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Australian Competition and Consumer Commission releases its final report from the Adtech Inquiry

26 October 2021

#Technology, Media & Telecommunications

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Australian Competition and Consumer Commission releases its final report from the Adtech Inquiry

The recently released final report from the Australian Competition and Consumer Commission’s (ACCC) Adtech Inquiry has recommended substantial regulatory reform to address the ACCC’s competition concerns.

The Adtech Inquiry

On 10 February 2020 the Australian Treasurer tasked the ACCC to conduct an 18 month inquiry into the markets for the supply of digital advertising technology (adtech) services and digital advertising agency services. The ACCC was required to focus in particular on the competitiveness, efficiency, transparency and effectiveness of the markets for the supply of adtech services.

Adtech services are, in short, any services that are used in the automated buying, selling and delivery of digital display advertising. Digital display advertising refers generally to the advertising a consumer sees on websites or apps (including social media sites) that consumer visits, for example, banner ads and video ads. Display advertising is to be contrasted with digital classified advertising (that is, on classified websites such as Trading Post or Seek) and digital search advertising (which appears when a search engine is used, for example, when the user types into Bing search “where is the best Mexican restaurant near me”). The report did not consider either digital classified or search advertising.

There are two ways that display advertising may be sold, through “open display” channels or through “closed channels”. The most well known closed channel is Facebook. A closed channel provides for the publisher (such as Facebook) to sell inventory to advertisers directly, using the publisher’s own systems. The Adtech Inquiry did not consider closed channels, but instead focussed on open display channels, which enable publishers to sell their advertising space (called inventory) to many different advertisers, potentially using different adtech services to do so.

The ACCC’s conclusions from the Adtech Inquiry

Given the ACCC’s Adtech Inquiry was focussed on display advertising sold through open display channels, it is unsurprising that it focussed on the dominant adtech services provider in that sector, Google. The ACCC found that in 2020, over 90% of ad impressions traded via the adtech supply chain passed through at least one Google service, making Google the largest supplier of each key adtech service in Australia. The ACCC concluded that this overwhelming dominance has been created as a result of Google’s data advantage (Google collects significantly more consumer data than any other adtech services provider or, indeed, any other digital platform), its access to exclusive inventory (noting it is the publisher of popular websites such as YouTube) and advertiser demand, as well as integration across its different adtech services.

The ACCC’s findings regarding Google’s behaviour, as set out in the final report, are damning. The ACCC has found that Google acts in an anti-competitive way by engaging in self-preferencing conduct, through conflicts of interest and by charging excessive fees. This anti-competitive conduct has a significant impact on the Australian economy, noting the ACCC estimates that display advertising via open display channels was worth approximately $2.8 billion in Australia in 2020. As a result of Google’s conduct, the ACCC considers that both publishers and advertisers face higher costs, which (on the publisher side) is likely to result in a reduced quantity of high quality content and higher prices for goods and services. Therefore Australian consumers are significantly negatively impacted.

The ACCC’s recommendations

What then is to be done about the issues the ACCC has uncovered? When he released the final report, ACCC Chair Rod Sims commented:[1]

"The ACCC is considering specific allegations against Google under existing competition laws. However new regulatory solutions are needed to address Google’s dominance and to restore competition to the ad tech sector for the benefit of businesses and consumers. We recommend rules be considered to manage conflicts of interest, prevent anti-competitive self-preferencing, and ensure rival ad tech providers can compete on their merits."

The ACCC made 6 recommendations. The key recommendations are 2, 3 and 6:

  • Recommendation 2: This will allow the ACCC to develop sector specific rules to manage conflicts of interest, restrict self-preferencing, allow competitors to access certain services and to require transparency. These would be applied to adtech services providers that meet certain criteria – initially it could only possibly be Google that meets these criteria. The types of rules will include, for example, prohibitions on bundling and/or tying of services.
  • Recommendation 3: This links to recommendation 2 and suggests that the powers given to the ACCC should enable the ACCC to address Google’s data advantage. Although the ACCC appears to take the view that there is not a current need to use such a power, the ACCC has stated it could impose data separation requirements on Google in relation to its first party data (that is, consumer data it collects directly through its consumer facing services). The ACCC has also suggested that, using this rule making power, it could require Google to share its first party data with other adtech providers (though this would need to address privacy concerns and would only be considered if that was possible).
  • Recommendation 6: This recommendation is that the ACCC should have a separate rule making power to improve transparency – both of pricing and performance of adtech services. This recommendation is not limited to Google and would apply to all relevant adtech services providers. The broader reach of recommendation 6 reflect the ACCC’s view that, while Google is currently the provider of concern, complexity in the adtech supply chain makes it appropriate that these rules should apply more broadly.

The final report refers to the ACCC’s ongoing investigations in relation to Google’s actions to limit access by other adtech services providers to YouTube inventory, channelling demand away from other providers and its anticompetitive actions in relation to a type of advertising bidding known as “header bidding”. However, the ACCC makes clear that, even if it does commence proceedings in relation to one or more of these matters, this will not be enough to address its concerns and the regulatory reform it has recommended is key.

A global discussion

At a Lexology/Global Competition Review webinar on 22 October 2021, ACCC Chair Rod Sims and a distinguished panel deep-dived into the key findings and recommendations from the Adtech Inquiry and what needs to be done to promote a more competitive adtech industry both in Australia and overseas.

Key highlights from the Adtech Inquiry are:

  • adtech underpins the quality of online content and customer reach: A competitive adtech supply chain is fundamental to advertisers and publishers as higher prices for adtech services, in an uncompetitive market, could lead to more costs being passed on to consumers and poorer quality content.
  • issues with Google’s dominance in the adtech space: Weak competition jeopardises innovation and new business models as competitors either cannot enter the market or cannot grow their market shares. A lack of transparency inhibits the ability of advertisers and publishers to choose services that best suits them. Google’s dominance across all adtech services as well as its dominance in the market for consumer facing services, like YouTube, has allowed it to engage in self-preferencing and anti-competitive conduct, which have interfered with the competitive process.
  • ACCC likely to be given powers to develop new rules in 2022: A report will be published at the end of September 2022, following a 6-month consultation process by the ACCC, outlining proposed new rules to address competition issues in the adtech supply chain as well as in other digital markets.

If you would like to listen to the full discussion, register for the on-demand webinar here.

Author: Angela Flannery

[1] See the ACCC's media release

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

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