The Magical Black Box

Google's mission statement is "organize the world's information and make it universally accessible and useful."

That mission is so profound & so important the associated court documents in their antitrust cases must be withheld from public consumption.

Hey. The full exhibit list just posted in DC federal court for USA vs Google. J/k, they literally posted the numbers of all of the admitted exhibits which would be unsealed in a sane world where public interest is respected even more so because the defendant is insanely powerful. pic.twitter.com/FViD40xVmf— Jason Kint (@jason_kint) September 23, 2023

Before document sharing was disallowed, some were shared publicly.

Internal emails stated:

• Hal Varian was off in his public interviews where he suggested it was the algorithms rather than the amount of data which is prime driver of relevancy.
• Apple would not get any revshare if there was a user choice screen & must set Google as the default search engine to qualify for any revshare.
• Google has a policy of being vague about using clickstream data to influence ranking, though they have heavily relied upon clickstream data to influence ranking. Advances in machine learning have made it easier to score content to where the clickstream data had become less important.
• When Apple Maps launched & Google Maps lost the default position on iOS Google Maps lost 60% of their iOS distribution, and that was with how poorly the Apple Maps roll out went.
• Google sometimes subverted their typical auction dynamics and would flip the order of the top 2 ads to boost ad revenues.
• Google had a policy of "shaking the cushions" to hit the quarterly numbers by changing advertiser ad prices without informing advertisers that they'd be competing in a rigged auction with artificially manipulated shill bids from the auctioneer competing against them.

When Google talked about hitting the quarterly numbers with shaking the cusions the 5% number which was shared skewed a bit low:

For a brand campaign focused on a niche product, she said the average CPC at $11.74 surged to $25.85 over the last six months, amounting to a 108% increase. However, there wasn’t an incremental return on sales.

“The level to which [price manipulations] happens is what we don’t know,” said Yang. “It’s shady business practices because there’s no regulation. They regulate themselves.”

Early in the history of search ads Google blocked trademark keyword bidding. They later allowed it. When keyword bidding on trademarks was allowed it led to a conundrum for some advertisers. If you do not defend your trademark you could lose it, but if you agree with competitors not to bid on each other's trademarks the FTC could come after you - like they did with 1-800 Contacts. This set up forces many brands to participate in auctions where they are arbitraging their own pre-existing brand equity. The ad auctioneer runs shady auctions where it looks across at your account behavior and bids then adjusts bid floors to suck more money out of you. This amounts to something akin to the bid jamming that was done in early Overture, except it is the house itself doing it to you! The last auction I remembered like that was SnapNames, where a criminal named Nelson Brady on the executive team used the handle halverez to leverage participant max bids and put in bids just under their bids. The goal of his fraud? To hit the numbers & get an earn out bonus - similar to how Google insiders were discussing "shaking the cushions" to hit the number.

Halverez created a program which looked across aggregate bid data, join auctions which only had 1 other participant, and then use the one-way view of competing bids to put in a shill bid to drive up costs - which sure sounds conceptually similar to Google's "shaking the cushions."

"Just looking at this very tactically, and sorry to go into this level of detail, but based on where we are I'm afraid it's warranted. We are short __% queries and are ahead on ads launches so are short __% revenue vs. plan. If we don't hit plan, our sales team doesn't get its quota for the second quarter in a row and we miss the street's expectations again, which is not what Ruth signaled to the street so we get punished pretty badly in the market. We are shaking the cushions on launches and have some candidates in May that will help, but if these break in mid-late May we only get half a quarter of impact or less, which means we need __% excess to where we are today and can't do it alone. The Search team is working together with us to accelerate a launch out of a new mobile layout by the end of May that will be very revenue positive (exact numbers still moving), but that still won't be enough. Our best shot at making the quarter is if we get an injection of at least __%, ideally __%, queries ASAP from Chrome. Some folks on our side are running a more detailed, Finance-based, what-if analysis on this and should be done with that in a couple of days, but I expect that these will be the rough numbers.

The question we are all faced with is how badly do we want to hit our numbers this quarter? We need to make this choice ASAP. I care more about revenue than the average person but think we can all agree that for all of our teams trying to live in high cost areas another $___,___ in stock price loss will not be great for morale, not to mention the huge impact on our sales team." - Google VP Jerry Dischler

Google is also pushing advertisers away from keyword-based bidding and toward a portfolio approach of automated bidding called Performance Max, where you give Google your credit card and budget then they bid as they wish. By blending everything into a single soup you may not know where the waste is & it may not be particularly easy to opt out of poorly performing areas. Remember enhanced AdWords campaigns?

Google continues to blur dataflow outside of their ad auctions to try to bring more of the ad spend into their auctions.

Wow. Google. Years behind other browsers (aka monopoly power), Google is attempting to deprecate tracking system A (aka third party cookies) and replace it with another tracking system B (aka Topics) that treats sites as G data mules.

This is deceptive as hell comparing B to A. pic.twitter.com/hCBJgYr7qn— Jason Kint (@jason_kint) September 22, 2023

The amount Google is paying Apple to be the default search provider is staggering.

What is $18 billion / year buying ? The DoJ has narrowed in an agreement not to compete between Apple and Google: "Sanford Bernstein estimates Google will pay Apple between $18 billion and $19 billion this year for default search status" https://t.co/HmoZxCZkqm— Tim Wu (@superwuster) September 22, 2023

Tens of billions of dollars is a huge payday. No way Google would hyper-optimize other aspects of their business (locating data centers near dams, prohibiting use of credit card payments for large advertisers, cutting away ad agency management fees, buying Android, launching Chrome, using broken HTML on YouTube to make it render slowly on Firefox & Microsoft Edge to push Chrome distribution, all the dirty stuff Google did to violate user privacy with overriding Safari cookies, buying DoubleClick, stealing the ad spend from banned publishers rather than rebating it to advertisers, creating a proprietary version of HTML & force ranking it above other results to stop header bidding, & then routing around their internal firewall on display ads to give their house ads the advantage in their ad auctions, etc etc etc) and then just throw over a billion dollars a month needlessly at a syndication partner.

This is right -- Google was once an extraordinary product, but over time became stagnant & too grabby of random revenue as it ate its ecosystem. Makes it the right time to force Google to try and compete without reaching for its bribery checkbook
https://t.co/gDhtDMjfo0— Tim Wu (@superwuster) September 22, 2023

For perspective on the scale of those payments consider that it wasn't that long ago Yahoo! was considered a big player in search and Apollo bought Yahoo! plus AOL from Verizon for about $5 billion & then was quickly able to sell branding & technology rights in Japan to Softbank for $1.6 billion & other miscellaneous assets for nearly a half-billion, reducing the net cost to only $3 billion.

If Google loses this lawsuit and the payments to Apple are declared illegal, that would be a huge revenue (and profit) hit for Apple. Apple would be forced to roll out their own search engine. This would cut away at least 30% of the search market from Google & it would give publishers another distribution channel. Most likely Apple Search would launch with a lower ad density than Google has for short term PR purposes & publishers would have a year or two of enhanced distribution before Apple's ad load matched Google's ad load.

It is hard to overstate how strong Apple's brand is. For many people the cell phone is like a family member. I recently went to upgrade my phone and Apple's local store closed early in the evening at 8pm. The next day when they opened at 10 there was a line to wait in to enter the store, like someone was trying to get concert tickets. Each privacy snafu from Google helps strengthen Apple's relative brand position.

Google has also diluted the quality of their own brand by rewriting search queries excessively to redirect traffic flows toward more commercial interests. Wired covered how Project Mercury works:

This onscreen Google slide had to do with a “semantic matching” overhaul to its SERP algorithm. When you enter a query, you might expect a search engine to incorporate synonyms into the algorithm as well as text phrase pairings in natural language processing. But this overhaul went further, actually altering queries to generate more commercial results. ... Most scams follow an elementary bait-and-switch technique, where the scoundrel lures you in with attractive bait and then, at the right time, switches to a different option. But Google “innovated” by reversing the scam, first switching your query, then letting you believe you were getting the best search engine results. This is a magic trick that Google could only pull off after monopolizing the search engine market, giving consumers the false impression that it is incomparably great, only because you’ve grown so accustomed to it.

The mobile search results on Google require at least a screen or two of scrolls to get to the organic results if there is a hint of commercial intent behind the search query. Once they have monetized the real estate they are reliant on broader economic growth & using ad buy bundling to drive cross-subsidies of other non-search ad inventory, which may contain more than a bit of fraud. Performance Max may max out your spend without actually performing for anybody other than Google.

Google not only shill bid on lower competition terms to squeeze defensive brand bids and boost auction floor pricing, but they also implemented shill bids in competitive ad auctions:

Michael Whinston, a professor of economics at the Massachusetts Institute of Technology, said Friday that Google modified the way it sold text ads via “Project Momiji” – named for the wooden Japanese dolls that have a hidden space for friends to exchange secret messages. The shift sought “to raise the prices against the highest bidder,” Whinston told Judge Amit Mehta in federal court in Washington.

While Google's search marketshare is rock solid, the number of search engines available has increased significantly over the past few years. Not only is there Bing and DuckDuckGo but the tail is longer than it was a few years back. In addition to regional players like Baidu and Yandex there's now Brave Search, Mojeek, Qwant, Yep, and You. GigaBlast and Neeva went away, but anything that prohibits selling defaults to a company with over 90% marketshare will likely lead to dozens more players joining the search game. Search traffic will remain lucrative for whoever can capture it, as no matter how much Google tries to obfuscate marketing data the search query reflects the intent of the end user.

“Search advertising is one of the world’s greatest business models ever created…there are certainly illicit businesses (cigarettes or drugs) that could rival these economics, but we are fortunate to have an amazing business.” - Google VP of Finance Mike Roszak