Google has admitted to quietly tweaking advertising auctions to meet revenue targets.
The search engine “frequently” changes the auctions it uses to sell search ads, increasing the cost of ads and reserve pricing by as much as 5% for the average advertiser.
For some queries, the tech giant may have even raised prices by as much as 10%, according to Google Ad executive, Jerry Dischler at the federal antitrust trial.
Google tends “not to tell advertisers about pricing changes”, he added.
Why we care. Google’s admission has sent shock waves through the digital marketing community, with some now questioning whether the search engine manipulates Smart Bidding for profit. Digital marketing expert Anthony Higman shared on X:
- “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.”
Why is Google on trial? Google is on trial for allegedly using underhand tactics to ensure it stays the world’s leading search engine. The U.S. Justice Department claims Google, which owns a 90% market share in search, paid massive sums to companies like Apple to make it the default search engine on products like the iPhone.
What are search ads? Search ads refer to the text and shopping promotions you see displayed at the top of Google’s search results page when users perform queries.
More than 60% of Google’s total revenue is generated by search ads. In 2020, search ads earned the company more than $100 billion, according to Dischler.
Google’s search ad revenue growth has consistently been in the “high teens” since 2012, per documents shown by the Justice Department at the antitrust trial.
Why has Google been tweaking search ad prices? Dischler claimed that staff were “shaking the cushions” to find ways to ensure his team met revenue targets given to Wall Street by Ruth Porat, Google’s Chief Financial Officer. In an email he sent to his team back in May 2019, he wrote:
- “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 signalled 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.”
When quizzed about this email during the antitrust trial, Dischler said his team’s goal was “to get creative so we could meet our quota.”
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Why tweaking ad prices matters. If Google can raise ad prices without facing significant competition, it could strengthen the Justice Department’s case that Google holds an illegal monopoly. This is an argument the department can’t use against Google’s search engine itself, as it’s a free product for users. However, they can argue that increased competition could have addressed other issues, such as privacy standards, in the search industry.
Deep dive. Read our Google search antitrust trial updates article for all the latest news from the courtroom.