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The Case For Turning Google’s Network Biz Into A Nonprofit
00:54:57
If the DOJ wins its ad tech antitrust case against Google, it shouldn’t force a breakup, says Arete Research’s Richard Kramer, who proposes this novel solution instead: Google should spin out its network business into a public interest corporation...
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- [00:13]
Alison Schiff
Welcome to Ad Exchanger Talks, the podcast.
- [00:15]
Richard Kramer
Devoted to examining the issues and trends in advertising and marketing technology that matter most to you.
- [00:24]
Sarah Sluice
Let me tell you a bit about this month's sponsor. Activision Blizzard Media is the gateway for brands to the leading interactive entertainment company. Their legendary portfolio includes iconic game franchises like Candy Crush Saga, Call of Duty, Overwatch, World of Warcraft, and more, which together attract hundreds of millions of monthly active users worldwide.
- [00:57]
Richard Kramer
I'm Alison Schiff, managing editor of Ad Exchanger and your host here on Ad Exchanger Talks, where we chat with the best brains in and around the ad tech industry. But did you know that Ad Exchanger has two podcasts? This one, of course, and the Big Story, which is a weekly roundtable discussion on the biggest stories of the week with a rotating cast of members of the Ad Exchanger editorial team. It's good fun. Most recently, we got into the weeds on the curation debate, unpacked Amazon's ad offerings, and mused on whether the trade desk is a hero, hero or a villain to independent ad tech. Check out the Big Story if you haven't already. It's a good listen. And speaking of good listens, I've got one for you with the man who never wears rose colored glasses and who won't let you wear them either. And that's Richard Kramer, Managing director and founder of Arete Research. He co hosts a podcast of his own called Bubble Trouble where he talks about some of the inconvenient truths about how financial markets really work. And there are also a lot of inconvenient truths about the online advertising industry, which we'll get into during this episode. Plus we'll do a deep dive on Richard's novel Solution to the Google Can Google's Network Business become a Force for Good? Let's talk about it. Richard welcome to the podcast.
- [02:18]
Alison Schiff
Alison, thank you so much for having.
- [02:20]
Richard Kramer
Me on my favorite question of all time because I get such a variety of answers. What is something about you that not a lot of other people already know?
- [02:31]
Alison Schiff
For my over 30 years of being a tech analyst, I have a very low tech hobby, which is I read about 100 books a year and all of them in analog format. So I'm an obsessive, inveterate reader, mostly of modern hardback fiction.
- [02:49]
Richard Kramer
Hear, hear. I hate the idea of reading digital books or books digitally. I love looking at covers. I love breaking a spine. I love a bookshelf. How are you supposed to judge someone the first time you go to their apartment unless you can look at their.
- [03:04]
Alison Schiff
Bookshelf and Equally, I spend way too much time staring at bright lights staring back at me in the form of screens. So the last thing I want at the end of the day is to have another screen to stare at. I'd much rather spend 30 minutes reading a book to wind my brain down before I go to bed.
- [03:21]
Richard Kramer
So a little bit more about you. You've lived in London since the 1990s, came from the US of A. But London is where you founded Arete Research. And I do love the name Arete, which I've learned relatively recently means excellence and virtue in ancient Greek. So you and I have talked about this a lot. And this is something you've talked about a lot. In general, there are many conflicts of interest that exist in the world of investment bank research. This tendency for analysts not to look very deeply or deeply enough into the companies they cover to just add to the hype instead of helping others really understand what's going on and to say things during the Q and A portion of earnings calls like congratulations on the great quarter. Tell us how to think about xyz, which I know kind of drives you nuts and also drove you to create Arete. So tell me a little bit more about the origin story.
- [04:16]
Alison Schiff
Sure, we could do that briefly. I mean, I was a number one rated analyst at Goldman Sachs in the 90s when the mobile was booming. But I did really have some concerns about the ethics of the place. They managed to float seven companies in the first quarter of 2000, none of which I wanted to put my name to. All of which almost immediately blew up in the first.com boom. And I had this crazy idea before anybody had a notion of a B Corp to create the first independent research group which wouldn't have any conflicts of interest so we could tell the truth. There's a famous quote wrongly attributed to Mark Twain. It's actually from Upton Sinclair. Never expect a man to understand something when his job depends on not understanding it. And the phrases you mentioned, I call them sycophants and stenographers. Those analysts congratulate a management as if they're four year olds doing finger painting, you know what a great job you did and then ask how should I think about as if they're instead of highly paid professionals, empty vessels who just need to be filled with the marketing message of the company. So are now almost 25 years old. We have had a Harvard Business School case study just written on one of our short calls that we did where as has happened many times in the past with LinkedIn, with Twitter, with Unity, with many others where we were the only sell out of 20 or 40 analysts and the stock plunged 40 or even 90%. And our job is really to help investors understand what they're investing in without pitching them what the company tells them. So being able to get under the hood and probe some of the statements and financials of the company in a way that's not already presupposing the outcome.
- [05:55]
Richard Kramer
Well, I really love the idea of probing because there is way too much hot air blowing around everywhere. So I used to love watching Scott Galloway's Winners and Losers in the Digital Age series, which he doesn't do anymore. He has about 10,000 other things going on, but usually it was just Scott anointing, like a winner and loser of the week in his, you know, laconic style. But sometimes he would interview guests. And in 2019, he had you on as a guest. And the title of the video was why the Breakup of the Four. So Apple, Amazon, Google and Facebook at the time, I don't think they'd change their name yet to Meta why the Breakup of the Four Will Never Happen. And that was actually my personal introduction to you. And I remember thinking, oh, that's a cool guy. I'd like to talk to him. And here we are now. But total side point, you were wearing this. It was like a maroon suit, which I've seen you wear many times subsequently on stage at our events, at exchanger events, elsewhere, when we've met, for coffee in New York. So I'm just going to take us on this brief tangent because I really do like your point of view on sustainability and clothing and buying secondhand and taking care of your stuff and being able to use it for a long time. I just, I applaud the maroon suit.
- [07:17]
Alison Schiff
I'll wear it when I see you in a couple of weeks in New York.
- [07:20]
Richard Kramer
Excellent. But I do actually have a, I do have a question that relates to technology. So during that, that interview in 2019 with Scott, I'm just going to quote you, you said the US doesn't seem to have a problem with monopolies as long as they don't harm the consumer. And it feels like the tide has changed a little bit. And that's not totally true now. Right? The tide has turned for US antitrust because since that interview, since 2019, there's been a lot of movement on the antitrust front in the U.S. the DOJ won its search case, and we're just a few weeks away from closing arguments in the US V. Google Ad Tech case. So would you still agree with that statement, or has the world changed?
- [08:06]
Alison Schiff
You know, I think it was Winston Churchill who famously said, when the facts change, I changed my mind. And, you know, clearly for 30 years you had antitrust largely locked in the closet under the Borkian consumer harm standard. And that was this whole law and economics push of saying, well, if consumers aren't worse off or you can't prove they're worse off, it's fine to be as big as you want. And that's where the US didn't just get big tech, but it got big cable and big ag and big pharma and lots of other bignesses. And I think at the point that I did that video with Scott, you know, a couple of my points I feel are still very valid. Let's take the first one, which was. This may seem like a controversial statement, but I think the NSA and CIA, if they were really clever, they would have invented Meta and Google because they love the idea of 2 billion people put under surveillance every day. And unless you think Edward Snowden was a fantasist, you would assume that the US Government has backdoors in all these companies. And we've heard quite a bit of rumor about that, but obviously it's never been confirmed. You also have the notion that these companies are currently spending $100 billion each Meta and Google, on CapEx and R& D. They're investing in inventing the future and the us Every country actually wants desperately to have those sort of companies under their purview. And wouldn't you like a data center in your district, Mr. Congressman? So all those points I feel are still valid, aligning the interests of the U.S. or any nation with its national champion companies. But I do think that the tide has turned somewhat in questioning that consumer harm standard in antitrust. And that's how we got to where we are today, with the DOJ pursuing several cases against Google as well as cases against Apple and the FTC under Lina Khan, exploring issues around Meta and Amazon, among others, and, and even Microsoft in the crosshairs.
- [10:00]
Richard Kramer
So I want to talk more about Google VUS, the AdTech Edition, because it's not just an historic moment for antitrust in the U.S. but, I mean, for the online advertising industry in general. And I cannot overstate how surreal it was to be in the gallery, in a courtroom, because I got to go to the first week of the trial in Alexandria, watching people that I know personally testify under oath about the inner workings of header bidding. Not an experience I thought I would have, but yeah, I mean, that trial.
- [10:31]
Alison Schiff
Played out just sell the tickets on Broadway.
- [10:36]
Richard Kramer
I mean, I'll say I thought it was fascinating. I had a great time. I thought I would be half bored and half scribbling so fast that I would go back to my Airbnb afterwards, unable to read notes and just like pull my hair out trying to write a story, but neither was true. I was able to take notes successfully and it was a fascinating week with a few exceptions, I will say some of it got a little repetitive with which the judge pointed out a few times, like, stop explaining like what header bidding is to me. Like I, you don't have to define it anymore. I get it. And the trial itself was very quick over the course of three weeks, you know, we. She got it done. I'll be going back actually on November 25th to listen to the closing arguments in person. There's no decision yet, obviously, which means that all that people can do right now is speculate on the outcome and speculate on the potential remedies if Google loses and actions that Google might take even before you have a novel potential solution that I think would tick a lot of boxes in terms of oxygenating the market, but without the like, blunt force brutality of a breakup. You wrote this very compelling column for us on that topic, which everybody should read. Look it up. The title is how to make Google's Network Business a Force for Good. So let me just turn that into a question. How can Google's network business be made into a force for good?
- [12:03]
Alison Schiff
One of the things I always strive for Arete to do is figure out what the right or optimal outcome ought to be and work backwards as to what might be preventing it. So you always want to question a management team and say, well, why aren't you doing this? Or why wouldn't you pick up this new threat? Or, or look at this additional part of your business with the notion of what's realistic. Now in this case, I think there is a very interesting, compelling realistic outcome that benefits Google because they are not going to do anything that's not in their self interest without being forced to at the end of a lengthy string of appeals and would benefit the industry. And I think one of the strange things about this AdTech trial is here we are pulling apart the inner workings of the network division at Google, which there was some fantastic disclosure in the trial. But also you realize that that network division says according to its own disclosure, has an average 31% take rate all in. Now actually that would be one of the lowest end take rates across that whole Buy side and sell side and all the exchange bits in between between and all the ancillary brand safety and analytics and measurement services that would be one of the cheapest outcomes. But what I've always wondered in the past 10 to 15 years I've looked at adtech is what relationship does that 30% or 50% all intake rate have to do with the cost? Because when I first started looking at adtech I came to the market with this financial markets analogy. You have the buy side and the sell side, the SSPs and the DSPs, they're like brokers and market makers. And there's an exchange in the middle and there's investors who are trying to acquire inventory of shares that via market maker. And yet you can trade stocks for a tenth of a percentage point or less, but yet trading ad impressions cost you 50 percentage points or 30 percentage points. And that to me just made no sense. And it hasn't. So I'll lay out the solution I have and the reasons why I think it might work for Google and you tell me where I'm wrong. I'm throwing this out for the industry. I'm talking to a lot of folks about it and I haven't had anyone push back and said that's crazy yet. So I think Google should take its network business, the entire end to end ad tech stack that deals with third party publishers and spin it out into a B corp, a public interest corporation. Now if we start from the premise of what adtech is, it is fundamentally arbitrage. Buy at one price, sell at another, hopefully higher or charge a fee in between the buyer and the seller. And unfortunately it's all too often, and this is a terrible word that I use, but it's obfuscatory, it lacks transparency, it's opaque, whatever you want to call it. I would like to turn adtech from a giant fee extraction machine into a fee minimization machine and bring the marketers on the one side which are buying ad inventory and the publishers and all the sources of ad inventory on the other side that want to get paid for it as close together as possible. The aim of this public interest Corp would be to put the most largest portion of marketers money in the hands of the publishers as possible. Does that make sense for a start? And then I'll give you the reasons why I think it might actually happen.
- [15:45]
Richard Kramer
I do love the premise. The word obfuscatory is a little challenging to me, but I do like your idea.
- [15:50]
Alison Schiff
Here's a couple reasons. I'll give you five reasons why this might happen. First of all, we can agree after all these trials, Google needs a PR win, right? They have been hammered on the on the stand, some embarrassing disclosures. They must really be sick of watching their executives get paraded in front of prosecutors and torn to shreds. Second, they also must be hyper aware that Microsoft fought the DOJ for 10 years over bundling Internet Explorer into Microsoft Office and lost and then won. But they missed mobile and missed the Internet. And I would have to think that Google from a top down management perspective has better things to do than. Let's get on to the third point. Argue over one of its smallest, less than 10% of revenue and lowest margin businesses, right? They simply don't need the hassle of dealing with all these pesky third party publishers who complain all the time for a business that makes an operating margin, which according to the disclosure we saw for 2021 would be about a third as much as Google overall makes. So this is dilutive business they don't need. It's a headache. Now another thing, if you spun out that network B Corp to handle all that third party publisher inventory, you would then raise the value of the enormous first party base of inventory that Google has on its own. What it used to call sites business, now it calls search and other SO maps, YouTube search. All of its own properties would benefit because you would take all of the potential decisioning away between a dollar goes into performance max and they decide whether to put it on their own sites or on a third party site. You do away with all of that. And last point, Google shareholders would get a share in this B Corp. Which on its own could be 100 to $150 billion market value company. It would be by far the largest. It would have eight to ten times the profits of the number two which was the trade desk. And that might be a very interesting stock to own on its own. It might also bring a lot of publishers along with it because they'd be making more money and would bring up my last point. I'll end on this a giant big short on adtech on all those listed ad tech companies that are giving you a take rate or a margin. But you know that is based on them adding all sorts of hidden fees in between a buyer and a seller or for some function that you never knew existed until it was just, you know, laid out on Ad Exchange.
- [18:42]
Richard Kramer
What I do like about this, that last point is that a new business of this nature would be incentivized to have a low take rate like it could actually compete on fee transparency?
- [18:53]
Alison Schiff
Well, not only that, what we've seen, and there is really no debating this, and I will still claim, because it was in your column quoting me to be the one who came up with this phrase, forensic ad tech. The reason we need all this forensic ad tech from, from analytics and Zephyr and Confiant and Human and all these others, and they constantly come up with new fraud schemes and so forth, is because everyone has an incentive to make the market big and they have a disincentive to look too carefully at what the composition of that big market is. Since the 2015s, we have had endless exposures of ad fraud schemes and malvertising and all that sort of stuff because the incentives aren't to look into and expunge that and only buy high quality inventory. There are too many players with the wrong incentives in the market. And I think to end all that, you have to incentivize the largest player in the market to behave the best. And right now the trials would tell you, well, Google hasn't exactly behaved the best, but we haven't really put the rest of adtech on trial against it. So we don't necessarily know what the benchmark is. This set of outcomes we have right now might have a lot of very negative unintended consequences if the government were to break up the Google network business into its peace parts.
- [20:19]
Richard Kramer
So I do want to talk more about forensic ad tech as a category in a little bit, but let's talk about why the DOJ should accept this as a solution rather than pushing for a more aggressive remedy. It really does make sense to me why Google would. And I understand some of the other things that you've mentioned. The DOJ doesn't want to crush a great American company necessarily. And you know, the DOJ has, I think, an incentive to also show that it's being aggressive. So those two are maybe opposing motivation. So why should the DOJ accept this?
- [20:57]
Alison Schiff
I'll give you a couple good reasons. First of all, the DOJ needs a win. For all we know, depending on how things come out, and by the time you hear this podcast, we may know how things come out in the next regime change or not in the us Jonathan Kantner and the DOJ staff or some of his staff may not have a job. So they need closure in these sort of deals. They need to bring something to a conclusion at some stage. They may be mindful or may not of the unintended consequences of, for example, saying, oh well, we're just going to spin out the ad server. But then how many publishers have the tech team so that they can just hot swap in a bunch of different ad servers? And there was a hilarious comment from Ari Paparo in the trial when he said, I just cringe as a former product manager at Google, listening to an economist and a lawyer debate how easy it Is to develop APIs. So I just don't know that the DOJ understands what it's going to be tinkering with. But let's also look at two other simple aspects. One, consumer harm. This would lower prices by removing all the extra costs of fee extraction in the marketing costs for all those product companies that they have to pay to find the right ad inventory. That's one key point. And second, if you think the DOJ has some sort of mandate to foster democracy and foster voices and support the publishing industry, who are among the noisiest complainants here in the network case certainly, as well as the search case, well, they would also benefit because you would be putting more of those marketing dollars in the hands of those struggling publishers instead of having them get siphoned off by the giant, the extraction machine known as AdTech.
- [22:49]
Richard Kramer
So, okay, let's say the opacity of the AdTech machine gets unraveled and Google's network business gets spun out and becomes like Network B Core or whatever the title would be. Would this also satisfy regulators in other regions, like in Europe, for example?
- [23:08]
Alison Schiff
I think it would, in the sense that those 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. What they're trying to do is reduce costs. And obviously the incremental marketing costs that are a portion of the $700 billion digital ad industry are something borne by every economy. And they're trying to make sure that those noisy publishers who complain that they've been disintermediated by tech get a bigger share of marketing dollars or able to represent their inventory more effectively compared to what's happening behind the big walled gardens. Now some of those publishers are coming together to form their own walled gardens. You have Ozone Project in the UK and you have others in France and Germany and elsewhere. You have some publisher consortium in the States. But ultimately, if you want to support those publishers as an alternative to the inventory that sits on big tech, then you want to make sure that they get the largest slice of marketers dollars that they can get their hands on.
- [24:23]
Richard Kramer
Okay, well, I still want to talk about antitrust after the break. We're going to Take a quick one now and when we're back, we'll get a little bit into the search case because we have remedies on T app for that one, so stick with us.
- [24:50]
Sarah Sluice
I'm Sarah Sluice, executive editor of Ad Exchanger. I have with me today Antonio Miller. He is research manager of Advertising Insights of Activision Blizzard Media, where he gets to research how people are gaming and what kind of ad experiences work for players and brands. Welcome, Antonio.
- [25:08]
Antonio Miller
Hi Sarah. Thanks for having me.
- [25:11]
Sarah Sluice
Attention and the metrics that define it are really hot industry topics today. And I know your team recently did research on this subject. Can you tell us a bit more about it?
- [25:21]
Antonio Miller
Yes. So for the past year, a team has been diving into the subject of attention, mostly through eye tracking research and internal measurement data. And now through our latest research titled Play It How Gaming Immersion Unlocks Player Attention, we dive into the concept of immersion, which when studied can predict consumer action with 80% accuracy. This means immersion impacts metrics like brand recall, awareness and even purchase intent for brands. And we're finding that gaming is the key to high quality attention, not only because it outperforms online video and social media and immersion, but also because of its ability to engage and delight audiences and hold consistent, stable immersion.
- [26:00]
Sarah Sluice
Okay, so immersion is a key thing here. How does gaming differ from other forms of media in terms of capturing and sustaining audience attention?
- [26:10]
Antonio Miller
So in our latest research, we found a few things. First, Gaming has a 99% viewability rate. It also has more ads that are fully viewed at 100%. That's hard to beat. Secondly, games provide players a place to be relaxed and happy, which is crucial for stable immersion and can translate to better ad experiences. This seems obvious to us. There's so much content on social media and online video platforms, you don't know what you're going to get. With gaming, every point of the journey is opt in, from launching the content to ad moments that are timed and rewarded when you need the most. And that's what keeps in game immersion and ad immersion stable. And finally, as a result of all this, gaming outperforms online video and social media in immersion, which, as I've said earlier, has huge impact on metrics like awareness, recall and purchase intent.
- [26:56]
Sarah Sluice
If brands want to take advantage of this highly immersive gaming space, how should they get started?
- [27:03]
Antonio Miller
So the thing to remember is that gaming is about joy. It's inherently fun. So I'd encourage brands to have fun with it and execute it in a way that can enable that balance of fun immersion and brand resonance. We have an internal studio, it's called Starrcade Studios, that does exactly this. It partners directly with brands to find that right balance. So I'd say Starrcade Studios is a great place to start. However, if you're intent on creating a campaign without so much external support, prioritizing partnering with a publisher that is thoughtful about ad placement, offers immersive experiences like branded mini games and rewards players for their time. We know players value this exchange. We also have data showing that players are more immersed after a thoughtful ad experience, which supports the sentiment that when done right, ads are welcome.
- [27:49]
Sarah Sluice
Thank you so much, Antonio for those tips.
- [27:52]
Antonio Miller
It was my pleasure. Thanks for having me, Sarah.
- [28:10]
Richard Kramer
All right, we're back and I think it would be a good idea, Richard, if you could just summarize everything that you just said in like 60 seconds or less so that people have a good nugget style sense of what your idea is in case it comes up during a cocktail party and they want to share it with somebody else.
- [28:34]
Alison Schiff
Absolutely. And the whole point of podcast is to get fodder for cocktail party conversation. I would like to see Google spin out its network business. They can either spend years filing appeals, leave its internal operations hamstrung and end up with a still low margin business, or spin it out and allow that business to oxygenate the market of third party publishers. Their own performance max algorithms could become the largest buyer on this new network business. And a Google executive themselves suggested in their testimony that the plumbing of Google's Antec business should be a public good run by the government. I think that's the right idea. And when I've looked at all the noise and debate around and all the fantastic blogging done by ad Exchanger, by Monopoly, Report, by check my ads and many others from the trial, I said hang on a second, we're getting too deep in the weeds here. Let's take the largest player and change their incentives. Instead of their incentive being hide what they're doing and make as much money as possible, turn their incentive to show everyone what they're doing and do it at the lowest possible price.
- [29:50]
Richard Kramer
Ear, ear. Do you have anybody's ear? Have you been talking to anyone who might be able to elevate this idea to people that could make it happen or just do some whispering, the only.
- [30:02]
Alison Schiff
Thing I can say to that is yes, but I can't, shouldn't say anymore.
- [30:07]
Richard Kramer
Tantalizing.
- [30:08]
Alison Schiff
And for all your listeners, I would love to have feedback on whether you think it's a crazy idea. I do believe it will be one considered in Mountain View and elsewhere and in Washington, because I think ultimately, and this was my point on Galloway five years ago, is that this ultimately comes down to a settlement. The US does not want to kill its big tech champions, but they need to resolve this case. Google understands that the case has to be resolved at some point, and having been ruled against, ruled a monopolist in the search case, and let's see what the outcome of the network case is. There's a price to pay, and in this case, the price is not fines. And I don't think the DOJ wants to be regulator. They're playing cops and they want to reset the rules of the road. So I've always assumed that there would be some sort of negotiated settlement between these two companies, because in the finance world that I've lived in for the past 30 years, you've had literally hundreds of billions of dollars of fines paid by large investment banks, frequently being caught with the most awful malfeasance and compliance failings and so forth. And they always have a deferred prosecution agreement which says, we admit no wrong, but by the way, here's another five or $10 billion fine we're going to pay. So I always assume that in the same way as you have banks that are too big to fail or too big to jail, you will find some sort of common ground settlement between the DOJ and big tech, where they amend their behaviors somewhat and we all move on.
- [31:46]
Richard Kramer
Although the government does seem to have the stomach to at least say it wants to break up Google, because they published their proposed remedies in the search trials about a month ago, and they're considering behavioral and structural remedies. And there's not a lot of detail, but, I mean, they could push for a breakup of Google's Chrome and Android businesses. That could happen.
- [32:07]
Alison Schiff
Yeah. And. And so we read that 10 pages, or nine pages, actually it was of. Of remedies. And that was really like a laundry list of everything that they could possibly consider. Our issue with that. And, and we've written a very detailed piece called Cracking the Antitrust Nut that this is drawn from, where we look at both search and equally, the network remedies and how you'd put them together and what the unintended consequences might be. But a problem I've got is that there is no standalone business model you can point to for either a smartphone OS that is Android, or a standalone browser business that works. So the idea of, well, let's force Google to spin out Android. Well, there's really one profitable or Maybe one and a half profitable Android smartphone makers in the world. I'm not sure if they would still be profitable if they were forced to pay a 40 or $50 license fee for Android on top of the smartphones they're currently making. And equally, if you look at Mozilla, literally the entirety of their revenue base is a search deal they have with Google. So is there a standalone business model for these piece parts? And what would the unintended consequences be of, for example, saying that Google would not be able to acquire traffic anymore? Well, I think a lot of publishers would fairly immediately go to the wall. You know, they've effectively outsourced their sales agent function of their ad inventory to Google's network stack. So I'm a little fearful of these remedies being too pure in an antitrust spirit of law and not dealing with the practical realities. And I'll give you one other great example of that before we move on, which is there isn't a single publisher in the US or globally that doesn't have Google workflow baked into their operations. And the idea that you could just drop in alternative ways to get paid for your ad inventory overnight and that wouldn't be hugely disruptive to an already beleaguered publishing industry to me seems fanciful in the extreme.
- [34:22]
Richard Kramer
So end default payments. Some of that money can go to publishers and also Mozilla, which I don't want Mozilla to go out of business. Open up search monetization with a unified AdWords auction. I think that was another option that you laid out in your report and some choice screens, maybe some other things.
- [34:41]
Alison Schiff
And, and I think that, you know, one has to be mindful that there are parts of search which are a natural monopoly. But at the same time, Google bears an enormous cost to collect all that search data, to send the largest bot program out in the world and, and crawl the web constantly to discover things on search. And there's the brand. It's the number four brand in the world. It's a verb for an entire generation of people using the Internet. There are all sorts of reasons why you are not simply going to legislate a market share shift. And equally, when you look at it from a perspective of a stock market, the idea that you could set up a fair and transparent exchange function in the middle of search presupposes that there are more than four or five companies in the world named Amazon, Microsoft, Apple and Meta that would be able to observe, ingest, review and bid on half a trillion search queries a day. And the idea of opening all that up. Well, I'm not sure again, whether anonymized or not, you would want all of Alison Schiff's search queries to be thrown up for an open bid to whoever wants to observe that, or how you would preserve, to make sure that that didn't go into the hands of, for example, all the many nefarious actors that are being alleged to influence US Elections right now.
- [36:06]
Richard Kramer
For the record, it would just be searches for, for cat toys and movie tickets. But I, but I completely understand.
- [36:12]
Alison Schiff
Just think if, if Putin was able to see how, how, how tuned into cat toys you are.
- [36:18]
Richard Kramer
So Amazon, Apple, Meta and Google, but not the Trade Desk. So that's my little segue. I want to know what you think of this narrative that's out there right now, which I think is kind of a sour grapes sort of thing. If you, if you'd ask me for my opinion, that the Trade Desk is becoming this Google like monopoly, becoming everything it reviled and that it's throwing its weight around. Some ADSEC people are getting very complainy about that.
- [36:49]
Alison Schiff
So I think as with anything, there is partly a grain of truth and partly this reflects an astronomical valuation which has been placed on the Trade Desk, which is completely out of kilter with any sort of rational economic logic. I mean, the Trade desk might have $600 million of free cash flow this year, or maybe a billion, but it's got a $60 billion valuation. There is just no other part of the ad tech industry and indeed any of the 15 ad tech IPOs that happened in 20, 20 and 21, they've all with one exception, are all below their issue price. This is just the massive exception that proves the rule and that's why it's attracted so much griping. I don't think it's a monopoly, but I do think it shares some characteristics with Google. And I'll point out two of them. One, the Trade Desk reports a once a year they report a, a very suspiciously flat 20% take rate. And we know from our research that's comprised of everything from a 5% take rate on CTV business in a private marketplace to take rates which can be 40 or 50 or 60% when they layer on all the data fees and all the tick boxes on Trade Desk buying screens. And it's actually 30% for Cocai and not 20% is as the traditional agency fee is expected. So the Trade Desk shares with Google a complete lack of transparency and disclosure around its business. And they also share one other trend which they've been moving towards. And that's why so many noses are out of joint, which is they, like many other people in the industry, have looked at Google and said, hey, I can see that controlling both sides of the trade, which by the way would be illegal in the financial market sense, that is a great way to make a lot of margin, right? If you can control the bid offer and you're the largest broker in the market and you have the most traded stock in the market and you own the exchange and you own the settlements and clearing system, hey, terrific. You're Google or you're the trade desk. You can make a lot of money. You know, we have heard everything from the trade desk will not allow people to benchmark open path versus other SSP offerings. And the trade desk will not give you detailed breakdowns unless you really press them for it and certainly won't give them to investors of all the additional data fees that are layered onto their buys. They are clearly with this SP 500 and open path, trying very much like Google has been alleged in the network business case to be playing both sides of the fence, representing the buyers of ad inventory and representing the sellers and not necessarily showing where they're taking the most portion of money from or whether they're being an entirely honest broker in the middle. So the trade desk does look a lot like it would like to be Google. It has a lot of characteristics of being like Google, but obviously from a profit point of view, it's not a fraction of where Google is today.
- [39:57]
Richard Kramer
The trade desk does position itself though as a very transparent organization, champions of transparency. But it sounds like you can't get the numbers that you need to make a really detailed determination of their business.
- [40:11]
Alison Schiff
It's great marketing, but it's not borne out by their financial disclosure. Look, many other players have championed themselves as being very transparent relative to Google. But as we learned in the trial when we got the emails from all the inner workings inside Google, the lack of transparency was supporting what may certainly in the search case are alleged to be supernormal monopoly rents.
- [40:37]
Richard Kramer
So transparency, not to be cliche or to use a cliche phrase, but sunlight, best disinfectant. And during the first half we were talking about this newish category of companies that you've termed or Arete has termed forensic ad tech. We're getting this unprecedented transparency into how adtech works, although I kind of feel like it's transparency into how ad tech doesn't work from very smart technical people. They're willing to dig in, they're willing to share what they find Sincera Deepsea Analytics. I think you mentioned Zephyr Confiant. What, what do you think this trend means for the ad tech ecosystem? Because there's a real desire to hear about this stuff and people also love beating their chest, rending their clothing and banging on the table and it's time for change. They're gnashing their teeth. Exactly. Time for change. Time for change. Time for change. They say it from our stage, but then the next report comes out and guess what? Bad practice is still happening. So of course things don't change overnight. It's a, it's a longish process. But yeah, this forensic adtech trend, what does it mean for a very necessary cleanup of the ad tech ecosystem?
- [42:02]
Alison Schiff
Look, I think it comes down to the simple word incentives and for the moment, the incentives of the chain of spending from the CMO to the, to the agency, to all of the ad tech intermediaries in the chain, to the vanity metrics or whatever you want to call them, to the outcomes. No one is really deeply incentivized to be good fiduciary stewards of that spend. Instead they all want to get invited to the conferences and be really an important client and make sure they get the best team to work on their pitches. And, and the CMOs know that they have a very short period of time to make a mark. And if they're a villain for their CFO by being caught out wasting a lot of money, well, they're going to be going in a couple of years anyhow. What has surprised me is how when I have suggested, for example, at an A and A conference with all these CMOs in the audience that the single best way, when they were all looking for cost savings to reduce their costs is to stop buying Open Web Programmatic. You could have heard a pin drop because they've been told for the last 10 years that open Web Programmatic is the key to finding all the needles in the haystacks that are your future growth. So I think again back to the B Corp idea. Flipping incentives on their head and saying what can you do to make this industry constantly drive in an Amazon like way to lower and lower and lower cost levels or make some relationship between the cost of service and the margin that players are extracting from it. I think that would be a hugely welcome change. Because you're right, we hear these revelations, everybody gets incredibly upset, makes a lot of pledges and promises and then goes off and it's back to business as normal. And it feels like nothing's really been accomplished. And I find that very distressing. And that's why I thought the best way to tackle it is to take the biggest, best equipped player and make them the one who's going to drive to the most transparent, lowest cost platform. And by the way, one thing I didn't mention, I think you could get an enormous number of incredibly talented people to work for this B Corp because I think you can always attract people to work for mission driven organizations. And I agree with Tony Katzer from the Ivy Tech Lab who's a friend and he says there are a lot of good people in adtech who want to do the right thing, but they're also working for companies that need to make a profit. And that profit is typically made by. I know it doesn't roll off the tongue, but obfuscatory arbitrage, you know, inserting themselves as a fee extraction layer which doesn't have a direct correlation or relationship to the value they add. Adtech is a supply chain, it's not a value chain. To quote my friend Danny Knapp here in the uk.
- [45:21]
Richard Kramer
Let's talk a little bit more about incentives though, because I wholeheartedly agree with everything that you're saying. But when I think of some of the anti fraud companies in particular, there is a strange incentive there because by shining a light they're also doing a little bit of fear mongering even though it's a reflection of reality. And hey, buy our technology because we will save you from the big bad. Fill in the blank.
- [45:48]
Alison Schiff
Yeah. And again, this is why I've pushed the notion of forensic ad tech as being a cost savings play. Every single company we look at and Aretech covers over 100 companies. We're always asking questions about capital allocation. What's the incremental investment in marketing and CAPEX and R& D, is that generating incremental gross profit dollars, incremental operating profit, etc. And I have to think that there is just a giant play on forensic ad tech delivering cost savings or greater efficiencies. And yes, of course there are lots of legitimate publishers that do run made for advertising websites because advertising pays the bills. But that's very different from companies where as for example Sincero will show you, they have dozens and dozens of ad loads on the page relative to the tiny bit of content they may have. And you get a very different URL if you go directly versus if you go via bought and acquired traffic. So those are just two great examples where you clearly are siphoning off revenue that doesn't benefit anyone. And I don't think it's fear mongering. I just think people not taking the time to pay attention to how their money is being spent, they're being, they're being negligent in their fiduciary duties to the marketing budgets that they're sitting on top of.
- [47:19]
Richard Kramer
No one ever got fired for used to be IBM, right? But now what is it?
- [47:26]
Alison Schiff
We've talked about walled gardens for the longest time. One believes you have a, an authenticated logged in audience you can get access to and that is somehow a superior outcome. And you would like to think that that goes for everywhere on the web. But we've seen too many reports from Christophe and others where spend is just being allocated all over the place in a spray and pray way. And it doesn't end up being seen by humans. Well, it maybe ends up being seen by humans, but on some websites that a CMO would never want to present to their board.
- [48:00]
Richard Kramer
So we are nearly out of time and I have about 27 more questions to ask you, so I'm going to make them into a lightning round shoot. Five or ten second answers. I do want to talk about ad trends. So it is November already. Somehow another year is nearly in the books. Totally crazy. The inexorable passage of time gives us an opportunity to talk about the year that was and the year to come. So what would you say is the most important thing to have happened in 2024 in the online advertising industry?
- [48:35]
Alison Schiff
What's interesting in 2024 is you've now lapped or you're in the process of lapping some big changes that happened in 2023. If you go back two years ago, Twitter was a $5 billion ad business and now no one believes it's doing a billion. If you go back two or three years ago, China outbound spend from the likes of Shein, Temu and Aliexpress were negligible. And now they're something that gets called out in the meta earnings calls. If you go back two or three years ago, retail media sounded like this super promising thing, but no one really knew what it was. And now it's being cited as behind several billion dollars of ad spend at Walmart and tens of billions of dollars at Amazon. So I think you have seen some interesting substitutions underneath that 5 or 7% growth in digital ads overall. The question for 2025, heading into what might be a very stormy set of economic times, is whether that next set of collapses are already exhausted. And instead we're going to have to see the sort of hunter gatherers that were able to go out and forage, turn into carnivores and turn on one another if the growth is not sufficient that you could see big tech and all the other players in the industry keep putting up those double digit or greater growth rates and they have to figure out ways to steal audience or ad spend from one another.
- [50:08]
Richard Kramer
Richard, this is a lightning round.
- [50:10]
Alison Schiff
Sorry, there's not a one word answer there. I know it's reductionist and people want to boil it down to what was the one thing that happened in 2024? Well, the economy was better than I expected. Well, that doesn't really tell me much. So sorry. Let me try to do better on your next questions.
- [50:27]
Richard Kramer
Okay. What is the biggest headwind to come in 2025?
- [50:33]
Alison Schiff
We don't know how all of the pressures building in the global economy, whether they are going to and if they do, how intensely they will impact the global digital advertising market.
- [50:45]
Richard Kramer
And what about a tailwind?
- [50:48]
Alison Schiff
Well, time spent continues to shift towards these digital properties. I am concerned that a lot of them will be filled with AI garbage. But you know, we are spending more and more time in front of our screens as much as we try to resist it.
- [51:05]
Richard Kramer
So this might be AI garbage. Might be the answer to my next question. Where is most of the hot air going to be coming from? As in the bs, the whiff of.
- [51:14]
Alison Schiff
BS at Ad Exchanger. You just published some stuff questioning curation and is anything new under the sun? There are going to be many reconfigurations of the ad tech stack where companies decide to change calling what they do to try to make it look like they're doing something new. When frankly curation as far as I can tell is just another editorial function that people have been practicing for 100 years or so.
- [51:42]
Richard Kramer
The online advertising industry loves its shiny objects, loves its boogeyman. So what would you say is the single most overrated thing in ad tech right now? Like the shiniest object out there. That's just like blinding. But it's silly.
- [51:58]
Alison Schiff
Well, you know, it's all the companies glomming onto AI because if you really had clever AI and you applied it to AdTech, it would root out all that wasteful spending and say well you know what, I just for my supply path optimization, I didn't really need to look at those 20 duplicative bids from.
- [52:18]
Richard Kramer
A header bidding solution and no need for condiments. What is the biggest nothing burger?
- [52:24]
Alison Schiff
The biggest nothing burger Boy, I think, and this is going to be highly controversial, but I think a lot of what is described as CTV masks a lot of very poor quality inventory and a lot of hype relative to the traditional addressable audience that sits and watches NFL football games. They're only 70 or 80 of the top 100 watch programs in the US every weekend.
- [52:56]
Richard Kramer
100%. Chris. Chris Cain has a name for it. Sorta. CTV.
- [53:01]
Alison Schiff
Chris is brilliant.
- [53:02]
Richard Kramer
So is there any good news for independent ad tech?
- [53:06]
Alison Schiff
I mean, I think adtech as a whole has to understand that at some stage the margin structure and the cost structure of this industry has to collapse. And when it does, there will be a few players which are able to preserve their value. But there's a lot that are going to get unmasked as arbitrageurs. And arbitrage opportunities in the stock market never last for very long.
- [53:35]
Richard Kramer
Last question, what are you reading right now?
- [53:38]
Alison Schiff
I just finished a book which was sort of a MeToo book, Joe Hamaya. But I'm about to start the new Richard Powers. I've just finished the new Rachel Kushner. I just read the new Olga Tacharczyk book and I've got this strange book to read called About My Mother by a Norwegian author named Vidis Hjorveth. So I've got the new Richard Powers is the next on my shelf.
- [54:06]
Richard Kramer
Well, I'm about to start Goodbye Columbus by Philip Roth, which I've had on my shelf for ages.
- [54:13]
Alison Schiff
Literature.
- [54:13]
Richard Kramer
I do like my classics. Yeah. All right, Richard, thanks very much. Thanks for the book recommendations.
- [54:19]
Alison Schiff
You're always welcome. It's a pleasure.
- [54:27]
Sarah Sluice
Thanks to Activision Blizzard Media for supporting Ad exchanger podcasts. If you're interested in learning more about the research you heard from Activision Blizzard Media or in seeing what's possible for your next in game campaign, head over to its website www.activisionblizardmedia.