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Ad Tech Forrest Gump Ari Paparo on his New Book, and Whether the Feds Should Have Nailed Google Sooner
00:26:30
Next in Media spoke with Marketecture CEO Ari Paparo, author of the new book "Yield: How Google Bought, Built, and Bullied Its Way to Advertising Dominance" about how Google was able to build a monopoly on programmatic ads, despite so many people in the ad industry shouting about it for years - and whether we can stop the next one.
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- [00:01]
Mike Shields
Collaboration is a new competition. The One Audience alliance by Elemental TV unites premium publishers to tackle CTV's biggest challenge, fragmentation. By collaborating over AI powered audience insights and inventory, we're creating an ecosystem where advertisers win, publishers thrive and audiences stay engaged. Join the movement redefining ctv@elementaltv.com 1audiencealliance that's E L E M E N T a l t v.com Oneaud I e n C E A A L L I A N C E this week on nexty Media, I chatted with the great Ari Paparo, founder and CEO of Marketexture. Ari has a new book coming out on August 5th called Yield How Google Bought, Built and Bullied Its Way to Advertising Dominance. And we talked about his experience covering the Google antitrust trial, why he thinks it took the government so long to go after the search giant despite such seemingly blatant anti competitor behavior over many years. Ari also talks about why he felt that he was the right person to write this book. And what happens next now that other companies are trying to sort of follow the same tech stack playbook? Let's get started. Hi everybody. Welcome to nexting Media. I am Mike Shields here. I'm here with Ari Paparo, special guest today. He is the CEO and founder of marketecture, as many of you know. And he is the author of the upcoming book Yield How Google Bought, Built and Bullied Its Way to Advert Rising Dominance. Hey Ari, thanks for being here.
- [01:29]
Ari Paparo
Absolutely. Thanks for having me Mike.
- [01:31]
Mike Shields
So many things to talk about. I've been enjoying the hell out of your book. It's great fun for me because I know a lot of the people in the book but not everybody. I've covered a lot of the events but not to this depth. I'm still learning lots of interesting things. It's a great read. But I'm going to try and look at this from a like 30,000 foot perspective. Maybe this is really about to get into it. There's a, there's, there are multiple Google antitrust accusations and suits. This is specifically about, about their actions in the programmatic advertising ad tech publishing world, not search. All those other things. Just to be clear, the question I would ask a lot of people might ask is how the hell did the feds not see this from the front from the beginning?
- [02:14]
Ari Paparo
Right.
- [02:14]
Mike Shields
If you are like I, this is, these are, there's no perfect analogy but it's like how could you let a player own the exchange and all these other pieces like would that, wouldn't this be like Goldman Sachs Owning the stock exchange or something like that. But as you take people through this or how this happened, it wasn't that easy to know how big programmatic was going to be, where it was going. The Feds did look at the. Now we're really were talking about the initial big deal which was Google buying DoubleClick and there were other exchanges around at that time, like right. Media. So that's a long question of how, where do you come out in like shouldn't they have known this? Shouldn't they have seen this coming? Is that an unfair thing to say?
- [02:56]
Ari Paparo
Yeah. So to start with, the story is sort of bookended from the beginning is where the invention of the ad exchange, which pretty quickly leads to the acquisition of DoubleClick. So it's a technology innovation that changes all the parameters of this trillion dollar advertising market and that opens the floodgates to all kinds of disruption and changes. And then Google ends up through the DoubleClick acquisition in a poll position, a control position, and then they slowly but surely march towards dominance where currently, according to the courts they have 90% market share of the ad serving market and more than 50% of the ad exchange market. So yeah, the. I have a chapter about the FTC's review of the DoubleClick deal and the FTC was in a difficult position because at the time the DoubleClick deal was being evaluated, which I guess was 2008 or 7 to 8, and they write this in their report. The market for this sort of indirect automated sales of media, the what we now call programmatic or exchanges, was so nascent, it was like a new invention. There was, there certainly wasn't a billion dollars worth of media going through it. It was very small. I think Adex probably had something like $50 million.
- [04:09]
Mike Shields
I remember covering these early companies and being like, what the hell are you talking about? This isn't how media works. Like you're going to, it's not going to make sense over time.
- [04:17]
Ari Paparo
Yes. And at the time there were also evidence that Google had been working on its own ad server and had not made much progress on that. And of course buying the leading ad server solved that problem. But at the time the court or the FTC said that was evidence that just being Google was not enough to dominate another market. So I think we have to give a little bit of the benefit of the doubt that it was very hard to picture that the cards would play out the way they did. And, and also we have the internal documents from Google in many cases with people like Neil Mohan and Jonathan Belloc and the other executives there in those days, and especially in the ad meld competition day, saying, you know, we're behind, people aren't using our ad exchange.
- [05:00]
Mike Shields
Right, right.
- [05:01]
Ari Paparo
The ad exchange might not be successful.
- [05:02]
Mike Shields
That's what they're saying in terms of some elements of. I don't even, they don't even totally know what they're buying in some of these cases. When companies look at the, look at these back then.
- [05:09]
Ari Paparo
Yes, exactly. So I don't think it was preordained that they would be this absolutely dominant or it wasn't also preordained that Programmatic was going to become this dominant, that it was going to effectively become the lingua franca of all of digital advertising. But it all did happen and it did roll out that way and it turned out to be sort of a winner take all market to some extent.
- [05:32]
Mike Shields
Now, one of the things that stood out to me, and I should have understood this better, I think, but the real, tell me if I'm articulating this right, the real problem or that the feds missed or that regulators miss or that no one, maybe not enough people grasp was it wasn't just that a company that sells a bunch of ads was also going to own the marketplace, which feels like it has a lot of conflict. It was the like bad thing that was hiding in plain sight. Was that the, the advantage that it was going to be connected to their server.
- [06:01]
Ari Paparo
Yeah.
- [06:01]
Mike Shields
Was so significant. Can you explain that and why maybe that people didn't grasp why that was a big deal?
- [06:07]
Ari Paparo
Yeah, sure. So the ad server is the software that determines what ad ultimately shows up on the page and effectively determines who winner is of an auction. Even if you have an ad exchange also bidding into it, the ad server is the final step. And just like the way you can get sniped on ebay, where you want to buy something on ebay and someone comes in the last second and grabs it for $0.01 higher than your bid. The ad server has the information about the prices being offered in that auction. And through a product that really DoubleClick invented before the Google acquisition called dynamic allocation, the built in ad exchange had that information and was able to effectively snipe the bids for $0.01 higher than anybody else. That already is a pretty big advantage that anyone who owns an ad server could theoretically keep auctions for itself at an effective price.
- [06:58]
Mike Shields
So to put in more frank terms, maybe an ad exchange isn't just an ad exchange even at that time.
- [07:04]
Ari Paparo
Right.
- [07:04]
Mike Shields
Because you could have a bunch of others that would not have that factor involved.
- [07:09]
Ari Paparo
Yeah, that's right. So the Ad Exchange is collecting the bids and choosing the highest bid among the bidders in the Ad Exchange. But you could have other things that are bidding also, like your orders from your direct salesforce or ad networks that aren't on the Ad Exchange. They just have like old fashioned ad tags. So there's all this demand coming from all these different sources, but the ad server sees it all, it has to. It's the final bottleneck. So that information advantage was a big one. And then you have the secondary advantage that you started your question with, which is having this enormous amount of demand, meaning the advertisers, which Google had. So it's as if, you know, ebay also had, let's say, I don't know, a salesforce that was out there, you know, talking to collectors and offering them goodies. And then whenever a nice item of value showed up on their auction, they knew exactly who's willing to pay for it and they knew what the price was going to be at close and they could just grab it for $0.01 more over and over and over again. And, you know, independent collectors would feel a little bit, you know, abused by that system.
- [08:11]
Mike Shields
Right. What also stuck out to me is the subsequent deals when Google starts building. Like we said, the Feds looked at the DoubleClick deal and DoubleClick had already been in the spotlight from previous deals years ago. The obvious thing they got killed for when Google was out and buys a dsp, which was an unexpected winner. And also, and then admel there, there wasn't a whole lot of scrutiny there at all.
- [08:35]
Ari Paparo
Nope.
- [08:35]
Mike Shields
And I guess there probably should have been, but. And the, the sort of sneaky thing about buying again, there were a lot of DSPs in the market, bigger names, but the cookie to cookie connection was significant. Right. If the Feds didn't understand the significance of the ad server, the cookie thing was even probably more lost than a lot of those people who were paying attention.
- [08:54]
Ari Paparo
Yeah, yeah. So Google acquired Invite Media, which turned into DV360, which is the number one player in the buy side DSP market at the time. The acquisition, I think was for $80 million. And it has been reported, I think by Business Insider a while back that they arranged for the price to be just low enough to escape any, any scrutiny whatsoever.
- [09:14]
Mike Shields
It doesn't scream like, we got to watch this deal, like, but also it.
- [09:18]
Ari Paparo
Just brings up the point that the antitrust and the regulations in the United States are meant to prevent monopolies and the DSP market invite media was probably a 10% market share company and it just would not have.
- [09:30]
Mike Shields
It's not like Google tomorrow buying the trade desk. People are like, what the hell are you doing? Exactly.
- [09:34]
Ari Paparo
It wasn't like that. And also it's worth noting that when the FTC did look at DoubleClick, there's quite a bit of testimony in Congress and to the group about the information power and the privacy issues relating to the acquisition. And those had no bearing on the decision because the FTC correctly noted that their mandate had nothing to do with those issues. It only had to do with anti competitiveness.
- [09:55]
Mike Shields
So you know this. I was trying to think of another analogy. It would be crazy if today, you know, a holding company owned a television network. You'd be like, what the hell? How can you own both sides of the equation? But it wasn't, I know that's not a perfect one, but it wasn't that clear that this was like totally going to be monopolistic or at that time.
- [10:14]
Ari Paparo
Yeah, I think you made that quote about Goldman Sachs owning the New York Stock Exchange and that's like a paraphrase of a real email that Jonathan Belloc sent me that turned out to be like exhibit A in every single case against Google. He probably regrets to this day sending that email, but he, he mused internally at Google by email, you know, it is as if a bank owned an exchange. And I think that it all brings up the fact that while the advertising market became financialized and became like the financial market, it was never regulated. There's not a single regulation about how transactions need to clear in the advertising market. It's entirely on best behavior and contract law.
- [10:54]
Mike Shields
No one is paying attention. Like what's, there's another anecdote that stuck out to me when Brian Lester and WPP starts B3 but eventually became a trading desk. Like they were just kind of using their clients budgets to like tag the whole web and accumulate all this data. Like I'm not saying it was illegal or wrong, but it was like that's the kind of thing that feels like if someone was watching, they would have said what's going on here? But nobody was watching or cared.
- [11:20]
Ari Paparo
Yeah, there's no privacy regulation in the United States, certainly not in the historical context. So putting a tag on every single campaign from every single advertiser across a holding company and collecting all those cookies and getting intelligence out of it, it's not clear what law you're breaking.
- [11:33]
Mike Shields
Right. It's shrewd and maybe clients wouldn't loved it but it was, you didn't do anything wrong and nothing you go to jail for.
- [11:39]
Ari Paparo
Did you know what B3 stood for before? No.
- [11:41]
Mike Shields
Please tell people because I thought it was very funny.
- [11:43]
Ari Paparo
So B3, which was the precursor to Zaxis I to Brian Lesser about it and he said, you know, we didn't have a name, we just had to come up with a name because people kept asking what it was. So we called it B3, which stood for big black box.
- [11:58]
Mike Shields
Which is sort of extremely telling about the, the entire industry in a nutshell.
- [12:04]
Ari Paparo
It's hysterical. I love it.
- [12:05]
Mike Shields
Okay. We, we were talking about Brian Lester. What's cool about this book, you know, we're talking about these intricacies of, of the macro business and ad tech. It's a story about people and you may you turn a lot of the people in this into characters to try to illustrate the different stages of the business. I guess why use that device? And one that stood out to me, which was interesting that Neil Mohan, who we know is like this huge guy at Google and runs YouTube today, had a actually different point of view in the company at one point in his career. But maybe talk about the use of characters and why this is such an interesting eclectic world.
- [12:39]
Ari Paparo
Yeah, because it's a tech story, but it's not really. It's. It's about a marketplace of buyers and sellers and technology middlemen and they're all constantly negotiating with each other for their points of view being the correct one. And it's kind of fascinating how over the course of this period of time you had folks like Brian o' Kelly who are pushing this narrative of programmatic first, technology first. And you have other people like Wenda Harris Millar who is saying no, no, no, no, this is about, this isn't pork bellies, this is creative. This is about touch. And it continues with people fighting Google like Andrew Casales of the world and the Steph Lasers of the world who are like rebels at the door trying to get header bidding adopted because they know header bidding will be the first chink in the armor against Google's total dominance. And I just think it's really interesting stories and people are pretty passionate about it.
- [13:36]
Mike Shields
Tell me if this makes sense to you. Like there's a section where you talk about when, when Google first buys DoubleClick and DoubleClick is actually has a lot of classic ad. It was a tech company but it had New York ad salespeople and non engineering and, and they're clashing with the Google people and they're Elitist it almost like it seems like a precursor of where we are today, where like so much of our, of the business world and society and communication is being driven by these like engineering types who are maybe not the most emotionally touched people, but they're like sort of making huge decisions about how the world works. And that was like a little bit of a precursor of that. Does that sound crazy?
- [14:16]
Ari Paparo
Yeah. No, it's not. I was there. So, you know, I'm not a character in the book. I just want to say that because I was sort of uninvolved in various aspects, but I was there. I was the guy in the background taking notes. And there was a very different point of view of the kind of New York centric doubleclick people versus the tech centric Mountain View people. And it was that the Mountain View people thought it should all be automated, it should all be programmatic. There should be machines making all those decisions. And the New York people were more like software people who were selling software to customers who they understood and liked to go to lunch with and like heard their problems. And I don't really say this explicitly, I maybe I hint at it, but I think a lot of the problems that Google started running into in the second half of the 2010s that led to the antitrust was about a changing of the guard. Where Neil Mohan left, he became the head of product and later the CEO of YouTube. You have Jonathan Belloc left, Scott Spencer left. All these folks who basically built the display business at Google moved on to other career opportunities just because they wanted to happen, as it happens. And they were replaced by people who came from Search. And the people who came from search were pretty arrogant about, about the business and they thought they built the world's.
- [15:33]
Mike Shields
Greatest money making machine. And they knew it.
- [15:35]
Ari Paparo
They did, they did. And the AdSense. AdSense, which was the original product sold to publishers by Google, is self service. It's like, get a tag, make some money, don't ask any questions. And they started treating the DFP customers like that and they didn't like that. And the DFP customers have one big advantage over Google, which is they have, you know, they have a lot of politicians on speed dial.
- [15:56]
Mike Shields
Right, right. Obvious question is like, why do, why did you do this? I always say I'm going to write a book. And then I'm like, wow, that seems incredibly hard. And it's hard to squeeze in your life. And then how did you figure out how to balance. You are, you are in this world and you were in these companies when it's happening. How'd you figure out how to get that right without getting an autobiography or something?
- [16:16]
Ari Paparo
Or worse. Just losing friends. And the book's not out yet, so August 5th, just losing all my friends.
- [16:22]
Mike Shields
All done.
- [16:24]
Ari Paparo
I always wanted to write a book also. And I felt that obviously as an expert in advertising technology, like I thought about books around this territory and it all, you know, it all basically read like a textbook. It's like, okay, well this was invented, this is invented, blah, blah, blah. And it was only through the lens of the Google antitrust trial and the drama that's inherent in a courtroom that I started to hear the stories firsthand and said to myself, okay, this is about people and it's about a struggle and it's also about journalism and the future. And I felt like there was a story to be told that would cut through just the, like, you know, people who follow me on Twitter, but towards a more mainstream business audience that I hope will be interested in it.
- [17:06]
Mike Shields
You mentioned you were there for a lot of the trial. Did it feel, you know, so many, so many, so many of us, including myself, have our image of trials from movies and tv and did it feel, I'm sure it wasn't like the OJ trial, but was it dramatic? Did it feel like, wow, this is. You could feel the stakes in the room, or did it, was it super dry? Because we're talking about, you know, what pricing floor.
- [17:26]
Ari Paparo
It was quite dramatic. It was a short trial, it was only three weeks start to finish. It was very dramatic, especially the DOJ's case because they brought ad ops and senior ad tech kind of people who gave firsthand accounts of how they couldn't switch ad servers, how they tried, how they were unable to do anything along with sort of Google witnesses who were. Had pretty damning emails and other testimony, you know, to set up the, the story that they were trying to tell. The. There were quite boring moments though. The, especially the expert witnesses were incredibly dull. But you know, overall it was a pretty good story.
- [18:03]
Mike Shields
Coming back to, you know, we were talking a lot about, about shouldn't they have seen this coming or whether they should have or not. Fast forward, you know, I don't know, five, seven, eight years later, you, you had people screaming about these kind of things. Like I remember famously tubemogul yelling about how you can only buy you YouTube through Google's exchange and they put ads in the paper and I wonder why then didn't people, regulators move faster. And my, one of my theories is, tell me if you like ad tech Companies are not sympathetic to the even. Even though, like I always say, like ad fraud stories are never, we're not that big in the early on because people weren't getting ripped off. It was brands. This was the problematics of the world theoretically getting screwed over.
- [18:46]
Ari Paparo
Yeah.
- [18:47]
Mike Shields
Or even publishers who, I don't know if you know, a lot of people in Congress feel bad for them. Like why, why do you think this wasn't getting more scrutiny faster?
- [18:56]
Ari Paparo
Yeah. So there was definitely percolating scrutiny around Google and big tech in general probably started accelerating in 2016. And from a political point of view, from a Washington point of view, it's hard to untangle the election of 2016 and the bleed and Cambridge Analytica and Facebook from Google. Even though they have nothing to do with each other. They're all, they all kind of like a wave together. When you get to the specifics of Google in the advertising world, there's really two things that drew attention. There's what you just mentioned, the restriction on buying YouTube which started in 2014 and has been testified by O'. Kelly. O' Kelly testified in front of the Senate on this and it's a very big deal. And then there's the publisher thing. And the problem with the buy side YouTube thing is that YouTube is by no definition a monopoly. It has 10% of viewership. It has, you know, which is great.
- [19:48]
Mike Shields
But you know, it's not, you know, there's still, there's 12 other players that.
- [19:51]
Ari Paparo
Really matter under US law there's nothing you can do about a non monopoly abusing its position as long as it's not fraudulent. So that even though that's actually a huge competitive issue and arguably anti competitive, it's not illegal. So a lot of time is being wasted on that subject. Meanwhile, the publisher side is, is a much stronger case, you know, 90% market share, et cetera. And I think that, and I tell the story in the book that it was some of Google's actions in that time period, including something that's called upr which is a. Regardless of how important it is, it basically was when Google pulled a feature away from publishers so they took a feature away from the software publishers used that benefited Google and that just was so obviously a problem.
- [20:40]
Mike Shields
Screw you, help us. Like that was a very clear moment.
- [20:43]
Ari Paparo
That was very clear. A total arrogance and I think that just fed a lot of the fuel. There's also politics. You know, the first real case against Google in the United States was in the waning days. It was like two weeks before the 2020 election. So we're, we're deep into the Trump administration. Congress had been investigating big tech and Google was definitely not popular. And that's when the first case, led by Ken Paxton of Texas. So it's a very red state with a lot of other red states. That was the first case that broke the dam. And it was only about like 18 months, two years later, that the DOJ filed their case. It just so happens the DOJ filed the case and moved much, much quicker. And the Texas case still hasn't even come to trial, which is crazy.
- [21:27]
Mike Shields
Yeah, which is crazy how slow these things can move. Okay, on that note, do you think we might be seeing history repeat itself? And then I'll ask about how do we, how do we, how can we even stop the next monopoly if it comes? I guess I'm going. My mind goes to an. Amazon and Meta are under scrutiny from regulators, don't get me wrong. But you could argue, well, Amazon's doing the same playbook. They, you have to use their DSP and then their marketing cloud is like really essential to operating. Well there, I mean, yes, there's a lot. You could also argue there's a million other retail media companies, so who cares? But like, there are examples of companies trying to do this googly kind of thing. Are, are there more monopolies that we should be worried about? And can the Feds even react?
- [22:11]
Ari Paparo
Yeah, I think there's definitely a danger that Amazon uses its power, which is extraordinary. It's an extraordinary amount of data for marketers and reach among its audience to tie up a big portion of the media business and create a little mini monopoly. And I don't see anything stopping them right now because what they're doing is not illegal. They don't have a monopoly in anything except maybe book sales or something. So I think it's once again sort of a failure of the regulatory state that there's effectively nothing you can do in the United States. In Europe, though, the Digital Markets act allows the use of the law or regulators to step in whenever there's sort of a, you know, minimum scale or maximum scale of, of power, which, you know, you can argue plus or minus, but at least gives them some tools to use.
- [22:58]
Mike Shields
Right. Okay, now, what about the future that's coming fast? You know, there's the, there's the how do you regulate artificial intelligence overall? Which is going to be a massive challenge in the context of advertising. You know, you're starting to see these black box products from Meta and Google and others. You're going to, I'M sure you're going to see some similar media buying optimization tools on the buy side or wherever. I, I don't, I don't know that anyone is going to rule the industry or not, but if something, if we start going there, how can regulators even know how they work, what they might be doing wrong? Or is that unregulatable?
- [23:34]
Ari Paparo
Yeah, there's a lot to that. I mean, Sorry. So the impact of AI on publishers is largely outside the scope of everything I've been talking about. But it is being considered in the Google Chrome search case because the judges identified that the same data advantage that put Google in monopoly position in search is available to AI as well. More data equals better AI equals more consumer searching, more data. So there definitely appears to be a natural monopoly in search and maybe that'll carry over to AI. And I think that it's probably the right thing to do to look into that right now before it gets out of hand. I don't know what the right remedy is. The whole problem with the search case is that the remedies are not obvious at all. Whereas in this case, the advertising case, the remedies are pretty obvious, which is to force the spin out.
- [24:28]
Mike Shields
I mean, you say it should, this is the kind of thing that should be looked into. Right now my mind goes towards the most of Congress is about 100 years old. Like is anyone there? And I know the ftc, they're not the same demographic, but like who is, who is even equipped to look at this stuff in the right way right away, right now?
- [24:45]
Ari Paparo
Well, Judge Mehta, the judges in both cases have found Google to be a monopoly. And in both cases the judges are evaluating remedies. And in the search case, Judge Mehta has looked at evidence that Google is already using its search monopoly to dominate in AI. And the judge has the power to restrict or do all kinds of things to prevent that from happening. So there it is, just the case that we have one probably 65 year old dude who will decide the future, but it's better than nobody.
- [25:13]
Mike Shields
Okay, lastly, you mentioned there's Judge Mehta, there's someone named Bob Regular, and then there was someone else whose name was Severance.
- [25:20]
Ari Paparo
Almost. Yeah.
- [25:21]
Mike Shields
Did you make this book up? Did you use chat GDP just to like come up with a name?
- [25:26]
Ari Paparo
I laugh so much when I was interviewing people. Yeah, the person who's in charge of reducing the headcount at Doubleclick after the acquisition by Google, her name was Severance. That was her last name.
- [25:38]
Mike Shields
I mean, that's ridiculous. She really had no choice but to go into that area.
- [25:43]
Ari Paparo
Oh my God. Then there was the Ashton Kutcher. His involvement in header bidding which we'll leave to the reader. I'll keep that one in my back pocket. Tease. Ashton in between the 70s show and his modern incarnation was into header bidding. There's just so many stories that and some that didn't make it in the book. All right.
- [26:03]
Mike Shields
Well, awesome stuff, Eric. Terrific read. Really. Congratulations. I'm sure this was an incredible work endeavor. I can't imagine just the spell check alone that I would was Simon me But thanks so much for being here. Let's talk again.
- [26:14]
Ari Paparo
Of course. Thank you for having me.
- [26:16]
Mike Shields
A big thanks to my guest this week, Ari Paparo, author of Yield, and my partners at Elemental tv. If you like this week's episode, please take a moment to rate and leave a review. We have lots more to bring you, so please hit that subscribe button and we'll see you next time for more on what's next in media. Thanks for listening.