Several former executives testified in anti-trust investigation regarding Alphabet Inc. Class C (GOOGL.US) advertising "cash cow" in danger?

Alphabet Inc. Class C former executives testified in a US Department of Justice antitrust trial that eight years ago, after developing a method to increase online advertising revenue by bypassing Alphabet Inc. Class C tools on a website, Alphabet Inc. Class C considered reducing its advertising transaction fees. Alphabet Inc. Class C charges a 20% fee, the highest in the industry. Websites selling ad space developed a new technology called Header Bidding, trying to combat Alphabet Inc. Class C's high fee structure and generate more revenue from transactions. Alphabet Inc. Class C never reduced its fees, instead developing a modified version of this technology in 2019. In a trial that began this week at a federal court in Alexandria, Virginia, antitrust enforcers accused Alphabet Inc. Class C of illegally monopolizing the technology used to purchase and sell online ad space. Alphabet Inc. Class C controls a complex array of technology products used by websites to sell ad space, as well as tools provided to advertisers, and a transaction platform connecting both sides of the ad buying and selling process. Dominance of Alphabet Inc. Class C Julia Tarver Wood, a lawyer representing the US Department of Justice, stated that Alphabet Inc. Class C's publisher ad server business Google Ad Manager, ad exchange platform Google AdX, and ad network Google Ads constitute a "triple monopoly", with Alphabet Inc. Class C holding at least half of the market share in each business line, and up to 91% in some cases. Government witnesses and CEO of marketing company Goodway Group, Jay Friedman, stated that they were able to negotiate lower fees with several other ad exchange platforms, but "Alphabet Inc. Class C said it is impossible" to lower fees. Goodway Group works with advertisers and ad agencies, and due to the high fees charged, his company considered not using Alphabet Inc. Class C's ad exchange platform, but found that other platforms could not provide enough ad supply. Former Alphabet Inc. Class C executives testified on Tuesday and Wednesday about how the company handled pricing and competitive technology. Eisar Lipkovitz, who served as Vice President of Display and Video Ads Engineering at Alphabet Inc. Class C from 2014 to 2019, recalled internal discussions at Alphabet Inc. Class C about whether to reduce fees for the AdX ad exchange platform, ultimately suggesting a 10-15% reduction. However, lawyers for the Department of Justice stated that the 20% fee rate was never lowered, indicating that Alphabet Inc. Class C was able to maintain high prices without harming its business. Lipkovitz admitted that high AdX fees led websites to adopt Header Bidding, allowing websites to conduct ad auctions within the browser, allowing multiple exchange platforms to compete for ad space. Stephanie Layser, a former executive at News Corp, testified on Tuesday that Header Bidding helped publishers increase revenue by 50%. Lipkovitz left Alphabet Inc. Class C in 2019 to join Lyft. He stated that Alphabet Inc. Class C believed that ads sold through Header Bidding were of lower quality and susceptible to spam and fraud. However, Layser expressed that ads sold through Alphabet Inc. Class C could also face issues with spam or fraud. "Long-term threat" In internal documents, Alphabet Inc. Class C referred to Header Bidding as a "severe long-term threat" because it could potentially move business away from its ad exchange platform. "The issue is the existence of Header Bidding," another Alphabet Inc. Class C employee stated. "Publishers feel trapped by Alphabet Inc. Class C's tools, which only gives Adx more competitive power, thus Header Bidding was born." Brad Bender, former Vice President of Display and Video Ads Products at Alphabet Inc. Class C, testified on Wednesday. He joined Alphabet Inc. Class C after its acquisition of DoubleClick in 2008. Bender sent an email to the entire display ad team at Alphabet Inc. Class C, containing notes from a speech by former DoubleClick CEO David Rosenblatt, outlining the company's strategy to lock in customers using ad server products. In the notes, Rosenblatt stated that because of the "enormous""Converting costs", websites are unlikely to give up ad servers. He said, "Switching platforms is a nightmare."Rosenblatt stated that Alphabet Inc. Class C has an advantage over other trading platforms as it can "prioritize" ad space for sale by accessing publishers' ad servers. "We will be able to beat other networks, that is our goal." According to research by investment bank Wedbush, Alphabet Inc. Class C's advertising technology tools contributed $20 billion in 2020, accounting for 11% of the company's total revenue. It is understood that large U.S. tech companies are facing increasing pressure from antitrust regulators. Last month, the U.S. Department of Justice won a ruling against Alphabet Inc. Class C in a separate case regarding its dominant position in the online search market, and is also separately suing Apple Inc. (AAPL.US). The Federal Trade Commission is filing lawsuits against Meta Platforms (META.US) and Amazon.com, Inc. (AMZN.US).