serving technology provider (DoubleClick) represents a significant input into the intermediation market and therefore, the impact of a change in DoubleClick's prices would affect the choice of the distribution channel by a publisher (or an advertiser)116. In particular, the pricing of DoubleClick's ad serving tools was constrained by the threat of switching to the AdSense bundled solution. The merger will remove this constraint and consequently, according to this complainant, the new entity will coordinate pricing and significantly alter competition between "unbundled" ad networks supported by DoubleClick's ad serving tools and Google's "bundled" AdSense network.
In order to evaluate these arguments, it is important to establish how
publishers and advertisers choose between the various alternatives. First, publishers (and advertisers) decide on whether to use a third-party ad serving tool at all. This depends – amongst other thing – on whether part of the inventory will be sold through direct sales, in which case a third-party ad serving tool will be necessary. Once the publisher (or advertiser) uses a third-party ad serving tool, the allocation of the inventory between the various distribution channels will depend on the value at which online space can be sold on each of the channels. The publisher will compare the net profit realized on each channel and distribute its inventory in order to optimise its monetization. Based on the example provided by the complainant117, if the merged entity was to increase the price of DFP for serving ads on competing ad networks by say 10%, this would trigger a decrease in the publisher's net profit of about 0.3% when serving ads on those networks.118 The publisher would switch inventory to AdSense if the net profit of serving an ad through AdSense is at least 0.3% higher than the profit initially made on the competing network. In other words, switching would occur if the publisher was almost indifferent between AdSense and the competing ad network in the first place119. Hence, in order to induce any significant switch
In the example, the complainant assumes that, in case of an online ad which is sold at USD 2 per thousand impressions (i.e. this the price paid by the advertiser), the cost of intermediation (i.e. paid by the publisher to the ad network) would be around 40 cents, the cost of the publisher ad server would be 5 cents and the cost of the advertiser ad server would be 7.5 cents. Hence, the total cost of intermediation is 52.5 cents (40+5+7.5), of which publisher ad serving represents 9.5% (5/52.5) and advertiser ad serving represents 14.3% (7.5/52.5). See also footnote 114 above on the relation between ad serving costs and intermediation revenues.
See footnote 116.
From the point of view of the publisher, the cost of ad serving represents 2.5% (5/200) of the price of the ad, 11.1% of the cost of serving the ad (5/45) and 3.2% (5/155) of the publisher's net profit from selling the ad. This last percentage is the most relevant one for the publisher's choice of sales channels.
If serving ads through AdSense led to higher net profits to begin with, the publisher would most likely have already chosen to serve through AdSense (in which case a price rise of ad serving on other networks would not alter the choice). If serving through AdSense led to lower net profits (more than 0.3%), it will remain less profitable (in which case a price rise of ad serving on other networks would not alter the choice either). It is only in the particular situation where the AdSense net profit was initially very close but slightly lower (by 0.3%) compared with the net profit of serving on another network that a change in the ad serving price might induce a switch from the unbundled solution to AdSense. This simplistic example also assumes that the publisher does not use DFP to serve ads on AdSense and that AdSense and the other networks are close substitutes, which they may not necessarily be (for instance, AdSense offers mainly contextual, text ads while many other networks offer primarily graphic display ads).