Google Silently Raised Ad Prices, Court Orders More Transparency

A court ruling reveals Google silently raised ad prices, now facing demands for greater transparency in its advertising practices.

According to the details, which are based on Judge Amit P. Mehta’s remedies opinion, Google systematically accelerated the prices paid for search ads. Google achieves it through unobservable internal mechanisms that the company calls “pricing knobs”, which increase ad prices by 5% to 15% at a time.

Google’s own survey reveals that it is raising its prices slowly, in a few percentage-point increments, without causing too much pain to advertisers.

Google Escalated Prices

This is Judge Amit P. Mehta’s remedies opinion in which he writes that Google unwound its auction price changes “in carefully calibrated steps,” in the hopes of avoiding “blowback” from advertisers.

Advertisers were paying more but dismissed it as just normal market dynamics, or auction “noise,” and so were none the wiser that Google was playing them to bump revenues up. This allowed Google to raise prices “largely without losing advertisers.”

The court wrote:

“When it made pricing changes, Google took care to avoid blowback from advertisers,” and it “endeavored to
raise prices incrementally, so that advertisers would view price increases as within the ordinary price fluctuations, or ‘noise,’ generated by the auctions.”

The court also noted:

“Google admits it makes auction adjustments without considering Bing’s prices or those of any other rival,”

So those higher prices were priced to maximize long-run revenue, not to beat the competition.

The court summarized:

“Through barely perceptible and rarely announced tweaks to its ad auctions, Google has increased text ads prices without fear of losing advertisers.”

Advertisers testifying during the trial described Google’s text ad pricing as effectively a “black box” due to its opaque nature.

Court-Mandated Transparency

To mitigate these opaque pricing schemes, the court has ordered Google to monthly report to Plaintiffs and the streamlining Technical Committee regarding:

• All changes to Search Text Ads auctions
• Which modifications are considered material
• Copies of any related public notices, or explanations if no notice was issued

To ensure it meets this mandate, Google will next have to become transparent in how it maintains auction pricing.

Possible Outcome of Transparency Measures

While these rules for reporting are new and offer a more transparent view of fluctuations in prices for ads, it remains to be seen just how systemically important the shifts will be.

Advertisers at least will get a lookout at price changes that were formerly shrouded behind the mechanics of Google’s auction ‘black box’.

Personal Perspective

While transparency and scrutiny may create better advertising market conditions that are more fair and competitive, time will tell whether Google adjusts any of its pricing practices in a manner that necessarily benefits advertisers.