did Google tweak search ad auctions?

To ensure that his team exceeded the sales goals that Google CFO Ruth Porat had communicated to Wall Street, according to Dischler, staff members allegedly shook the cushions. He penned the following to his employees in an email in May 2019:

If we don’t meet quota for the second quarter in a row and we miss the street’s expectations again, which is not what Ruth signaled to the street, so we will get punished pretty bad in the market. I care more about revenue than the average person but think we can all agree that for our teams trying to live in high cost areas another $100,000 in stock price loss will not be great for morale, not to mention the huge impact on our sales team.

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