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Something Doesn’t Ad Up: Google Admits to Manipulating Its Auctions

In 2015, Jerry Dischler, VP of Google Ads (at the time called AdWords), was keynote speaker at the SMX Advanced conference. He was given a question about why CPC prices seemed to be rising arbitrarily, and whether that was due to Google’s own internal profit goals.

That was because a speaker earlier in the day had claimed that they believed Google was manipulating auctions to increase CPCs for profit. Jerry responded: “Full stop, we are not manipulating search results or manipulating the ad auction in order to increase profits. That’s just not what we do.” You can watch the question and answer right here if you want the full conversation.

This is really encouraging to hear. If Google were raising prices artificially, that could really harm the trust in the auction process. We can all take this statement as the final word on it, and I’m sure nothing will counteract it, right?



Setting the Scene

transcript of questions and answers from Google Antitrust Trial

Jerry… That’s not very helpful.

So, this is the news that Google actually does make changes to the auction to inflate prices. This is a pretty scandalous admission, and if the American Department of Justice logo in the top left of that image hasn’t tipped you off yet, Google aren’t coming out with this information because of a sudden push for transparency. They’re admitting it under oath.

If you’ve read John’s excellent blog from a few months ago, you’ll already be up to date, but in case you haven’t yet, I’ll give you all the gory details.

Google is currently being taken to court by the US Department of Justice. It claims that Google is engaging in anticompetitive practices, and essentially operating an illegal monopoly. In the process of this trial, a number of high-ranking members of Google’s search team are being forced to give public testimony under oath, and they are revealing some inner workings they perhaps would rather not, such as meddling with the ad auction and search results page, purely for profit.

So we know that Google have been inflating prices. But why? Why would a well-meaning company like Google do such a thing?


The Motive

Money. The answer is money.

Well, a desire to hit quarterly revenue targets that were supplied to Wall Street, at least. In a 2019 email, Jerry said:

“If we don’t meet quota for the second quarter in a row and we miss the street’s expectations again, which is not what Ruth signalled to the street, so we will get punished pretty bad in the market.”

Ruth is Chief Financial Officer at Google, and in case it isn’t clear, “the street” in question is Wall Street. He is essentially saying that quarterly earnings reports have to align with the projections provided to Wall Street. If they do not, their stock will likely take a hit, and that will have negative impacts on the company.

The motive is important. Google Ads has always had an overtly pro-customer emphasis, and this is one of the few times we have seen a clear example of Google doing something to the ads scheme exclusively for their own benefit, at the cost of the customer’s ad performance.


The Method

So, what exactly did Google do? This was a bit vague at the start of the trial, but by closing arguments the DoJ had a list of changes made by Google since 2017 to show us.


Project Momiji


The first method was an update to the auction called “Project Momiji”. This update aimed to inflate the bid made by the runner up in the auction. By inflating this bid, the eventual winner of the auction would be forced to pay more for the position 1 slot. Supposedly this led to a 15% increase in cost to the winning advertiser.

Internal Google documents show Google staff talking openly about using this feature to increase prices without any mention of how the system is intended to improve user experience or advertiser performance.

Project Momiji explanation

But hey, omission is not admission. Maybe project Momiji does improve user experience, but that was not the subject of discussion. At least they didn’t admit that the update had no user benefit at all. No one would publish an update like that right?



Randomised Generalised Second-Price Auction System (henceforth, RGSP)

Randomised Generalised Second-Price auction system

Well… That’s awkward.

Now bear with me here; the RGSP auction isn’t the easiest thing to explain.

Imagine that you’re at an art auction. The auction house has decided that it’s not going to conduct a normal auction, or a second-place auction (where you just have to pay a set amount more than whatever the second highest bid was), but a RGSP auction instead.

To do this, the auction house collects a lot of other data about you, like how you will use the art, where you will store it, if you have a good history of art buying, etc. It then combines this with your bid to decide where you place in the auction.

Now comes the confusing bit. Say you and the second-place bidder bid quite close together (£180 and £200 for example) and your other factors are quite similar too. The auction says that, randomly, it might swap you and decide to give the second-place bidder the item instead of you. Now, this might seem counterintuitive –the auction house is just making less money this way– but the devil is in the details.

There are two ways to avoid losing out to second place in RGSP auctions. You can try to improve the quality of all those factors that I mentioned get collected, but this is vague and difficult to do. Alternatively, you can simply bid more.

Most bidders end up taking the second option, and rather than bidding £200 to win against a £180 second bid, people might bid £400 instead, just to guarantee they acquire that painting.
This is the slightly sneaky way in which RGSP auctions can increase Google’s revenue, and in the antitrust trial, Dischler has confirmed that not only does Google do them (which we knew) but that these methods increase revenue when utilised (which we didn’t).

Of course, all of this gets so much easier for Google when automated bidding is being used, as they know exactly how the bidding strategies will react to changes.

But hey, maybe Google released updates that purely improved profits without improving search quality, so what? A company with an annual revenue in 2023 of $305bn just needs to eat, you know?

At least we can all sleep safe in the knowledge that Google never released updates that knowingly harmed user experience just to increased profits, right?




negative user experience

Ah… Well…

Google, I’m struggling to defend you on this one.

This is squashing, and of all of the updates we learned about in the trial (so far), this is probably the most egregious.

The basic principle, according to Google’s own internal documents, was that squashing would “increase an advertisers lifetime value based on how far their predicted clickthrough rate (pCTR) is from the highest pCTR on query”. So, if your CTR were lower, it would actually boost your ranking. Why would you boost the ranking of an ad you predict is worse than another? Simple: by boosting that ranking, you force others to bid more to beat them.

As the image above shows, Google themselves were aware that boosting ads which the system knew were worse quality was a dangerous move from a user experience perspective. They also quite rightly assessed that, in the long term, this could reduce the need for advertisers to chase high quality ads at all, as long as you didn’t care about position 1, the system would boost you artificially to higher slots regardless.

But Google published the change anyway. In internal documents for teaching new users how the auction system works, they said they were “working on using it to engender a more broad price increase”. Or in other words, using it to make money


The Opportunity

Despite all of this being very worrying, this is the part that the trial cares most about.

How are Google able to increase prices by up to 10% on a whim? The DoJ are arguing that this is because there is really very little competition elsewhere. Bing Ads does exist, but its market share is tiny compared to the goliath that is Google, in 2023 it held a 3.63% market share, compared to Google’s 91.5%. The DoJ are arguing that this makes advertisers a captive audience, who simply must comply with the whims of Google rather than switch to a viable alternative.


The Verdict

So, what is my opinion on this?

Undoubtably the admissions are troubling. Even taking the charitable view that Google reps have never knowingly lied when they denied (at the time) inflating prices, they have still given advertisers incorrect information through ignorance of the true facts . I think it should have at least warranted an announcement telling users that their advertising costs would go up, and by how much. Otherwise, how are we to know if performance changes in an account are due to search environment changes, or merely Google themselves fiddling with the auction?

I think this also might be the best time to abandon the ad auction messaging altogether.

With RGSP, squashing, automated bidding, smart campaigns, and now Google’s price tweaking, the idea that the system for placing ads is in any way similar to an auction process is somewhat deceptive. I think this whole mess is as much a product of this bad messaging as it is a product of deceptive practices.

But do I think that Google’s users are a captive audience, unable to move anywhere else with their advertising? That part I’m not so sure about. Even now, Google Ads still sits as the most efficient form of digital marketing possible for many advertising areas.

Particularly for charities, donation and legacy giving campaigns always perform best on Google Ads, even compared to Bing Ads, its closest competitor.

However, much of this comes down to one simple factor: the user base. Google has far more users than any other search engine, and with more users comes more data to train machine learning models; an easier task to analyse that data for optimisation opportunities; and a faster reaction to changes in user behaviour. The fact that user base makes the job of building a good search engine easier means that the industry is always going to be filled with the equivalent of rolling snowballs, where the largest has the best opportunity to grow even larger.

Ultimately, I do think that Google has damaged the trust between its advertisers and itself with this news, and I hope this moves Google to implement a new, more transparent system. However, in the context of this trial, I am not so sure that the DoJ are going to be able to leverage the revelation in the way they want. We have seen closing arguments now, and we are waiting on a verdict form the Judge. Regardless of the verdict, however, the effects of this trial will be with us for some time.


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