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IMAGE: Real time bidding by Wichai Wi from the Noun Project (CC BY)

Jedi Blue: a scandal that highlights, yet again, the need to regulate big tech

Enrique Dans
Jan 25 · 3 min read

The Jedi Blue case, exposed by The Wall Street Journal and followed up on by The New York Times, is a clear example of the abuse of Google and Facebook’s dominant positions, and definitive proof as to why the tech giants need regulating. It’s pretty much a textbook case of everything that can go wrong an industry.

What is Jedi Blue? Basically a quid-pro-quo scheme that starts with Google’s 2007 acquisition of Double Click, and ends with Facebook, in 2018, agreeing not to challenge Google’s advertising business in return for a very special treatment in Google’s ad auctions.

To understand the significance of Jedi Blue, you have to understand how programmatic advertising works: mediated by the use of algorithms or platforms instead of humans, and in most cases, using the real-time bidding system. Basically, every time we enter most websites, the advertising spaces on them are auctioned in real time among all those interested in displaying those ads there for us to see. This auction is carried out in an ad exchange, and the winning bid is delivered via an ad server, and everything takes place in a matter of milliseconds to avoid the page slowing down. This type of advertising already represents around 70% of the worldwide total (more than 80% in UK or US), and is worth hundreds of billions of dollars, with Google totally dominating it.

When Google acquired DoubleClick and inherited its DoubleClick for Publishers (DFP) mechanism in 2007, many analysts pointed out that the leader in search advertising had acquired the leader in display advertising, which was an obvious breach of antitrust laws and an obvious source of later conflicts. The acquisition has allowed Google to build a whole empire completely dominating programmatic advertising. And Google is determined to do whatever it takes to protect it.

It was precisely the excessive dependence on Google that drove some participants in the industry to start developing and open sourcing a system called header bidding, which makes possible to launch a bid for several ad exchanges at once and in a much more transparent way than through Google’s systems. In 2017, Facebook began showing an interest in this method, which threatened Google’s dominance by improving the playing field for competitors.

But in 2018, Facebook suddenly backed off and joined Google’s system. Why? Simply because Google made Facebook an offer it couldn’t refuse: a guarantee of a certain percentage of auctions (90%) regardless of the bids; more time to bid (300 milliseconds compared to the 160 offered to others) at the risk of pages loading more slowly, along with the visibility to be able to identify 80% of smartphone users and 60% of web users. Google did not offer these conditions to anyone else in the industry, and are equivalent to playing with a marked deck of cards: even if others bid higher, Facebook wins (to the detriment of advertisers); in addition to winning, it can slow down page loading (to the detriment of publications); while harvesting information from users (to the detriment of user privacy).

If this is not a scandal, I don’t know what is. It’s proof of everything that’s wrong with the advertising industry, of how two giants that dominate the sector agree to continue dominating it and to leave out others through secret agreements that stymie competition. With a new administration entering the White House and the ability to act hands-free thanks to congressional and senate control, regulating big tech must be among its top priorities, and even more so considering that many Republicans will also agree to these kinds of measures.

Loosening Google and Facebook’s control over advertising, obtained through acquisitions that should never have been approved, is critical, because they have managed to turn the industry into a quagmire with opaque agreements that allow the big boys to share the profits. This is abuse that from any perspective needs to be corrected, now.

This article was previously published on Forbes.

(En español, aquí)

Enrique Dans

On the effects of technology innovation on people…

Enrique Dans

Written by

Professor of Innovation at IE Business School, blogger at enriquedans.com and Senior Contributor at Forbes

Enrique Dans

On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)

Enrique Dans

Written by

Professor of Innovation at IE Business School, blogger at enriquedans.com and Senior Contributor at Forbes

Enrique Dans

On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)

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