IN CLEAR FOCUS: Author and ad tech veteran Ari Paparo joins the podcast to discuss his new book, “Yield: How Google Bought, Built and Bullied Its Way to Advertising Dominance.” Hear how Google became the center of the digital ad ecosystem by controlling the publisher ad server, ad exchange, and ad network. Ari also reveals how the company leveraged its power with secret initiatives like ‘Project Bernanke’ and what the ongoing antitrust trial and a potential breakup could mean for the industry.
Episode Transcript
Adrian Tennant: Coming up in this episode of IN CLEAR FOCUS
Ari Paparo: Google found itself as both the buyer and the seller on an enormous amount of internet advertising. And in many cases, they were also the measurement vendor through Google Analytics. And that’s just a position that is rife for abuse. They would be bidding on a given piece of ad inventory in real time. They would see they were losing, and they would just change the bid, right? So that they won. I mean, imagine if you had a second bite of the apple every time you bid on something.
Adrian Tennant: You’re listening to IN CLEAR FOCUS, fresh perspectives on marketing and advertising produced weekly by Bigeye, a strategy-led full-service creative agency growing brands for clients globally. Hello, I’m your host, Adrian Tennant, Bigeye’s Chief Strategy Officer. Thank you for joining us. Those of us who’ve worked in digital advertising over the past two decades have witnessed an extraordinary transformation. What began as publishers selling banner ads through direct relationships has evolved into a complex ecosystem where billions of impressions are bought and sold in milliseconds. At the center sits Google, controlling an estimated 90% of the publisher ad server market. But Google’s dominance faces unprecedented scrutiny. After a federal judge ruled Google operates an illegal monopoly in search, the company now faces another landmark antitrust case focused on its advertising technology, with potential remedies that could reshape the entire industry. Our guest today brings a unique insider’s perspective to this story. Ari Paparo is a pioneering advertising technology executive with over 20 years in the industry. As a former VP at DoubleClick when Google acquired it in 2008, Ari witnessed firsthand the early days of Google’s ad tech empire. He went on to found Beeswax, a programmatic advertising platform, and is credited with creating the vast standard for online video advertising. Currently CEO of Marketecture Media, Ari has authored a new book titled “Yield: How Google Bought, Built and Bullied Its Way to Advertising Dominance.” Drawing on court documents, insider knowledge, and his own experience at the center of these events, Ari reveals how Google transformed from a search company into the dominant force in digital advertising. To discuss how we got here and where the industry might be headed, I’m delighted that Ari is joining us today from Manhattan, New York. Ari, welcome to IN CLEAR FOCUS!
Ari Paparo: Thanks for having me, Adrian. I’m excited to be here.
Adrian Tennant: Well, as you know, I’ve been working in digital advertising since its beginnings, really in the mid-1990s. Now, by the early aughts, buying digital ad space meant negotiating directly with individual publishers. So Ari, what changed?
Ari Paparo: Yeah, so you could even go back further. In my book, I offhandedly mention ivory soap ads in the 1800s. There’s a sort of a continuous flow from there till the mid-2000s, where pretty much every single ad had human beings on both sides of the transaction, where an advertiser, or more likely an ad agency, was signing a contract with a publisher or a representative, a publisher rep, and saying, here’s what I want, here’s what I’m paying for it, here’s what I get. And digital followed that. The digital business that started in the mid-90s was largely patterned after print, not after TV, but after prints where things like the CPM charging and the insertion orders and the display ads, it all followed the print business. And then someone had this idea, and this is sort of the kickoff of the book. There was a company that no one probably remembers called Right Media. And Right Media was this technology that helped the middlemen, the ad networks, to thrive and to serve the ads. Ad networks were representatives of publishers. They kind of pooled a bunch of ads into a bunch of publishers and kind of mixed and matched. But it was still largely human business. And the CTO there, Brian O’Kelley, who’s kind of a legendary figure in the advertising world, and I actually worked for him for a while, he had this idea, which was, what if two of his different customers, who both ran ad networks that had a bunch of ads and a bunch of publishers on them, what if in real time they could swap the ads? Like one company would sell it to customer A, and the other customer of RightMedia would deliver it to publisher B. And those two endpoints, advertiser A and publisher B, had no contract. They had nothing to do with each other. And the beauty of that is that it matched things better, and it was able to optimize the delivery of the ads in a bigger sort of optimization space, if you want to think of it from a mathematical point of view. You could find an ad that belonged on a given publisher in a better way than what was previously possible with kind of limited pools of demand and supply. And what he told me, and I put in the book, was that on day one, when they turned this on for just two customers that were now swapping demand and supply, revenue went up by 15 percent, doing nothing else. Just matching better, 15%. And so when you add a third customer, and a fourth customer, and a fifth customer, revenue keeps going up because everyone’s better off. The buyer gets better ad placements. The seller gets more fill of their ad slots. And that kicked off what we now call programmatic advertising, which is the dominant way that ads get bought and sold in the digital world.
Adrian Tennant: Well, you were at DoubleClick when Google acquired it in 2008. Now, at the time, many of us in the industry saw it as just another tech acquisition. What did those of us on the outside miss about the strategic importance of that deal?
Ari Paparo: Yeah, I think I was on the side of thinking it was just another tech acquisition. It was just a big one, and I happened to benefit from it. But what I missed, and everyone else missed, was that DoubleClick had also launched an ad exchange, so a matching system that allowed buyers and sellers to match. And DoubleClick had this software called DFP, DoubleClick for Publishers, that was the dominant software for publishers to serve the ads on their websites. Ad serving software is very complicated, hard to build software that pretty much every major ad supported publisher, app, TV company licenses someone’s ad software. So DoubleClick was the market leader with approximately 60% market share in that business. And so you can think of that as like this giant pool of supply. If you’re trying to match demand and supply, you need to match them, right? And so DoubleClick had the largest source of supply in the entire internet. And Google had this little product called AdWords that maybe some of you have heard of. And at the time in 2004 or 5, AdWords was incredibly fast growing and profitable because it was all search, right? It had very little besides search. And so the equation here was you take literally the largest source of advertising demand in the world, which is AdWords, and you put it together with the largest source of supply in the world, which was this company, DoubleClick, that most people have never heard of. And then in the middle, you put a little matching software called an ad exchange, and suddenly billions and billions of dollars of revenue come out. And that was a pretty big deal for everyone involved.
Adrian Tennant: Well, in your book, “Yield,” you describe Google’s three-pillar strategy. As you mentioned, owning the publisher ad server, the ad exchange, and the ad network. Why was this combination just so powerful?
Ari Paparo: Right. Well, Google, unlike its competitors at the time, competitors were people like Yahoo, MSN, now Microsoft, and AOL. And, you know, some people may be rolling their eyes at us old timers talking about these companies no one cares about, but those were the competitors at the time. And Google had one big difference, which was that it didn’t have much of any owned and operated properties. So Google search obviously was huge, but there was no ads on search except for search text ads. And they didn’t put image ads or video ads in Gmail or Maps or any of the properties they owned. So as a result, Google had nothing to sell in this display advertising world. They couldn’t sell to brand advertisers or anything like that. So the reason they came up with this three pillars approach was because DoubleClick was sort of their backdoor into getting supply. They couldn’t own the supply because they didn’t own these websites. So instead they captured the software that was used by literally every website you’ve ever heard of: CNN and New York Times and CNET and now almost every app you’ve ever heard of that sells ads. All of those companies are totally reliant on this piece of software which Google still runs to this day under the brand name GAM or Google Ad Manager. And that’s how they were able to capture the supply and to monetize it with their enormous demand that I mentioned earlier. So the three pillars made a lot of sense for Google. And you can contrast this with Meta, Google’s number one rival in the advertising world. So what does Meta have? Meta has an enormous amount of owned and operated properties. Like basically, they have number one app, number two app, Instagram, Facebook, WhatsApp, they own it all. And so Meta’s strategy did not follow the same pattern. They are just selling ads on their own properties. It’s a much simpler and easier strategy and more profitable because they keep 100% of every dollar. So it’s an interesting contrast how Google ended up embracing and sort of dominating the open web, whereas Facebook/Meta effectively doesn’t do business on the open web.
Adrian Tennant: And it’s Google’s three-pillar strategy that created what prosecutors are now calling an illegal monopoly, correct?
Ari Paparo: Well, the prosecutor said so, and the judge agreed. The ruling has been made, so they are an illegal monopoly.
Adrian Tennant: Can you explain how dynamic allocation, which is a seemingly technical feature, gave Google’s ad ex an unfair advantage over the other exchanges?
Ari Paparo: Yeah, so dynamic allocation is, I would say, the linchpin of the monopoly, accusation and determination. And I’ll try to dumb it down, right? So let’s say you’re a publisher, and you sell ads yourself. Fine, that’s easy. And you put this all in your ad-serving software, and it determines what ad shows up on your website. And then the challenge is you have 10 different companies out there who are telling you, well, we’ll sell ads for you, especially when you don’t sell on yourself. And so that’s fine. That’s great. They give you money. These are called ad networks or ad exchanges. I’ll use those interchangeably. And The problem you have as a publisher is that in literally real time, as your page loads, you have to decide which one of those to allow to serve your ad. And before ad exchanges really became popular, you really didn’t know what the price they were willing to pay. All you knew was kind of like the average price that they had paid over the last seven days or 30 days. And so, as a result, it’s inefficient. You could give your ad impression to exchange number one, and they’d pay, say, $2. And exchange number two was willing to pay $3, but you never even asked them on that impression whether they wanted it or not. Because you could only ask one company at a time, basically. This was called the waterfall. So you’d ask one, then you’d ask the second, then you ask the third, and so on. And there could be a lot of these companies who are all like, you might have some specialty company that only does business in Europe. You might have a company that does certain techniques with data. The point is, it’s very inefficient. So DoubleClick, this actually happened before Google acquired them, they invented this thing called dynamic allocation. And what it did was it allowed effectively a simultaneous auction between the inventory you sold yourself, so you knew that you had an ad that was willing to pay $2, let’s say, and the ad exchange that DoubleClick had built, which would be able to bid one cent higher, kind of like when you lose an auction on eBay and someone bid one cent higher at the last minute. So they gave themselves, basically their other division, the ad exchange, this information advantage over everyone else. And publishers loved it because they were effectively getting free money. It was like higher bids from this other source they didn’t know about. And at the time, it was quite innovative because no one else had anything like it. And it was an efficiency, but it was creating a two-tiered market. The DoubleClick ad exchange had this advantage. Everyone else had this disadvantage. But it was new, so it’s hard to argue it was really anti-competitive when it was invented because it was brand new. No one had anything like it. But then over the course of time, all the other ad exchanges became very sophisticated and started having all of this demand and all these technologies, and they couldn’t even the playing field because there was this tie between, and this is what the DOJ argued successfully, there was a tie between the ad server and the ad exchange that the ad exchange had this privileged access to the ad server information. And over time, actually, that advantage declined. So there were some technical innovations that the competitors came up with called header bidding. But effectively, what happened was Google lost most of its advantage over time. And right now, as we sit here today, it really doesn’t have much of an advantage anymore. But that’s sort of irrelevant to the antitrust proceedings, because the government found that they had abused that monopoly for 10 years and gotten all the market share and all the money called, you know, fruits of the monopoly.
Adrian Tennant: In “Yield,” you write about ‘Project Bernanke’ and other internal Google projects with codenames. Ari, what were these projects actually doing and why are they now central to this antitrust case?
Ari Paparo: Right. So there was a state antitrust case and it was all sealed for a couple of years and then it got bopped around different jurisdictions and then it ended up in New York, which Google had actually asked. Google had wanted the case to end up in a kind of a blue state jurisdiction because they felt that was better for them. And lo and behold, the judge in the case unsealed the whole accusation and the world found out about all of these kind of secret projects that had been going on at Google that no one had known about previously that effectively manipulated the auction and press their fingers on the scales. So some of this is pretty esoteric. I’d probably need a whiteboard to explain it to you. But the important point is that Google found itself as both the buyer and the seller on an enormous amount of the Internet, Internet advertising. And in many cases, they were also the measurement vendor through Google Analytics. And that’s just a position that is rife for abuse. And to give a simple example, they would be bidding on a given piece of ad inventory in real time. So they’d make a bid, they would see they were losing, and they would just change the bid. Right? So that they won. I mean, imagine if you had a second bite of the apple every time you bid on something. It’s a huge advantage. And that’s just the simplest one. Bernanke was this situation where they would hold back some of the bids and put them into these slush fund accounts, and then they could win later auctions that they wanted to win because they had saved the money on previous bids. They were doing all kinds of stuff. And they justified it in most cases, because what they would do is, there was this sort of group called G-Trade. It was a bunch of super smart PhD types. And they would run these tests. And the end result of the test would be, if we do this, publishers will make 5% more money every time we cheat, more or less. And then they would pat themselves on the back and say, this is fine. We should do this. It’s better for everyone. But they would exclude the marketplace and the competitors from that analysis because it was really bad for the competitors, who couldn’t do that. And so Google’s market share just started ratcheting up and up and up and up to the point where it was testified in the case they had 90% market share of the ad server market and something like 55% market share of the ad exchange market. Those are pretty big numbers.
Adrian Tennant: Let’s take a short break. We’ll be right back after this message.
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Adrian Tennant: Welcome back. I’m talking with Ari Paparo, founder of Marketecture Media and the author of “Yield: How Google Bought, Built, and Bullied Its Way To Advertising Dominance.” Well, you report that Google executives themselves worried about conflicts of interest. There’s that memorable quote from Jonathan Bellack comparing it to “Goldman or Citibank owning the New York Stock Exchange.” So how did Google justify continuing down this path despite those internal concerns?
Ari Paparo: Well, to start with, it’s important to note that this market, this ad market, is totally unregulated. There is no oversight from the FTC or anybody else. There’s no rules that say you have to run a fair auction. So that’s one factor that has to be considered here. I think also, like I said a bit earlier, they felt that as long as they weren’t taking away from their customers’ wallets, it was in the interest of their customers, even though in many cases their customers were telling them very explicitly they didn’t want certain things to happen in the way they were happening. And that’s where I think, you know, my title has the word bullied in it. And some people have said that’s a little too harsh. I don’t think that’s too harsh. I think that’s actually pretty generous. Because what they did was they basically kept telling their customers, we’re doing this for the right reasons. We’re smarter than you. You have short-term goals. We’re Google. We think about this thing deeper. And also we’re not going to give you the information that you’re asking for to figure out what we’re up to. So they really did kind of push around their customers, especially the publisher and journalist type customers, to get the outcomes that they wanted.
Adrian Tennant: Having been involved in this industry’s evolution, I’ve seen countless ad tech companies come and go. Your book suggests many of them were forced out by Google’s practices. Ari, can you share an example of how Google’s bundling strategies impacted independent competitors?
Ari Paparo: Yeah, I think there’s two examples. One is the so-called ‘Project Poirot’, named after the Agatha Christie character. So Google felt that when their buy side – so we’ve been talking about the sell side – but when they have a buy side product called DV360, it used to be called DBM. Anyway, it’s a very large technology product that allows big agencies to buy advertising in bulk. And they decided that too much of the money from that system was going to other exchanges besides their exchange, Google’s ad exchange. It was going out to third-party exchanges. And they also felt like they couldn’t really trust those third-party exchanges, that some of them might have been taking more than their fair share of money. Once again, it’s unregulated, so Google’s probably right about this in some form. But what they did about it was they ran this algorithm called Poirot, which basically just reduced the bids on everyone else very aggressively. And they didn’t tell anybody else. It was just one day people woke up and they were making a lot less money and they wouldn’t answer any questions about it. These were partners who were trading tens of millions of dollars with Google every month. And Google just gave them the back of their hand and didn’t say anything, really. And it was testified in court by Tim Cadigan, who is the CEO of OpenX, that he had to fire 200 people because of this algorithm change. And OpenX actually filed a civil antitrust case against Google on these grounds. That’s one example. Another example that was not in the case, but is really important. is around YouTube. So YouTube is incredibly important to advertisers. It is probably the third largest social network after Facebook and Instagram, maybe. I don’t know exactly the numbers, but it’s very big. But it’s not a monopoly. There’s a lot of competition in the video space. And as a result, YouTube has largely escaped any government scrutiny. However, what they did back in 2014 was they cut off the ability to buy YouTube ads from any other technology provider. So you could, of course, go into Google Ads, AdWords, and buy YouTube ads if you want. But if you want to use your own technology, you have to use Google’s. And that was a, I wouldn’t call it a death blow, but that was a kidney punch. Maybe it would be a better answer to a whole set of companies that are on the buy side of advertising that kind of limits how big they can get.
Adrian Tennant: Well, looking at where we are today with the antitrust trial, what are the most likely remedies the court might impose? Could we actually see Google broken up like Standard Oil was a century ago?
Ari Paparo: Pretty much, yeah. So backing up, there’s two critical antitrust cases. Both cases have already found Google to be a monopoly. So the judgments are out and the remedies are what we’re waiting for. And this is just in the US. In Europe, there’s a case and in Canada, there’s a case all about this stuff. First is the search case. And it depends on when this podcast launches, we may already have the outcome of the search case. But the judge meta is supposedly going to order a spin out of the Chrome browser, as well as the syndication of Google search data to other search competitors. Because Google’s search monopoly is so powerful with so much data that it’s almost impossible to compete with them. So the DOJ is looking to force them to give away some of their crown jewels to enable competition. That’s a huge deal. Chrome is so important to the web ecosystem and so valuable, and it’s very unclear who the buyer might be. It could be a competitor like an Amazon or Microsoft, although unlikely to be Microsoft. or it could be a non-profit or it could be nobody knows really. So that’s a really big deal and will have a direct effect on advertising although in what direction is sort of unknown. In the ad tech case the remedies trial starts September 22nd in Virginia. I’ll be down there covering it and what the DOJ is asking for is a spin out of the ad server and the ad exchange in a certain order over several years. And so that’s a little less radical and will encourage more competition in the market for ads in the open web and mobile and in TV. Unclear how fast that happens or what the impact is. It’s likely to have less of an immediate impact on anyone because I think this is a marketplace of buyers and sellers and they’re going to find a way to transact even if, you know, the actual tools change a bit. But I think it’s very likely that Google will be forced to spin out some of these crown jewels of its advertising business.
Adrian Tennant: Well, you attended the entire Google AdTech trial in person and took extensive notes.
Ari Paparo: I did.
Adrian Tennant: What was the most surprising revelation that came out during the proceedings?
Ari Paparo: I’m not sure if it’s surprising, but the most compelling thing was that they had a succession of major media companies testify that they could not switch off of Google, and they wanted to. So you had News Corp, Gannett, which is the owner of USA Today, and others. come up there with senior people and say, we did the analysis. We have the spreadsheets. We did everything we could. We really wanted to get off of Google and switch to a different ad server, and we were totally unable to. And we were able to even put numbers to it about how much money we would lose if we switched. You saw the judge’s face. You’re like, this is a slam-dunk case. What is the judge going to say here? I can’t think of a more compelling antitrust argument than, I would like to have a different vendor and I’m unable to. So I think that was, and that was almost the first two or three days and the rest of the trial was sort of, you know, filling in the blanks.
Adrian Tennant: You’ve seen the advertising industry transformed by technology multiple times, from traditional to digital, from direct sales to programmatic. Ari, what’s the next major disruption you see coming?
Ari Paparo: AI very clearly is the biggest disruption. So I think when you think about technology waves, the move from desktop to mobile being probably the last big wave. Now we have this move from, you know, I would say deterministic or stochastic technology to AI. And it is moving everything at once. And no one really knows where it’s going to end up. But most importantly, The consumers are talking with their feet or their eyeballs. The consumers are saying, I don’t want search anymore. I want answers. I just want to find out the answers to my problems. And that is potentially the first chink in the armor of Google’s, you know, 15 years dominance of search. We see Google’s search market share going down for the first time ever. All right. It’s not going down a lot. You know, we’re talking about a percent here, a percent there. But any reduction in Google’s market share in search is unprecedented. So that is just one example. We don’t know what’s going to happen to categories of commerce and of travel and of entertainment. I mean, I think that the way consumers have adopted the TikTok feed as an entertainment form is just one example of how algorithms and AI are radically changing consumer behavior. And so this is going to just throw everything into the mix. I hate to give you an unsatisfying answer, like, I don’t know what’s going to happen, but it is pretty much that. I don’t know what’s going to happen. I think that the web we’re used to, that you and I probably, you know, based our career off of starting in the mid 90s, it’s pretty much at its end point, it’s going to be replaced with something else.
Adrian Tennant: Well, it’s a fascinating story. Ari, if listeners would like to learn more about your work at Marketecture Media, or of course, your book, “Yield,” what’s the best way to do so?
Ari Paparo: Yeah, so Marketecture.tv is my company that has podcasts and newsletters about ad tech. It’s really for people in the industry. The book is more written for a general audience. I would suggest you can go get it on Amazon. It’s called “Yield: How Google Bought, Built, And Bullied Its Way To Advertising Dominance.” If you want to reach me personally, my full name, AriPaparo.com. I’m very Google-able, given that I’ve had that domain for 15 years, and I’m happy for anyone to reach out.
Adrian Tennant: Perfect. Ari, thank you very much for being our guest this week on IN CLEAR FOCUS.
Ari Paparo: Thanks for having me. It was a great conversation.
Adrian Tennant: Thanks again to my guest this week, Ari Paparo, the author of “Yield: How Google Bought, Built, And Bullied Its Way To Advertising Dominance.” As always, you’ll find a complete transcript of our conversation with timestamps and links to the resources we discussed on the IN CLEAR FOCUS page at Bigeyeagency.com, just select ‘Insights’ from the menu. Thank you for listening to IN CLEAR FOCUS, produced by Bigeye. I’ve been your host, Adrian Tennant. Until next week, goodbye.
TIMESTAMPS
00:00: Introduction to Google’s Advertising Dominance
02:39: Ari Paparo’s Background and Insights
03:04: The Evolution of Digital Advertising
05:43: The Strategic Importance of DoubleClick Acquisition
07:38: Google’s Three Pillars Strategy
09:40: Dynamic Allocation and Its Impact
10:15: Internal Projects and Antitrust Concerns
12:34: Google’s Conflicts of Interest
19:09: Impact of Google’s Practices on Competitors
21:46: Antitrust Remedies and Potential Breakup
23:47: Key Revelations from the Antitrust Trial
24:54: The Future of Advertising: AI Disruption
26:35: Conclusion and Resources
