February 2, 2023

DoJ’s pointless swing at Google adtech

On Jan 24, the Justice Department, along with the Attorneys General of eight states, filed a civil antitrust suit against Google for monopolizing multiple digital advertising technology products, including its ad publisher, exchange, and advertiser network platforms. The complaint is the second to target Google’s adtech. In 2020, the Justice Department filed a civil antitrust suit against Google for monopolizing search and search advertising.

As is often the case, by the time a complaint goes to trial, the market of concern has changed substantially. In this case, the rise of social media advertising juggernaut TikTok and Apple’s privacy enhancing App Tracking Transparency (ATT) initiative as well as other platforms with growing digital advertising revenues now threaten Google’s seemingly unassailable market position. Moreover, where the DoJ claims harm to online publishers, advertisers, and American consumers, the government’s own social welfare indicators seemingly say otherwise.

Between 2020 and 2021, platforms like Amazon grabbed significant market share of digital advertising as people shopped online during the pandemic. Between 2021 and 1Q of 2022, Google’s year over year market share growth halved, as TikTok’s surged nearly 74% to an estimated $18.3B. Meanwhile, Apple’s estimated advertising revenues were around $5B and continue to grow with projections in the tens of billions by 2025. More details can be found in our data enclosure paper (under review).

As shown in Figure 1, pricing in the US for Search and Textual Advertising (red line), like the links one might find searching on Google’s homepage or in the Play store, consistently declined since 2010, indicating an overall competitive market. The Search and Textual Advertising index only started to increase in mid 2020, as Apple ramped up ATT and launched in iOS14.5. Display Advertising (green line) pricing also declined for several years, although has leveled off since 2010. But overall, pricing for digital advertising during the period in question was declining. In October 2020, the BLS discontinued discrete tracking of Search and Textual as well as Display Advertising, aggregating them into Internet Advertising Sales (the blue line), consistent with adtech being integrated into many platforms. The upward tick in pricing continued after the launch of ATT and advertising products on a platform of over a billion users, which could be, ceteris paribus, indicative of consolidation of pricing power.

Figure 1: Producer Price Index by Industry: Internet Publishing and Web Search Portals 

India Forces Google To Make Changes to Android & Google Play

Google has agreed to make a number of changes to the Android ecosystem and its Play Store policies in India. It will allow device manufacturers (OEMs) to license Google apps individually for pre-installation and allow users to choose their default search engine on Android smartphones or tablets. The company will enable developers to integrate alternative billing systems, allow partners to build non-compatible forked variants of the Android operating system and has agreed to alter the Android installation flow and auto-updating capability for sideload apps.

These changes have been driven by the Competition Commission of India (CCI) which after a three-year long probe, found Google was abusing its dominant position in multiple markets in the Android ecosystem and in its Play Store policies. In October 2022, through two separate orders, the CCI mandated significant changes to Google’s policies and imposed a penalty of $161 million on Google in the Android devices case and an additional $113 million penalty for its Play Store policies. Google had challenged the CCI orders at the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court of India.

The company warned that the growth of its Android ecosystem in India will stall if it is forced to implement the orders. Google also accused the CCI of plagiarizing parts of the European Commission order on market dominance and claimed that no other jurisdiction has ever asked for such far-reaching changes based on similar conduct. The tribunal sided with the CCI and directed Google to deposit 10% of the $161 million penalty within three weeks. The apex court also refused to stay the orders but granted Google a week’s extension to comply with the submission of the 10% penalty to NCLAT. Although Google has announced it will be complying with CCI’s order it has not specified a timeline for the implementation noting that “these changes across the ecosystem will be a complex process and will require significant work at our end and, in many cases, significant efforts from partners, original equipment manufacturers (OEMs) and developers.” Notably, Google’s announcement covers only few and not all of the changes prescribed under the two orders. The company has not addressed if and when it will follow through with the other recommendations but has indicated that it will continue to “respectfully appeal certain aspects of the CCI’s decisions”.

The TikTok threat narrative and Project Texas

In our cyber-paranoid age, it’s all too easy to make claims about national security threats that don’t hold up. The momentum behind the TikTok threat narrative was tremendous, yet there was not a single independent study documenting the threat. When IGP investigated these claims we found no factual basis for considering TikTok a threat to national security. Following the publication of our research, TikTok held a conference in Washington DC where senior officials briefed a group of think tanks on the details of their solution to assuage USG concerns. The solution, an agreement with CFIUS TikTok called Project Texas, is essentially a data localization agreement and a software review process. The New York Times and Lawfare produced a detailed account of the proposed solution which we will not reiterate here. Instead, a forthcoming blog post will focus on the implications of Project Texas for the future of international trade in the digital economy. IGP was also invited to a public discussion of its findings by Dr. John Lash from Dark Horse Global.
More recently, further evidence emerged to support our suspicions of that the threat narrative around TikTok is an imaginary one. Following a public records request, Al-Jazeera exposed an email thread in which the state of Connecticut CIO asked CISA and the FBI for evidence supporting a state-level ban. The federal agencies referred to the bans as based on “news reports and other open source information about China in general.” In that thread, the FBI contact could not provide any information in support of a state ban on TikTok.

Universal Digital Payments Network

The Universal Digital Payments Network (UDPN) is a proposed digital payments system that uses a distributed ledger technology platform to establish a common standard for messaging across different digital currencies and stablecoins. It aims to solve the problem of interoperability in the digital currency space. Launched at the 2023 World Economic Forum, it has already been called the ‘SWIFT of stablecoins and CBDCs’. The whitepaper lists several proof-of-concepts under test which are anticipated to be completed by June 2023 for pilot commercialization. This includes purchase, transfers, and exchange of digital currencies with fiat money or other digital money; payment gateways for e-commerce platforms; cross-institutional KYC; seamless cross-border payments and foreign exchange; and assist in issuance and circulation of CBDC. The whitepaper clearly states that the platform will not facilitate transactions of “unregulated public-chain cryptocurrency such as Bitcoin.” This raises several interesting questions. Does this mean that any digital currency regulated by any government will be acceptable? Or does it need to be regulated by specific countries to be accepted? The aim, according to the whitepaper, is to provide standards that will accelerate the slow adoption rate of CBDCs. Banks and other financial institutions will be joining the attempt for the pilot phase. Currently, the key players involved in the development include  Swiss GFT Technologies, Red Date Technology (a firm involved in building China’s blockchain infrastructure), TOKO (a digital asset creation engine), and the DLA Piper law firm. Interestingly, any information about people or companies involved in the project is missing from UDPN’s website.