On 28 January 2021 the Australian Competition and Consumer Commission (ACCC) released its interim report for the Digital Advertising Services Inquiry. The interim report does not make any draft recommendations, but it does make clear that the ACCC is concerned about Google’s high market shares in each of the four markets analysed across the advertising technology services supply chain, and seeks feedback on a number of proposals aimed at addressing concerns about:

  • low levels of competition in the supply of ad tech services;
  • conflicts of interest and self-preferencing; and
  • opacity in the supply chain.

The Interim Report also touches on an ongoing debate in the digital economy: to what extent are the policy goals of protecting competition between digital service providers and protecting consumer privacy in conflict?

The final report is due on 31 August 2021.

The Advertising Technology Inquiry: what and why

The Ad Tech Inquiry follows on from Recommendation 5 of the final report of the ACCC’s Digital Platforms Inquiry (released in July 2019). The Digital Platforms Inquiry Final Report recognised the complexity and opacity of the operation of ad tech services and recommended a separate inquiry into ad tech services and advertising agencies. As the Digital Advertising Services Inquiry Interim Report says,

Ad tech services are critical to the digital economy. They enable the near-instantaneous delivery of $3.4 billion in display advertising opportunities in Australia each year. Effective competition in the ad tech industry is important for Australian consumers. If advertisers pay too much for digital advertising, the costs will be passed on to consumers in the form of higher prices for goods and services. If publishers receive too little revenue for their advertising inventory, consumers will face a reduction in the quality and variety of online content.

The Government directed the ACCC to conduct the inquiry into digital advertising technology services and digital advertising agency services in February 2020. The ACCC was directed to consider:

  • the intensity of competition in the markets, and the efficiency of the markets, for the supply of digital advertising technology services and digital advertising agency services;
  • the relationships between suppliers and customers in those markets; and
  • whether the services in those markets are being provided or performed to the satisfaction of all market participants.

‘Digital advertising technology services’ and ‘digital advertising agency services’ are both concerned with personalised digital display advertising on websites or apps, i.e. advertisements that are shown before or alongside online content, not search advertising or classified advertising.

The Interim Report, and this alert, primarily consider competition in the supply of digital advertising technology services (ad tech) (i.e. services that provide for or assist with the automated buying, selling and delivery of digital display advertising), in particular:

  • advertiser ad servers;
  • demand-side platforms (DSPs);
  • supply-side platforms (SSPs); and
  • publisher ad servers.

The key theme coming out of this Interim Report is the ACCC’s concern about Google’s market shares and vertical integration in the ad tech supply chain. In a media release accompanying the Interim Report ACCC Chair Rod Sims said:

“Google’s significant presence across the whole ad tech supply chain, combined with its significant data advantage, means Google is likely to have the ability and the incentive to preference its own ad tech businesses in ways that affect competition.”

The report observes that many of the issues discussed in the report are similar to the issues being litigated in the US proceedings filed in December 2020 by 9 State Attorney Generals against Google, alleging monopolisation in a range of ad tech markets, in breach of section 2 of the Sherman Act.

The report also indicates the ACCC is investigating a number of specific conduct allegations relating to self-preferencing and that the ACCC is considering whether enforcement proceedings for breach of the Competition and Consumer Act are warranted in any instance.

By contrast, the ACCC’s preliminary view regarding digital advertising agency services is that regulatory intervention is not required because potential issues can largely be mitigated if advertisers are educated about their contractual rights.

Explainer: how does the advertising technology supply chain work?

We have created the below table to simplify this complex supply chain as explained by the ACCC.

Advertiser ad servers

Advertisers

  • Manage advertisers’ digital ad campaigns (e.g. track and monitor ad performance)
  • Host creative content and deliver content to a publisher ad server for display

Publisher ad server

Demand-side platforms

Advertisers

  • Use algorithms to make automatic buying and bidding decisions on behalf of advertisers
  • Submit bids to SSP auctions

Supply-side platforms

Supply-side platforms

Publishers

  • Run real-time auctions for publishers’ advertising inventory
  • Communicate information about winners to publisher ad server

Publisher ad servers

Publishers

  • Give SSPs information for auctions, i.e. about individual consumer visiting the publisher’s online property + information about the ad space
  • Decide which ad will appear on publisher’s online property (e.g. via auction or direct deal)
  • Receive ad file from advertiser ad server and display on publisher’s online property
  • Report on ad performance

The ACCC’s concerns and proposed solutions

The ACCC is seeking submissions on 3 potential concerns:

Low levels of competition for the supply of ad tech services

As outlined above, the ACCC found Google has high market shares in each of the 4 identified services.

The ACCC acknowledged that Google’s strong position is supported by factors such as its ability to enable access to more advertisers, publishers and ad inventory, its ad targeting capability (in turn supported by the data it has access to), how easy it is to use the services, integration with other Google services and their performance, quality and price.

However, the ACCC has also identified that factors such as data-related barriers to entry, the degree of Google’s vertical integration and incentives to ‘single-home’ are potentially causing low levels of competition in these markets. In addition, the ACCC found that most advertisers and publishers have little countervailing power.

Conflicts of interest and self-preferencing

The ACCC has received allegations of anti-competitive behaviour on the part of Google, where it is alleged that Google has the ability and incentive to engage in these practices because of its high market shares and vertical integration. The ACCC outlined the following allegations:

  • restricting access to YouTube ad inventory to sales transacted through its own demand-side platform;
  • channelling demand from its own demand-side platform to its own seller-side platform; and
  • preferencing its own seller-side platform in a way that means publishers have to use Google’s publisher ad server, e.g. by refusing to participate in ‘header bidding’ auctions that are not run by Google. (‘Header bidding’ is where multiple SSPs bid on the same piece of ad inventory, and the winner is selected via auction.)

The ACCC has stated that the alleged self-preferencing has the potential to infringe s 46 of the Competition and Consumer Act 2010 (CCA) (misuse of market power prohibition).

The ACCC has also raised potential concerns about conflicts of interest in the supply chain, the key example being where the same provider supplies both demand-side and supply-side platform services for a single transaction.

Opacity in the supply chain

The ACCC has identified that there is a lack of visibility over both pricing and performance of ad tech services, for example:

  • advertisers do not know how much of their own advertising spend actually reaches publishers, and how much goes to fees for ad tech services along the way (the ACCC says 72% gets to publishers, based on information gathered as part of the inquiry). This makes it hard to determine whether they would be better off pursuing direct deals with publishers. Likewise, publishers do not know how much advertisers are actually paying for their inventory;
  • advertisers’ and publishers’ lack of visibility over ‘take rates’ throughout the supply chain makes it harder to focus their activities on the most effective means of buying or selling advertising inventory;
  • publishers are concerned about the limited amount of detail Google provides about auction outcomes and ad performance (Google has said that they cannot link bid data to individual users for privacy reasons); and
  • advertisers have difficulty assessing and comparing Google’s demand-side platform performance, and the performance of their own campaigns, because of a lack of detail from Google.

The below table summarises the ACCC’s concerns and the proposals the ACCC is seeking submissions on.

Data-related barriers to entry

  • poorer outcomes for users (i.e. advertisers and publishers)

1. Increasing data portability (i.e. data mobility at consumer’s or advertiser’s request) and data interoperability (i.e. without a consumer’s request), e.g. by requiring Google to offer access for rival firms to specified types of data

2. Require data gathered in the context of supplying one ad tech service to be ringfenced i.e. prevented from being used in the supply of another ad tech service

Conflicts of interest and self-preferencing

  • Customers' needs not prioritised
  • Misuse of market power (self-preferencing)

Introduce rules to manage conflicts of interest and self-preferencing, e.g.

  • prevent information sharing between ad tech services (i.e. ringfencing);
  • obligation to act in customer's best interests;
  • provide equal access to rival ad tech services;
  • increase transparency.

The ACCC notes that the Competition and Markets Authority (UK) and the European Commission have each recently proposed similar obligations for key digital platforms.

Opacity in the supply chain

Users are prevented from making informed decisions about Google’s services, and/or comparing Google services to other providers’

  • weak competition

1. Implement a voluntary industry standard to enable full, independent verification of DSP services (initially developed by industry).

2. Implement a common transaction ID system that would allow a single transaction to be traced through the entire supply chain.

3. Implement a common user ID system that would allow tracking of individual users (subject to privacy protection). This would enable third-party attribution providers to provide independent attribution assessment as they would be able to track all ads seen by a user regardless of DSP servicing the ad.

The ACCC is due to release its final report on 31 August 2021. Given these time constraints and the complex nature of the proposals the ACCC is seeking submissions on, it is unclear whether there will be enough time for the ACCC to fully flesh out a detailed set of recommendations by then. Rather, we expect the recommendations to be relatively high level, with any details and mechanics to be ascertained through consultation with the relevant industry participants following the release of the final report. We also expect the ACCC will likely seek to work with industry participants to develop voluntary industry arrangements, rather than recommend legislative intervention, in the first instance. However, the ACCC has also commented that it may consider making further recommendations if industry participants cannot come to an agreement.

The ACCC also stands by its related recommendations in the Digital Platforms Inquiry Final Report, namely:

  • amending the CCA to include a prohibition on certain unfair trading practices, which the ACCC contends would help to protect consumers against the risks involved in widespread collection and use of targeting data; and
  • establishing an ombudsman to resolve complaints and disputes relating to digital platforms, which the ACCC contends would protect consumers against fraudulent and scam ads.

Tensions between consumer privacy and data-based competition

Finally, while reading the ACCC’s potential concerns and solutions you may have been thinking, but what about consumer privacy? Do we really want Google to be sharing more data with third parties?

On the one hand, the ACCC is suggesting there needs to be consumer data portability and interoperability to “level the playing field” for all industry participants. On the other hand, a proposal to increase access to consumer data goes against the ACCC’s concerns about consumer privacy protections.

The ACCC acknowledges that Google has claimed that privacy concerns (privacy legislation or consumer expectations) prevent it from releasing raw data about how ad tech services operate that would enable publishers and/or advertisers to evaluate Google’s performance in more detail.

The ACCC seems somewhat sceptical of this claim, and states that it will:

  • investigate whether privacy claims are genuinely motivated by privacy considerations, or competition considerations;
  • explore whether the concentration in the supply of ad tech services means that unhappy users cannot realistically switch to more transparent servicers without such data; and
  • consider the potential effect of Google’s proposal to block third-party cookies on Chrome.

but acknowledges that protecting consumers’ privacy is essential.

Can the “misuse of market power” prohibition apply to ad tech services?

The proposals set out in the ACCC’s proposals are similar to remedies that would be sought from and imposed by a Court if a company was found to have breached section 46 of the CCA (e.g. access to a key input, arms-length dealing and ring-fencing requirements and transparency). However, the ACCC’s interim report says it has yet to form a view as to whether the conduct described in the report has breached section 46. Further, the ACCC comments that “section 46 of the CCA does not address all the concerns which can arise from vertical integration in ad tech”. It will be interesting to see whether the ACCC in the next phase of this inquiry:

  • takes a stronger view on whether the relevant conduct is likely to amount to a section 46 contravention; and/or
  • expands on its view as to why the “misuse of market power” prohibition is inadequate for addressing what the ACCC considers to be unique issues in ad tech markets, noting that the prohibition was broadened and reformulated relatively recently. For more information about misuse of market power, see our analysis (ACCC releases guidelines on misuse of market power, concerted practices and non-merger authorisations).

Next steps

Submissions on the Interim Report are due by 26 February 2021. If you would like to discuss any of the issues raised in the report or discuss digital and data issues more generally, please contact one of our experienced partners.