AdExchanger Talks: The Case For Turning Google’s Network Biz Into A Nonprofit
Released on November 4, 2024

In this compelling episode of AdExchanger Talks, host Alison Schiff engages in a deep and insightful conversation with Richard Kramer, Managing Director and Founder of Arete Research. The discussion revolves around the ongoing antitrust case against Google’s network business and proposes a novel solution: transforming Google’s network division into a nonprofit entity. This detailed summary captures the key points, discussions, insights, and conclusions drawn during the episode.

1. Introduction and Background

[00:57] Alison Schiff opens the episode by introducing Richard Kramer, highlighting his critical perspective on the online advertising industry and his novel proposal to address Google’s monopolistic practices. Richard Kramer is recognized for his podcast Bubble Trouble, where he delves into the inconvenient truths of financial markets, a theme he extends to the online advertising sector.

2. Origin Story of Arete Research

[04:15] Alison Schiff shares the inception of Arete Research, emphasizing the ethical conflicts within investment bank research. Having been a top-rated analyst at Goldman Sachs in the 90s, Schiff encountered ethical dilemmas that led her to establish Arete Research—a firm dedicated to independent, conflict-free analysis.

Notable Quote:
"Never expect a man to understand something when his job depends on not understanding it."
— Alison Schiff, [04:30]

3. Shifting Antitrust Tides in the U.S.

[08:06] Alison Schiff discusses the evolving landscape of antitrust enforcement in the United States. She notes a significant shift from the traditional consumer harm standard towards a more aggressive stance against monopolistic practices, especially targeting big tech companies like Google, Apple, and Meta.

Notable Quote:
"The tide has turned somewhat in questioning that consumer harm standard in antitrust."
— Alison Schiff, [09:30]

4. Proposal: Google’s Network Business as a Nonprofit

Central to the episode is Richard Kramer's innovative proposal: converting Google’s network business into a B Corp, a public interest corporation. This transformation aims to eliminate opaque fee structures and foster transparency, ultimately benefiting both marketers and publishers.

Key Points:

• Obfuscatory Fees: Current ad tech practices involve high take rates (approximately 31% as disclosed during the trial), which Kramer argues are unnecessarily excessive compared to other industries like financial markets.
• B Corp Benefits: By restructuring as a nonprofit, the network business would minimize fees, ensuring that a larger share of marketing dollars reaches publishers, thus enhancing market oxygenation.
• Shareholder Incentives: Google’s shareholders would own a stake in the newly formed B Corp, potentially creating a significant market value independent of Google’s existing operations.

Notable Quote:
"Turn Google's incentive to hide what they're doing into an incentive to show everyone and do it at the lowest possible price."
— Alison Schiff, [15:50]

5. Potential Impact and Feasibility

[15:50] Alison Schiff outlines five reasons why this proposal could be viable:

1. PR Relief: Google needs a public relations win after extensive scrutiny.
2. Focus Shift: Google is unlikely to invest in a low-margin business fraught with regulatory hassles.
3. Operational Efficiency: Spinning off the network business would streamline Google’s primary operations.
4. Enhanced First-Party Inventory: Separating the network division would elevate the value of Google’s own ad inventory.
5. Shareholder Value: The B Corp could become a highly valuable, standalone entity, attracting publishers with better revenue shares.

Notable Quote:
"Google shareholders would get a share in this B Corp, which on its own could be a $100 to $150 billion market value company."
— Alison Schiff, [15:50]

6. DOJ’s Incentives and Potential Acceptance

[20:57] Alison Schiff argues why the Department of Justice (DOJ) might favor this settlement over more aggressive remedies:

• Need for Closure: DOJ requires a resolution, potentially through negotiated settlements rather than prolonged legal battles.
• Consumer Harm: The proposal would reduce marketing costs by eliminating fee extraction layers, directly benefiting consumers and businesses.
• Support for Democracy and Publishing: Redirecting funds to publishers aligns with DOJ’s broader mandate to support democratic voices and the publishing industry.

Notable Quote:
"This would lower prices by removing all the extra costs of fee extraction in the marketing costs for all those product companies."
— Alison Schiff, [21:10]

7. Global Regulatory Alignment

The proposal is not only relevant to the U.S. but also aligns with regulatory trends in Europe and other regions aiming to support local publishing industries and reduce dependency on big tech.

Notable Quote:
"Other regions are even more determined to try to support their local publishing industries and they don't have a local big tech champion to defend."
— Alison Schiff, [23:08]

8. Comparing with The Trade Desk

The conversation shifts to discussing The Trade Desk, another major player in the ad tech industry, often compared to Google in terms of opacity and fee structures. Alison Schiff highlights similarities in lack of transparency and high take rates, drawing parallels to monopolistic behaviors exhibited by Google.

Notable Quote:
"The Trade Desk shares with Google a complete lack of transparency and disclosure around its business."
— Alison Schiff, [39:57]

9. Forensic AdTech and Industry Cleanup

A significant trend discussed is forensic ad tech, which aims to increase transparency and accountability within the ad tech ecosystem. This movement seeks to dismantle wasteful spending and improve fiduciary responsibilities across the supply chain.

Notable Quote:
"Forensic ad tech is driven by the need to deliver cost savings and greater efficiencies."
— Alison Schiff, [45:21]

10. Lightning Round: Quick Insights

In a rapid-fire segment, Alison shares her perspectives on various industry trends:

• Most Important Event of 2024: Transition of major ad spend from platforms like Twitter and the rise of retail media giants such as Amazon and Walmart.
• Biggest Headwind for 2025: Uncertainty in the global economy affecting digital advertising markets.
• Biggest Tailwind: Increasing screen time despite concerns over AI-generated content quality.
• Most Overrated AdTech Trend: AI’s role in ad tech, often hyped without delivering on cost-saving promises.
• Biggest Nothing Burger: The overhyped nature of Connected TV (CTV) masking poor inventory quality.

11. Conclusion and Future Outlook

Alison Schiff concludes by reiterating the necessity of restructuring incentives within the ad tech ecosystem. She underscores the importance of transforming Google’s network business to foster a more transparent and efficient market, ultimately benefiting all stakeholders involved.

Notable Quote:
"Adtech as a whole has to understand that at some stage the margin structure and the cost structure of this industry has to collapse."
— Alison Schiff, [53:05]

Final Thoughts

This episode provides a thought-provoking analysis of the current antitrust challenges facing Google’s ad network and presents a transformative solution aimed at fostering transparency and fairness in the online advertising industry. Richard Kramer’s proposal, supported by Alison Schiff’s insights, offers a strategic pathway to address monopolistic practices and improve the overall health of the ad tech ecosystem.

Notable Quotes with Timestamps:

• Alison Schiff [04:30]: "Never expect a man to understand something when his job depends on not understanding it."
• Alison Schiff [09:30]: "The tide has turned somewhat in questioning that consumer harm standard in antitrust."
• Alison Schiff [15:50]: "Turn Google's incentive to hide what they're doing into an incentive to show everyone and do it at the lowest possible price."
• Alison Schiff [15:50]: "Google shareholders would get a share in this B Corp, which on its own could be a $100 to $150 billion market value company."
• Alison Schiff [21:10]: "This would lower prices by removing all the extra costs of fee extraction in the marketing costs for all those product companies."
• Alison Schiff [23:08]: "Other regions are even more determined to try to support their local publishing industries and they don't have a local big tech champion to defend."
• Alison Schiff [39:57]: "The Trade Desk shares with Google a complete lack of transparency and disclosure around its business."
• Alison Schiff [45:21]: "Forensic ad tech is driven by the need to deliver cost savings and greater efficiencies."
• Alison Schiff [53:05]: "Adtech as a whole has to understand that at some stage the margin structure and the cost structure of this industry has to collapse."

This episode is a must-listen for professionals in brand marketing, ad agencies, publishers, media companies, and technology providers seeking to understand and navigate the evolving landscape of ad tech and regulatory challenges.