See our February 2021 update: Ad Tech Inquiry Interim Report
The ACCC wants new powers to tackle dominance in ad tech
On 28 September 2021, the Australian Competition and Consumer Commission (ACCC) released its Final Report for the Digital Advertising Services Inquiry (Ad Tech Inquiry). Following an 18-month inquiry, the ACCC concluded that competition for advertising technology (ad tech) services in Australia is ineffective and made six recommendations aimed at increasing transparency and curtailing anti-competitive conduct in the ad tech supply chain.
Consistent with trends in other jurisdictions, the ACCC concludes it needs new powers, sector-specific rules, and industry standards to address pricing practices and anti-competitive conduct that is harmful to publishers, advertisers and consumers. The ACCC cites Google’s dominance and vertical integration, pricing and performance opacity in the ad tech supply chain, and concerns about data advantage and self-preferencing by Google.
The ACCC considers that its existing investigatory and enforcement powers are ill-suited to tackling systematic issues in dynamic ad tech markets because they are slow, retrospective and targeted to specific breaches of competition and/or consumer law. Nevertheless, the Final Report indicates that it has active competition law investigations on foot in relation to Google. The ACCC’s proposal to develop rules for ad tech service providers with market power and/or a strategic position will form part of its fifth report in the Digital Platform Services Inquiry. The same report will address the ACCC’s recent merger law reform proposals for digital platforms.
The ACCC has made two targeted recommendations that Google should provide transparent information to consumers and publishers about the way it collects first-party data and the operation and performance of its ad server auctions. The ACCC also wants the industry to establish a standard requiring ad tech service providers to publish fees and take rates, as well as to enable independent verification of demand side platform services.
The ACCC’s recommendations reflect a worldwide trend towards sector-specific regulation of digital platform and ad tech services markets. The ACCC’s proposals are aligned with the frameworks and proposals in the UK, EU, Germany and Japan that tackle issues of self-preferencing, lack of transparency and ensuring data segregation.
The ACCC’s conclusions and recommendations at a glance
The Final Report recommendations are intended to address high barriers to entry and expansion which the ACCC considers to be caused by the network effects and dominance of vertically integrated firms with the ability and incentive to engage in anti-competitive conduct.
ACCC’s conclusion |
ACCC’s recommendations |
|---|---|
Google’s access to data makes it dominant in ad tech |
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Google has access to a broad range of first-party data gathered from its 60 plus consumer-facing services and third-party data from third-party sites and apps.
While Google states that it makes ‘extremely limited’ use of the first-party data it holds on individual users when providing ad tech services for the sale of third-party inventory, there is a perception in the ad tech industry that Google uses its first-party data more extensively than it claims. The ACCC considers that Google benefits from this perception.
In addition, even if Google does not currently make extensive use of its first-party data, the ACCC considers there to be a real risk that Google may use its first-party data more extensively in the future as there is nothing preventing Google from doing so (including under the current terms of its Privacy Policy, which would not require it to seek consumers’ consent) and using such data could provide it with a significant advantage over its competitors.
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Recommendation 1: Google should amend its public material so that it clearly describes how it uses first-party data to provide ad tech services.
Recommendation 3: ACCC should have powers to address an ad tech provider’s data advantage, such as data separation measures and data access requirements. |
Google has engaged in self-preferencing conduct |
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Google’s vertical integration and dominance across the ad tech supply chain and in related services have allowed it to engage in leveraging and self-preferencing conduct. Over time, this conduct has had the cumulative effect of substantially lessening competition for the supply of ad tech services and entrenched its dominant position.
The ACCC points to examples of this behaviour including Google’s refusal to participate in header bidding – i.e. refusal to conduct auctions between supply-side platforms (SSP) where multiple SSPs can compete in real-time for the same ad inventory, restricting the purchase of YouTube inventory to its own demand-side platforms (DSP) and Google’s charging of fees for third-party publishers who win bids on Google’s Open Bidding platform.
Whilst not all self-preferencing is anti-competitive, the ACCC considers that the cumulative effect of Google’s conduct has prevented actual and future rivals of Google’s ad tech services from competing effectively.
The ACCC highlights several examples of this cumulative behaviour:
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Recommendation 2: The ACCC should be given powers to develop sector specific rules to address conflicts of interest and competition issues in the supply chain.
The rules would apply to ad tech providers that meet certain criteria linked to their market power and/or strategic position.
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Google’s vertical integration creates conflicts of interest harmful to advertisers and publishers |
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The ACCC perceives that this harm is reflective in:
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See Recommendation 2 above.
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Weak competition likely contributes to high ad tech fees |
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The ACCC perceives Google as having the market power to hinder competitive ad tech fees. High levels of ad tech fees prevent publishers from investing more in online content tailored to consumers and increases advertisers’ costs passed onto consumers.
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See Recommendation 2 above.
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Opaque pricing and operation of the ad tech supply chain limits the ability of publishers and advertisers to make informed decisions |
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The ACCC is concerned that Google does not provide sufficient information about take rates of Google Ads for advertisers and publishers to compare pricing. Stakeholders have raised concerns that this lack of transparency enables Google to retain hidden fees.
The ACCC is also concerned that Google impedes transparency over demand side services. For example, Google restricts independent verification on YouTube, making it difficult for advertisers to verify the performance of their ads. Advertisers often rely on third party verification services to assess the quality of their ads. |
Recommendation 4: Industry should establish standards to ensure ad tech providers publish average fees and take rates and to allow independent verification of demand side platform services.
Recommendation 5: Google should provide publishers with additional information about the operation and outcomes of its publisher ad server auctions.
Recommendation 6: ACCC should be given powers to develop and enforce rules to improve price and performance transparency of ad tech services. |
How did we get here?
The Ad Tech Inquiry follows on from Recommendation 5 of the final report of the ACCC’s Digital Platforms Inquiry, which was released in July 2019. The Digital Platforms Inquiry Final Report commented on the complexity and opacity of the operation of ad tech services and recommended a separate inquiry into ad tech services and advertising agencies. As a result, the Government directed the ACCC to conduct an inquiry into digital advertising technology services and digital advertising agency services in February 2020.
In January 2021, the ACCC published an Interim Report which articulated concerns about Google’s high market shares across the ad tech supply chain and sought feedback on proposals to address low levels of competition, conflicts of interest and opacity in the supply chain. The ACCC did not make any recommendations in the Interim Report.
What is digital advertising?
There are three types of digital advertising: search (e.g. Google), classified (e.g. Gumtree) and display advertising. The ACCC’s inquiry only extended to the use of ad tech to deliver digital display advertising. This includes advertising in banners or videos on webpages, mobile apps and alongside social media content. The inquiry focused on ads traded through open display channels which allow different website publishers to sell ad inventory to advertisers. The ACCC estimates that these open channels were worth around $2.8 billion in Australia in 2020, or 43% of the total spend on display advertising.
Because ad tech services are not used to buy/sell advertising on closed channels like Facebook or Instagram, these closed channels were outside of the scope of the report.
Overview of the ad tech supply chain
Our insights on the Interim Report provides a simplified view of the participants, services and interactions in the complex ad tech supply chain.
State of competition in ad tech services
Consistent with the Interim Report, the ACCC is concerned about Google’s high market shares across the ad tech services supply chain. Google is a key publisher of ad space, providing ad inventory to advertisers on its own systems including Google Search, Gmail and YouTube. In the Final Report, the ACCC estimates that over 90% of all ad impressions traded in 2020 via the ad tech supply chain passed through at least one Google service. The ACCC considers that Google’s key acquisitions, including DoubleClick in 2007, AdMob in 2009 and YouTube in 2006, have helped Google entrench its position in ad tech.
While the ACCC acknowledges that vertical integration can give rise to efficiencies, cost savings and technological benefits, it has particular concerns in relation to Google. The ACCC reports that there is no other provider acting as a competitive constraint on Google.
Even though Amazon, Verizon and Xandr are also vertically integrated ad tech providers, Google is the only provider that is active across the entire ad tech supply chain. Although there are various DSP and SSP services, Google remains the largest supplier. Even if publishers and advertisers choose non-Google services, there is not complete substitution because rivals still inevitably use some form of Google service.
Table: Google’s presence in the ad tech supply chain
Service |
Google’s share |
Cause |
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Advertiser ad servers |
80-90% share of impressions |
Integration with Google’s other ad tech services, and the prevalence of single-homing and high switching costs. |
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Demand-side platforms |
60-70% share of revenue and 80-90% share of impressions |
Data advantage – the integration between Google’s services and its access to exclusive inventory. Google’s access to a broad range of first and third-party data provides it with an advantage in that it likely allows it to provide more focused targeting and attribution services than its competitors. |
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Supply-side platforms |
40-50% share of revenue and 70-80% share of impressions
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Near-exclusive access to demand from Google Ads (one of Google’s two demand-side platforms) and its vertical integration with Google’s other ad tech services. |
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Publisher ad servers |
90-100% share of impressions |
The ACCC considers there to be weak competitive constraints on Google due to high switching costs, the prevalence of single-homing and its superior integration with its SSP. |
The ACCC is still concerned about data collection and consumer harm
Consumer data is important to ad tech providers because it enables ad targeting, which benefits both publishers and advertisers. The ACCC recognises that personalised advertising is valuable to advertisers who can earn a higher return on their advertising investment, and to publishers who can earn more revenue from the sale of ad inventory. The ACCC also recognises the consumer benefits of personalised advertising – it enables publishers to provide online content to consumers for free or at a lower cost, and means consumers see ads for goods and services that are more relevant to their interests.
But the ACCC remains concerned about risks of consumer harm when “too much” personal data is collected, when consumers are not informed or do not consent to how their data is collected, processed, used or stored, and when data breaches occur. These concerns are not new and the ACCC’s observations in the Final Report echo its findings in the Digital Platforms Inquiry (DPI) and subsequent interim reports in its 5-year Digital Platforms Services Inquiry (DPSI).
Unlike its previous reports, the Ad Tech Final Report does not include any recommendations to address the ACCC’s consumer harm concerns. The ACCC has reaffirmed its recommendations from the DPI including to:
- amend Australian Consumer Law to introduce prohibitions on certain unfair trading practices; and
- develop an enforceable code of conduct by the office of the Australian Information Commissioner to regulate digital platform data practices.
What’s the ACCC’s conclusion on ad agency services?
The ACCC has not raised significant concerns about competition for ad agencies in Australia. There are six well-established agencies and a number of new entrants; this makes it easy for advertisers to switch.
The Final Report makes some observations about conflicts of interest and transparency in ad agency services markets.
The ACCC noted that publishers offering rebates and discounts to ad agencies have the potential to create conflicts of interest between the agency and the advertisers they represent. These conflicts of interest may arise because ad agencies are also often part of a holding group offering agency trading desks and data services in addition to ad agency services. Such conflicts can be minimised if advertisers are aware of the rebate and discount arrangements within holding groups.
The ACCC has not made specific recommendations in this area. The Final Report refers to existing industry-led frameworks that advertisers can use to manage and negotiate agency relationships.
What’s on the horizon?
The ACCC’s recommendations in the Ad Tech Final Report form part of its wider agenda to broaden the ACCC’s powers, reform competition law and increase sector-specific regulation to address concerns in digital platforms markets.
The proposals articulated in the Ad Tech Final Report will dovetail with those made in the ACCC’s DPSI Inquiry. The ACCC will release a concepts paper in the first quarter of 2022 and seek feedback to inform its fifth interim report due in September 2022.
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