ICYMI: Competition In Digital Advertising Benefits Consumers And Businesses Alike
Last week, the Department of Justice hosted a workshop to discuss competition in television and digital advertising. Assistant Attorney General for Antitrust Makan Delrahim kicked off the workshop with a keynote speech, in which he pointed out that “ad-supported business models bring goods and services to customers who would otherwise be priced out” and “studies demonstrate that many consumers prefer ads to paying for certain services.”
More from AAG Delrahim and experts on the realities of the highly-competitive advertising sector below.
Disruption in advertising markets is nothing new, and the rise of digital advertising provides benefits to both consumers and businesses.
—AAG for Antitrust Makan Delrahim points out that targeted advertising allows consumers to access great products for low or no cost. “Ad-supported business models bring goods and services to customers who would otherwise be priced out. Thanks to revenue from advertising, consumers often pay lower prices, and sometimes even enjoy goods or services free of charge. Studies demonstrate that many consumers prefer ads to paying for certain services. For example, nearly 80 percent of respondents in one study reported in Recode represented that they would choose an ad-supported Facebook over paying $1/month. Some consumers may even prefer receiving targeted advertisements that are more likely to be relevant to their needs than ads that reach broad audiences, but whose products and services may be inapplicable to many viewers.” (Makan Delrahim, “Assistant Attorney General Makan Delrahim Delivers Remarks At The Antitrust Division’s Public Workshop On Competition In Television And Digital Advertising,” Department Of Justice, 5/2/19)
—From newspaper to radio to television to digital, advertising markets have constantly been disrupted and improved, notes AAG for Antitrust Makan Delrahim. “Disruption to traditional advertising markets by new media is far from unprecedented. The newspaper industry was subject to disruption when radio developed into a national medium in the 1920s and 1930s. Newspapers were required to differentiate themselves from radio’s news product. When television broadcast networks entered the American market in the 1950s, both newspapers and radio stations were forced to adapt in response to industry disruption.” (Makan Delrahim, “Assistant Attorney General Makan Delrahim Delivers Remarks At The Antitrust Division’s Public Workshop On Competition In Television And Digital Advertising,” Department Of Justice, 5/2/19)
—As antitrust expert David Balto writes, advertisers value Google because it reaches many people by providing highly relevant search results. “Fortunately for consumers and regulators alike, the advertising business model of modern search providers ensures that the long term financial incentives of search providers align with providing a positive consumer experience. Advertisers value Google because it reaches many people. Google reaches many people because it provides highly relevant search results in a digestible format.” (David Balto, “Internet Search Competition: Where Is The Beef?” DC Antitrust Law, 6/24/11)
—As CCIA President Ed Black points out, “Platforms offered by leading tech companies are used by smaller companies and traditional businesses to expand their markets.” “Tech companies have been a key driver of economic growth for the past two decades. According to a recent Department of Commerce study, the digital economy grew 3.7 percent in 2016 compared to the overall economy’s growth of 1.7 percent and the tech industry supports millions of higher paying jobs. Platforms offered by leading tech companies are used by smaller companies and traditional businesses to expand their markets. But it is also true that tech innovations and new online startups are disrupting legacy industries from entertainment to transportation. The U.S. has traditionally supported this Darwinian system of innovation, and it has given us an economic advantage over countries whose systems support protecting particular companies instead of the competitive process.” (“Competition Policy And The Tech Industry: What Is At Stake?,” Ed Black, Computer & Communications Industry Association, 4/12/18)
The market for digital advertising is growing increasingly competitive, with new entrants competing with incumbents on a variety of fronts.
—As AAG for Antitrust Makan Delrahim notes, only three of the top 10 digital advertisers a decade ago are still in the top ten today. “Of the top 10 companies that contributed to digital advertising’s revenue growth 10 years ago, only three remain on the top 10 list today.” (Makan Delrahim, “Assistant Attorney General Makan Delrahim Delivers Remarks At The Antitrust Division’s Public Workshop On Competition In Television And Digital Advertising,” Department Of Justice, 5/2/19)
“Big box” retailers like Walmart and Target have made substantial investments in the digital advertising space. “This year, Walmart has built up its in-house media services team to help brands buy ads on its websites and video service, and it acquired an ad tech company called Polymorph Labs.” (Garett Sloane, “Walmart Goes From Big-Box Stores To The Small Screen With Vudu Ad Network,” Ad Age, 5/1/19)
—As we pointed out last week, Google’s online-advertising business was dealt a “body blow” in Q1 2019 by its competitors. “Google’s once-untouchable online-advertising operation took a body blow, hurt by mounting competition and struggles within its increasingly high-profile YouTube unit. Google parent Alphabet Inc. in the first quarter posted its slowest revenue growth since 2015. The poor results highlight the risks for one of Silicon Valley’s biggest names in effectively leaning on one massive, if lucrative, business. For all its myriad arms and efforts to diversify, Google remains essentially an old-fashioned billboard operation with a high-tech gloss—and it now faces more rivals.” (Rob Copeland, “Google Shows First Cracks in Years,” The Wall Street Journal, 4/29/19)
—Tyler Cowen, professor of economics at George Mason University, argues that not only is digital advertising competitive, but Google and Facebook are helping disrupt monopolies in other sectors. “Then there’s the digital advertising industry that the two companies lead. But that’s not a monopoly, either: Google as an advertising platform still competes with Facebook, television, radio, circulars, direct mail and, for that matter, e-mail and word of mouth. Insofar as Google has taken a big share of the ad market, it is because its ads are cheaper and better targeted than alternatives. When it comes to ads, Google is fundamentally a price-lowering institution for small and niche businesses that can now afford more reach for less than ever before. By boosting small startups elsewhere in the economy, Google and Facebook actually serve as major forces acting against monopolies in other sectors.” (Tyler Cowen, “Breaking Up Big Tech Would Be A Big Mistake,” Globe And Mail, 4/12/19)
—Professors Avi Goldfarb of the University of Toronto and Catherine Tucker of MIT find that online advertisers compete not only with other online advertisers, but with offline substitutes like billboards as well. “These results suggest that the online advertising channel does substitute for the offline channel. From the advertisers’ point of view, they get more value from online display advertising when the potential customers do not see any offline billboard advertising. While we do not measure the exact strength of substitution between online display advertising and offline display (billboard) advertising, our evidence strongly suggests that advertisers should be able to substitute relatively easily between the two channels.” (Avi Goldfarb And Catherine Tucker, “Substitution Between Offline And Online Advertising Markets,” SSRN, 4/10)