Google changed ad auctions, raising prices 15%, witness says

https://finance.yahoo.com/news/google-changed-ad-auctions-raising-191333390.html

by mikerg87 • 3 years ago

177 119 3 years ago

finance.yahoo.com

jqpabc1232• 3 years ago

In other words, Google's advertising customers lack any real insight into the rates they are being charged for "personalized advertising".

They have no choice but to take Google's word for it. It is effectively a "black box" and only Google is allowed to look inside.

seydor• 3 years ago

This is so obvious to everyone who has used their ad system.

They get away with that because they know marketing departments don't care - they have ad budgets to spend. Google gives them enough dashboards and excuses to satisfy their bosses. It is still unknown which half of advertising works.

danpalmer2• 3 years ago

Ad attribution is difficult, but it's difficult everywhere because customer behaviour is complex. It's much easier to attribute digital ads sources than it is to attribute out of home advertising. This isn't anything Google specific.

pyrale10• 3 years ago

They get away with that because they know marketing departments don't care

Even if they cared, they have no leverage.

In the financial sector, any market-maker in Google's position would be heavily regulated, and the kind of shit Google pulls would land people in jail. Even without the market manipulation, there's no way a company like Google could operate without a clear separation between departments. The reason for that is that centuries of playing that game have shown that it's the only way to keep market makers honest.

beefield• 3 years ago

This is so obvious to everyone who has used their ad system.

This. I tried once and am still a bit confused if I understood it correctly. Google seemed to refuse "too low" bids completely for no other disclosed reason than that they were too low. And the UI was hellbent to make me give google authority to bid on my behalf on googles own ad auction. Like, WTF? Who on their right mind would agree to that? I'd very much like these folks to be my customers. I guarantee, I will sell you whatever (legal) you want, as long as you agree that I can set the price to whatever I want. It just boggles my mind.

sixothree• 3 years ago

I've always kind of assumed buying more ads increases your search ranking. I wouldn't be surprised to find out if that's true at this point.

Rastonbury2• 3 years ago

This is the case for "auction" based ad platform, I don't see how there is anyway to ever police this especially when they run the auction and have full view of all bids, essentially letting them perfectly price discriminate. Where are customers gonna go? Bing?

This and all the dark patterns to nudge the user to turn on "ad optimizations" without explaining what it does, anyone who has dabbled in google ads can surely attest

jgalt2122• 3 years ago

This is the case for "auction" based ad platform,

Not stricly true for a second price auction. If you win the auction, you are know both the first and second place bid prices.

marcosdumay• 3 years ago

That's every advertising venue ever.

The modern insight is that you should be estimating your ads results instead of looking into detailed proxy metrics. And all that they lying on their metrics means is that you'll have a hard time optimizing your ads there, and thus move into other, more friendly platforms.

But, of course, I have no idea how much of this is real (it certainly is real to some extent), and how much is propaganda created to fool people into spending more on ads (it certainly is also propaganda to some extent). On some contexts, that estimation is incredibly hard to do correctly, and I don't know if people even try it.

robg• 3 years ago

What laws did they break? I’m confused by the sudden interest in monopolies when the duopolies have developed over 20 years. It’s like after Microsoft government assumed Google / Facebook and Google / Apple and EBay / Amazon had each other so all was good?

abofh• 3 years ago

So you agree none of them did well? Or you think blasting everyone without a point made one?

j16sdiz2• 3 years ago

(not OP)

This behaviour (misleading the customers) should be a standalone crime, unrelated to the monopoly case

dannyw• 3 years ago

Fraud, i.e. falsifying bid numbers.

AlbertCory5• 3 years ago

The auction code was worse than a Google-only black box, when I was in Ads. The code itself was in a "high intellectual property" subdirectory that most engineers could not access.

There's an elaborate economic rationale for second-price auctions, including that they avoid "winner's remorse." Leave it to the late-stage "improvers" to say, "hey, we can capture some of that gap between first and second place!"

EGreg• 3 years ago

That’s what happens when you don’t have open source and open protocols. I see people on HN constantly complaining but very little support for distributed systems, especially byzantine fault tolerant with proper incentives, why? Incentives are key to such distributed systems working, but it sounds too much like Web3? FTX? Or what? I guess many people don’t want to see viable alternatives appear. So then all you can do is keep complaining about black boxes and secret actions.

alt227• 3 years ago

What are you talking about? Do you realistically expect all companies to open source all internal software in a capitalist market?

marcinzm2• 3 years ago

There's an elaborate economic rationale for second-price auctions, including that they avoid "winner's remorse." Leave it to the late-stage "improvers" to say, "hey, we can capture some of that gap between first and second place!"

The reason Google uses second price auctions is because first price auctions incentive constant bid changes. The stability increases the money Google makes.

edit: For more context, and ignoring the whole generalized second price auction parts, the revenue from first and second price auctions is the same. In theory with optimal bidding and the usual assumptions of auction theory papers. The difference is that in a second price auction your optimal bid is independent of the other bidders. In a first price auction your optimal bid is dependent on the expected distribution of other bidders. In theory with all the usual auction theory assumptions. In reality with online auctions this meant a lot of churn in bids and a preference for bidding more conservatively. Which isn't good for advertisers or the revenue of the company running the auction. Second price auctions mostly solve this especially if you adjust the minimum auction price (ie: reserve price) per auction.

edit2: A great way to get more money is to have advertisers think they're bidding in a second price auction while actually running something closer to a first price auction. Which is essentially what the article talks about.

AlbertCory5• 3 years ago

There's a lot of literature on auction theory. I don't get the sense you've read any of it, or talked to anyone who has.

Ad auctions happen in microseconds. There's no possibility of changing your bid while it's underway.

zeroonetwothree• 3 years ago

Mathematically second price auctions also provide optimal prices to the seller.

gorkish2• 3 years ago

Mathematically, all fair auctions provide the same optimal price to the seller. It's called the Revenue Equivalence Theorem.

Google's auction is not fair in the sense that Google is both the seller and the auctioneer. Squashing enters the situation when the second price bidder has an ad that is more likely to be clicked than the first price bidder and therefore has additional revenue potential (known only to Google) beyond the revenue offered by the bid. Google then assigns this additional expected revenue to the value of the second price bid and declares this to be the market value of the bid. I see where their argument comes from, but it's a pretty lousy one.

jeffbee4• 3 years ago

I always thought that HIP vs. rest of google3 would make a great case study for developer experience/productivity research. Fewer eyes, emergent private style guide variant, etc.

moneywoes• 3 years ago

There's an elaborate economic rationale for second-price auctions, including that they avoid "winner's remorse." Leave it to the late-stage "improvers" to say, "hey, we can capture some of that gap between first and second place!"

Are there any more examples or reading around this concept?

gorkish2• 3 years ago

Vickery won a Nobel prize for it, so yes.

richdougherty• 3 years ago

https://en.m.wikipedia.org/wiki/Generalized_second-price_auc...

espadrine2• 3 years ago

Ironically, this is reported on Yahoo!, which invented the practice of ad squashing that ~their journalist~ (edit: a Bloomberg journalist) accuses Google of: https://web.archive.org/web/20080827230455/http://research.y...

The formula is interesting: ad selection uses bid ⨯ relevance^q, where q is the squashing value, which is lowered when the second-highest bidder is likely to bid low, creating a tradeoff:

[David Pennock] adds that squashing can significantly improve revenue, at the expense of advertiser and user satisfaction. As a result, it is necessary to set acceptable thresholds for loss of relevance, and then optimize revenue based on those thresholds.

hn_throwaway_99• 3 years ago

This is a Bloomberg article, reported by a Bloomberg journalist.

karaterobot3• 3 years ago

Maybe it's too early, but that article was not clear to me. Is it alleged that Google incorrectly stated the value of the second place bidder in order to make it look higher, in order to pressure the first place bidder to bid higher? Even that doesn't make much sense, so I'm missing something.

The shift sought “to raise the prices against the highest bidder,” Whinston told Judge Amit Mehta in federal court in Washington... To help eliminate that 20% between the runner-up and what the winner was willing to pay, Google gave the second-place bidder a built-in handicap to make their offer more competitive, Whinston said... Whinston’s comments Friday described Google’s technique, called “squashing,” that seeks to make the runner-up’s bid more competitive.

If they're inflating the second-place bid to be higher than the first-place bid, I'd wonder why that wouldn't backfire for them and result in the second highest bid winning a lot of the time. And if they didn't inflate it above the first-place bid, why would the winning bidder feel any pressure to increase their bid?

I'm sure it all makes sense, it's just not clear to me from this explanation.

iandanforth• 3 years ago

Correct way: Winner bids $1.00, 2nd Place bids $0.80, Winner pays $0.81

New way: Winner bids $1.00, 2nd place bids $0.80, Google adds 15%* markup to 2nd bid, Winner pays $0.93.

*used as example, not a verified number

karaterobot3• 3 years ago

Ahh okay, the missing piece is that the winner pays the second-highest bid, plus a penny. I can definitely see how this would be fraud, and how it could be justified internally by Google as "it's still less than they bid".

jacurtis• 3 years ago

New way: Winner bids $1.00, 2nd place bids $0.80, Google adds 15%* markup to 2nd bid, Winner pays $0.93.

This is true. But the story gets crazier. Let's say that CorpA and CorpB are both bidding on the term "Valuable Widgets". Here is who it goes:

CorpA bids $0.80

CorpB bids $1.00

CorpB wins the auction, pays $0.80 + 15% = $0.92

CorpA is sad they lost and wants so they try to outbid. They must pay $1.00 + 15% or $1.15

CorpA wins the new action, paying $1.15

CorpB needs those auctions to sell more widgets, so they now must pay $1.15 + 15% or $1.32

It obviously goes back and forth, but as you can see, Google is widening the gap each time to escalate the bid up faster. It increases competition and raises prices. In order to win you can't just pay what the previous person paid, you must pay a premium of 15%.

Now the part that is unclear is what happens if you ignore the winning bid price. So if CorpA has a max bid of $1.00 and CorpB tries to bid, they will see that they need to bid $1.15 to win the bid, because Google is saying that is what is needed to win the auction, but if CorpB only bids $1.10 they should still win the auction at $1.10 since that is their max bid and CorpA is only willing to pay $1.00. So CorpB in this case would pay their max bid and win. But either way, google is artificially pushing the price up higher than it technically needs to be.

Retric2• 3 years ago

There’s two common kinds of auction those with multiple rounds where the final bid wins and those where everyone puts in the maximum amount upfront and the winner pays whatever #2 bid. The second type is much faster but incentivizes the auction house to lie about the #2 bid.

Google did the second type and then got caught lying about bids. Doing so is really tempting but also generally fraud.

doomslice• 3 years ago

In adtech a first price auction is also a single round.

georgeg23• 3 years ago

Winner pays what #2 bid + a penny more correct? (Similar to eBay, when done correctly)

It's unclear why a penny is considered the legal adder, why not 15% more? If this is all disclosed in Google's terms of service, is it really fraud?

vgeek• 3 years ago

How much of this ties to enhanced CPC bidding (enabled by default, pushed by account reps as a must have)? It allows your bids to exceed your maximum CPC in scenarios that Google defines-- which, so it seems, are likely scenarios that Google views as having profits left on the table.

shmoogy• 3 years ago

Enhanced cpc is a lot more than 15%, but they was my original thought as well

AlbertCory5• 3 years ago

Since I've been in the Google meetings where experiments like this are discussed:

It's heavily mathematical. I pity any government lawyer who has to make it understandable to a non-technical audience.

pyrale10• 3 years ago

The heavily mathematical part is the proof that goes with the justification for the bidding system. Explaining the merits of the auction or explaining what the fraud is is pretty easy.

pbhjpbhj• 3 years ago

Surely you just give an example of an expected payment and then the price Google asked? Show it was 15% (give it take a cent) over.

Google earned £150B pa (say?) and so a pecuniary fine of £39B per year should be levied (twice the extra).

_v7gu2• 3 years ago

Since almost every comment is missing the nature of the change and its effects, let me put it in a clearer way:

Google stated that they were holding naive second price (with an asterisk) auctions and moved on to holding more optimal auctions. Optimal auctions are the ones where you set reserve prices and assign handicaps to each individual buyer to make the auction more competitive and yield higher revenue, like Google has done. (How to calculate optimal reserve prices and handicaps is left to reader, should be fairly trivial because economics is not a real science.) So, in effect Google has increased advertising prices without communicating the fact, in a way that the participants could also attribute the cost increase to changing marketing landscape. The fact that Google expected 15% more revenue puts them over the standard 5% test for significant market power, and hiding the price hike is easy evidence for the abuse of such power.

wslh2• 3 years ago

My company spent a lot (relatively to our size) of money in AdWords withour a correlated conversion rate. Not saying we could not be completely wrong but the intuition is that more conversions are expected.

CoastalCoder• 3 years ago

How much history does Google retain regarding from the auctions?

I'm wondering about discovery in any lawsuits this might trigger.

bpicolo• 3 years ago

Conversion rate, or velocity?

I might expect people that click ads to have worse conversion that other traffic sources. The hope is that volume overcomes that?

wslh2• 3 years ago

We tried different strategies, even hired competing agencies targeting different locations. Obviously a common feedback was that we need to increase the budget. I would love to to that once I see good conversions. We were using AdWords since 2003.

charcircuit• 3 years ago

Google gave the second-place bidder a built-in handicap to make their offer more competitive

What does this even mean? The way this handicap works is very important. What if it is just based off ad relevancy.

pyrale10• 3 years ago

In this kind of auction, the winner pays the runner-up bid. Google simply increased that bid before it was communicated to the winner.

The only effect, as this doesn't change the bid order, is that Google pockets the "built-in handicap" on top of the runner-up bid, without telling the winner what the actual bid is.

j16sdiz2• 3 years ago

I wonders how did this witness gain insight into that, if it is so secret

klyrs• 3 years ago

To help eliminate that 20% between the runner-up and what the winner was willing to pay, Google gave the second-place bidder a built-in handicap to make their offer more competitive, Whinston said, citing internal emails and sealed testimony by Google finance executive Jerry Dischler earlier in the case.

pyrale10• 3 years ago

The source quoted being an expert witness in a trial, the source is likely discovery.

noizz• 3 years ago

I work with NGO (property law) and couple of months ago we were awarded a grant for ads, around €2000/mo. Initially, I was pretty surprised with how generous this was, but later realized that it's both - a way for Google to brag how much they help "good causes", but most importantly - to raise the ad costs for others.

All in all - we made a few spammer operations less profitable, a couple wealthy assholes were angry about us helping people defend themselves and we brought quality traffic to the website and FB group. Thanks Skynet!

urbandw311er2• 3 years ago

Thanks for sharing this, until now I hadn’t made the mental leap that their “benevolence” had a secondary effect of pushing up revenue.

jeffbee4• 3 years ago

What is the role of “secret” in the headline? Every internal action of every company is secret, so it adds nothing other than innuendo to the article.

sourcecodeplz• 3 years ago

This is for private companies. Google/Alphabet is a public company.

jeffbee4• 3 years ago

That's ... not what that means.

hotnfresh• 3 years ago

If some parts of how their ad auctions work have been published by them, then a distinction exists.

GeekyBear2• 3 years ago

Just a reminder that the EU started a preliminary antitrust action over Google's ad business earlier this year.

Google’s advertising business should be broken up, European Union officials said Wednesday, alleging that the tech giant’s involvement in multiple parts of the digital advertising supply chain creates “inherent conflicts of interest” that risk harming competition.

“@Google controls both sides of the #adtech market: sell & buy,” tweeted Margrethe Vestager, the commission’s top competition official. “We are concerned that it may have abused its dominance to favour its own #AdX platform. If confirmed, this is illegal.”

https://www.cnn.com/2023/06/14/tech/google-eu-antitrust-ad-t...

strongpigeon3• 3 years ago

To be clear though, the article is talking about search ads which run on a separate auction. The actions you are referring to concern the display side where Google runs a different exchange with multiple sellers for the inventory.

GeekyBear2• 3 years ago

Sure, but if the EU is looking for evidence of Google abusing it's dominant position in ad tech for it's own benefit, the US antitrust case certainly gives them a good place to start looking.

pyrale10• 3 years ago

...On which fraud was also uncovered.

https://en.wikipedia.org/wiki/Jedi_Blue

londons_explore5• 3 years ago

At the end of the day, Google can set the price however they like for ads on Google Search.

Previously they ran an auction. Now they have a very complex price-setting algorithm that has elements of an auction within it, but also secret factors which push bids up or down.

But they're well within their rights to just roll a dice.

londons_explore5• 3 years ago

I'm kinda surprised they don't have some human/AI combination that estimates how much profit you are earning from Google Ads, and charge most of that.

The whole idea of having a price for each individual impression seems outdated - what businesses care about is "how much did we pay Google this month, and how many widgets did we sell, and was it worth it or should we advertise elsewhere?". Therefore, why bother with the middle man - just make an algorithm to predict exactly how much the business thinks the ads are worth.

discmonkey• 3 years ago

They do have this, you can choose to bid for a target conversion cost (I want to pay at most $x per conversion). In general I find all of this pretty silly as a Google employee.. I don't think you can distill the complexity of any change down to one article. Say for example that Google did just raise how much advertisers paid per click across the board, why would that lead to billions of dollars in profit? I would bet that the majority of advertisers on Google already spend their whole budget, so that would mean that now they would just be getting less clicks and conversions per dollar of budget spend. Logically they would then move some of this budget to other advertising channels such as Facebook. Charging more per impression always has second order effects, but who cares about that on hackernews

jeffbee4• 3 years ago

Seriously, nobody has a right to any particular algorithm or outcome. Google can rank ads first if they contain the word "orangutan" if that suits them. Buyers should be looking at their ROI, not expecting the ad platform to optimize every aspect of it.

throwaway313313• 3 years ago

Ok, then do they need to be truthful about anything?

How about giving themselves credit for extra clicks based on the value of the word? (With the defense they are doing it for you!)

What about if they switch to a click tracking system that uses statistics (so they can use the defense that the method is just inaccurate and they aren't lying), which just happens to over counts clicks?

How about charging you based on very erroneously projected traffic (one further than the step above, basically projecting the future very genrously in their favor) and not actual traffic?

What about if they enable the same third parties to both participate in an ad exchange as a seller and a buyer, with real time bid information, such that they can place phantom bids to up advertisers spend, just like HFT dark pools?

I could go on, every thing is all good, right? No guarantees?

Which ways is it ok if they misrepresent, overcount, badly estimate, fail to deliver, bill based on future estimates, and otherwise enable third parties to steal from you are ok?

diogenes4• 3 years ago

But they're well within their rights to just roll a dice.

Who said anything about rights? What does it even mean for a company to have rights?

Spivak• 3 years ago

If Google is allowed to arbitrarily set the price of their ads, and they are, then any legal pricing scheme (i.e. not running afoul of discrimination or price gouging laws) ought to be fine as long as they're lying to you about it or making false claims.

Rastonbury2• 3 years ago

Replace Google with 'a monopoly' and there's the problem. The monopolist can and will set prices as high as they can

daft_pink• 3 years ago

Is anyone really shocked that when you tell the seller the maximum rate you are willing to pay that will be motivated to get that maximum rate when the seller is running the auction?

kakwa_• 3 years ago

I'm wondering what was the overall effect on prices in the end.

Did the prices really increased by 15%?

Or did the bids, specially the second highest, roughly dropped by 15% meaning the price stayed the same.

Or something in the middle.

Google changed ad auctions, raising prices 15%, witness says

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