In its final Digital Platforms Inquiry Report (Report), the ACCC raises significant concerns over a number of competition and privacy issues impacting the ad tech supply chain relating to online advertising. The Report makes a number of recommendations, which, if implemented, will shake-up the industry and bring on a slew of changes for all players involved in programmatic advertising.
Online advertising makes up an increasing portion of the total advertising spend in Australia. Facebook and Google are the two largest suppliers of online advertising. Outside of these two suppliers, the advertising market is highly fragmented and extremely complex. Other providers include online news publishers, online marketplaces like eBay and other types of digital platforms like Reddit and Amazon as well as media agencies. But don’t think it stops there. There are also, for example, supply side platforms, demand side platforms, ad exchanges, ad networks, advertiser ad servers, data management platforms and trading desks.
What is the ‘monopolising’ concern of the ACCC?
Despite the fragmented ad tech marketplace, the ACCC estimate that Facebook and Google captured in excess of 80 per cent of growth in online advertising in the past three years. The report refers often to monopoly and near monopoly concerns and its potential impact on competition and privacy.
How does ad tech work?
In essence, ad tech is about delivering advertising campaigns online in a targeted way to the most relevant consumers as assessed and sold against metrics known as ‘cost per impression’, cost per action’, ‘cost per click’ and ‘cost per lead’.
The majority of online advertising occurs through search advertising (ads which appear on search engines as a result of a search query) and display advertising (ads which are made up of visual elements and appear alongside website content, including social media content).
Google is by far the most common means of purchasing search advertising. The ACCC estimates that 96 per cent of search ads are obtained this way in Australia.
Display ads are purchased through four primary channels: Facebook, Google, ad tech services and direct deals. To generate display ads, the website collects user data via first and third party cookies when the user requests to access the website. The website and personalised display ads are then generated to the user.
What is at risk in the online advertising marketplace?
This trend in online advertising raises a number of issues of concern for the ACCC:
- anti-competitive conduct and risk of market failure: According to the ACCC, there is the potential for market manipulation given that it is unclear how Google and Facebook choose to rank and display advertisements and to what extent these platforms self-preference their related platforms or businesses in which they have interests. The market dominance of Google and Facebook was a major concern for the ACCC, as due to the present market structure, agencies were being incentivised to “act in ways that benefit their own interests and are to the detriment of advertisers”. The ACCC is not alone in suspecting self-preferential treatment, with this concern being shared overseas. Indeed, in 2017 the European Commission fined Google $2.4 billion Euros for using its market dominance to give prominent placement to its own comparison shopping service (Google Shopping) by demoting rival comparison shopping services.
- lack of transparency in online advertising services: The ACCC notes there is also a significant lack of transparency as to the prices charged by online advertisers and the proportion of value appropriated by firms operating at different levels of the ad tech supply chain. The convoluted opacity generated by various algorithms and blistering auction processes leads to a lack of trust between consumers and online advertisers which the ACCC warns could distort competition and prompt a “race to the bottom” phenomena.
- privacy concerns: In its Report, the ACCC recommends that the collection of any consumer data (for the use of advertising or otherwise) needs to be obtained through freely given, specific, unambiguous and informed consent, unless such collection is necessary for the performance of a contract to which the consumer is a party. Practically speaking, this will require entities to obtain an 'opt-in' style consent from users where their data will be collected for advertising purposes. Importantly, this will differ considerably from the common practice of bundling user consents. If this recommendation is adopted in Australia, it will have a major impact for all Australian businesses in the advertising industry and will significantly reduce the volume of data collected from consumers for advertising purposes.
In addition to its recommendation to adopt a mandatory 'opt-in' style consent for the collection of users’ data, the commission recommends the establishment of a specialist digital platforms branch which will hold an inquiry into the competition for the supply of ad tech services and online advertising services by advertising and media agencies.
These recommendations will have significant impact for any Australian businesses engaged in programmatic advertising. The government is currently in the process of reviewing the ACCC’s recommendations before it makes its final decision.
With this in mind, it would be prudent for any Australian businesses who utilise online advertising to stay up to date on any impending developments in this space.