Day 4: The Unified Price is Right!

The Monopoly Report is going daily during the trial. Our intrepid founder is in a windowless room without a phone or laptop to get you the good stuff.

Day 4: The Unified Price is Right!

The first half of today was spent with Rahul Srinivasan, the Google product manager who led the extremely controversial launch of Unified Pricing Rules. We heard good and bad as well as some dramatic audio testimony from angry customers. This and more from sunny Alexandria.

Here’s what happened.

Stuff we learned

• The Trade Desk thinks the advertising market TAM is $1 Trillion.

• PubMatic first launched at a TechCrunch event.

• The more we lose, the more we win.

Plaintiff’s witness 10: Rahul Srinivasan, former PM GAM

In 2019 Google rolled out a major series of changes to GAM and AdX that are important to this case and changed the company’s approach to the programmatic market. These included:

• AdX move to 1P auction

• Removal of “last look”

• Availability of “minimum bid to win” reporting

• Imposition of Unified Pricing Rules (“UPR”) on GAM customers

This followed fairly soon after the launch of Open Bidding, Google’s header bidding competitor. Combined, all of these changed ushered in the modern era of programmatic. I wasn’t clear from the testimony which parts of these Rahul was specifically in charge of, but certainly UPR was a big part of it.

The DOJ brought Rahul as a witness and brought forth testimony to make the case that a) UPR was created to benefit AdX at the expense of publishers; b) Google knew this was bad, but did it anyway.

In an email between Rahul, Sam Cox, and Aparna Pappu complaining about how AdX was losing opportunities due to floors/rules set specifically on AdX, Sam said “It makes me want to turn off the ability to floor the market as a single unit.” To which Aparana laid out 4 reasons for pricing rules (the fifth as adde by Nitish Korula in a follow-up):

1. AdX has last look, and they want the price to go up [instead of 1c more than header price].

2. Publishers think undesirable ads on AdX are correlated with lower prices.

3. They can simulate a real time waterfall by using different prices [increasing yield].

4. Global Bernanke subsidizes higher pricing rules.

5. Revenue diversity [added by Nitish].

Numerous exhibits were presented as Google PMs and engineering managers debated what to do about this situation and the team settled on the idea of UPR, wherein publishers would not be able to have different pricing rules for AdX vs other buyers.

Evidence was then shown that Google seemed aware this was going to cause some problems. In an email from Nitesh he said “With [UPR] we would be taking away from functionality that publishers have today” and then concluded that this functionality should be bundled with the first-price auction announcement, which they assumed publishers would like.

In a separate email Rahul acknowledges that publishers will be upset, especially for reasons of revenue diversity. Of the five reasons listed above, there was a plausible argument that UPR was good for reasons 1-4, but number five kept coming back as an issue.

In an email from Ali Amini prior to launch it is suggested to decouple first-party auctions from UPR, to which Sagnik Nandy responds “doing this by itself [will make] it look extremely self-serving”.

The April, 2019 publisher meeting

Google called a summit in New York to preview all the changes they were making, and it didn’t go that well. Rahul and team gave the good news (first price and the end of last look), but also the bad news (UPR). The court heard an audio recording of various publishers getting really upset at Rahul and team. Here are some quotes:

Rahul testified that the final complaint, about rev share, wasn’t relevant since the auction uses net bids rather than gross amounts. He also gave a fairly compelling set of examples showing how the wrong bid could win in various scenarios where there were a mixture of 1st and 2nd price auctions and varying price floors. So there was some decent defense on this topic.

In the aftermath of the really bad publisher meeting the Google team regrouped, and, as revealed during cross-examination, tried to clean the situation up a little. They made some changes publishers asked for, like increasing the number of rules and allowing for rules that blocked based on quality. They cited “minimum bid to win” reporting as a big advancement for publishers. And they cited data that median revenue for the top 500 publishers increased by 2.7%.

The other financial effects benefitted Google, though. UPR in open auctions increased revenue 6.4% and impressions 32.6%. We’ll also hear how it effected PubMatic, below.

Cross Exam of Witness 9: Jed Dederick, TTD

Jed testified yesterday about how Google was dominant and TTD was barely scraping by. The cross-exam was delayed to today and it was a couple of hours of my life I will not be getting back.

Virtually nothing of interest happened, but here are some tidbits:

• TTD estimated the overall advertising market at $1 Trillion.

• TTD says they only compete with two companies: Google and Amazon. So you Yahoo people can take the day off.

• Jed refused to say he understood anything at all about TTD’s business or prospects. In fact he doesn’t even know he’s in Virginia.

Plaintiff’s witness 11: Rajeev Goel, CEO of PubMatic

Rajeev gave sharp and accurate testimony on the history of PubMatic, header bidding, and Google’s competitive situation.

The DOJ showed an email from 2009 where Amal Goel (co-CEO) emailed Google display head (and current YouTube CEO) Neal Mohan to ask if they could get a DFP integration. Neal sent an internal email saying “this goes directly against our Dynamic Allocation value proposition with AdX.” So that’s a no, dog.

In the Google cross-examination the point was made that PubMatic had never had a DFP integration, and to do one would require technical work on Google’s side. This supports Google’s overall “duty to deal” defense.

This testimony also touched on UPR, from the perspective of a rival exchange. Internal PubMatic emails estimated a 6-7% reduction in total media revenue as a result of the UPR roll-out.

There was also a little drama. Google brought forth a document, which they acknowledged was highly confidential, showing PubMatic’s historical take rates by customer types. The document is being admitted into evidence under seal, so we won’t get the benefit of finding out what the rates are, but Google seems to think that the data in the slide will dampen the argument that AdX’s 20% rate was excessive. We later learned that whatever this number was, it was not exclusively for open web display, so may have included takes from in-app, etc.

Plaintiff’s witness 12: Tom Kershaw, formerly Magnite

Just when everyone thought the day was over and it was time to go home, the DOJ interrupted Tom from rasslin’ grizzlies and panning for gold to give us a lesson on header bidding.

Tom’s testimony wasn’t completed today, but in short order he explained to the court the rationale for header bidding, how prebid.org was created, and how Rubicon benefited by seeing more auctions:

I look forward to more wisdom tomorrow.