"Jedi Blue" deal between Google and Meta in the focus of competition authorities
The antitrust authorities of the European Union and the United Kingdom have opened a parallel investigation on 11 March 2022 into the agreement between Google and Meta (formerly Facebook) from September 2018, which was negotiated under the code name "Jedi Blue". In doing so, the European authorities are following an antitrust investigation by the US state of Texas and 15 other US states.
This agreement between Google and Meta dealt with automated trading of online advertising (Programmatic Advertising). The aim of the agreement allegedly was to outmaneuver the competing, newer header bidding technology and thus give the Google product a competitive advantage.
1. Actors
Advertisers, who want to place advertising, and website operators (also called publishers), who offer advertising space, face each other on the market for online advertisements. There are various methods in this market for meeting supply and demand.
Google is expected to have earned about 209.5 billion US dollars from advertising in 2021 (total revenue 256.74 billion US dollars), partly through its advertising technology service "Open-Bidding". This Google service consists of bringing advertisers and website operators together. The method used for this is "Programmatic Advertising", explained below.
Meta is a particularly large player in the automated advertising market with its "Audience Network". Through the Audience Network, Meta participates in auctions for digital advertising space from website operators. To do this, it uses advertising technology services such as Google Open Bidding, but also header bidding from Prebit, etc.
2. Programmatic Advertising - The Standard Model for Online Advertising
In order to understand the scope and significance of the "Jedi Blue" agreement, the functioning of the market for online advertising (also called display advertising) must be illuminated. For this purpose, we first introduce Programmatic Advertising and Real Time Bidding.
Modern online advertising is mainly based on fully automated and individualised processes that enable the purchase of digital advertising space in real time. Simplified, this works as follows: Every time users open any new web page, an automated auction is held within the loading time of the web page. Here, the available advertising spaces on this website are auctioned off to the highest bidder in real time. The advertisements displayed are then individually tailored to the user. This process is summarised under the term "Programmatic Advertising".
A wide variety of auction processes are used, but the most common is so-called real time bidding, which allows advertisers to bid for advertising space in real time and fully automatically.
The auctions of advertising space take place via a platform that can be thought of as an exchange. Google's Open-Bidding exchange is the overwhelming market leader with a market share of about 70 %.
Due to the considerable importance of programmatic advertising (this type of advertising represents almost 70 % of the entire global advertising market), the new header bidding technology is one of the most important technical innovations for providers of advertising space.
3. Header Bidding - The Revolution
To compete with Google, smaller companies developed a new model for trading display advertising starting in 2014. Header bidding is a simplified form of the established real time bidding methods and easier to implement for website operators. Website operators can easily install a program (e.g. Prebid) on their website. This automatically communicates with all selected advertising exchanges, receives offers for the digital advertising spaces on their website in real time and then awards them to the highest bidder.
The main difference to the currently prevailing open bidding is that here website operators offer the available advertising space on several such exchanges at the same time. With the Google model, on the other hand, website operators are tied to a single exchange.
Since many advertising exchanges can bid on an advertising space at the same time in this way, a the new technology also claims that a higher price per advertising space can be achieved. In addition, header bidding offers more transparency by comparing many exchanges. Therefore, it is more attractive for website operators to opt for this model.
According to various sources, Google has described header bidding in internal documents as an "existential threat". From this it can be concluded that Google was threatened with considerable losses of market share and thus profit due to the competitive model, which allegedly guaranteed the highest price for website operators.
4. The "Jedi Blue" Deal
The exact content of the "Jedi Blue" deal has not yet been made public, but can be inferred from the 130-page antitrust complaint filed by the Attorney General of the State of Texas. Media reports, especially from the New York Times and the Wall Street Journal, also provide information.
In 2017, Meta (then still as Facebook) publicly announced its plans to become header bidding compatible. In 2018, Meta abandoned these plans and did not pursue header bidding any further. The reason, according to Texas' attorney general, is the "Jedi Blue" deal - a deal allegedly so good that Meta couldn't refuse. In exchange for foregoing the technology switch, Meta allegedly received 90% of all auctions, regardless of bids, according to the allegations. This means that even if others bid more, Meta received the advertising space to the disadvantage of the other advertisers. Furthermore, Meta was allegedly given more time to bid, which slowed down the loading of some websites. Meta was also allegedly allowed to identify 80% of smartphone users and 60% of web users, at the expense of user privacy. Whether these allegations are true is still subject to in-depth investigation.
As a result of this agreement, Meta would have received advertising conditions for the use of Google open bidding that allegedly were not offered to anyone else by Google. According to industry expert Adam Heimlich, if these charges prove to be true, the advantages over Google's other advertising partners would be so significant that it would be "to start every tournament in the finals" for Meta.
According to the Wall Street Journal, "antitrust" was not only mentioned more than 20 times in the agreement, but there was even a clause in the agreement on how to proceed in the event of an antitrust action ("would cooperate and assist each other in responding to any antitrust action" and "promptly and fully inform the Other Party of any Governmental Communication related to the Agreement").
5. Commission investigation
The European Commission (EC) opened a formal antitrust investigation in March 2022 to examine the agreement between Google and Meta in relation to display advertising. The focus of the EU investigation is on two aspects: On the one hand, the "Jedi Blue" deal is being examined for an anti-competitive agreement under Art 101 TFEU. On the other hand, the Commission is also investigating whether Google is abusing its dominant position (Art 102 TFEU).
The EC announced that it would treat this investigation as a priority. EU Competition Commissioner Vestager said against the background of alleged restrictions of competition of the "Jedi Blue" agreement:
" Many publishers rely on online display advertising to fund online content for consumers. Via the so-called “Jedi Blue” agreement between Google and Meta, a competing technology to Google's Open Bidding may have been targeted with the aim to weaken it and exclude it from the market for displaying ads on publisher websites and apps. If confirmed by our investigation, this would restrict and distort competition in the already concentrated ad tech market, to the detriment of rival ad serving technologies, publishers and ultimately consumers."
6. Summary
Competition authorities in the EU, the UK and sixteen US states are currently investigating possible anti-competitive behaviour by Google and Meta. According to speculation, the code name "Jedi Blue" is explained by Google's conviction that the agreement was a "Jedi mind control" to dissuade advertisers from collaborating with the competitor model. "Blue" could allude to the blue logo of the cooperation partner Meta. This is one of the explanations circulating.
So, in the language of the Star Wars world, one could say that the investigation is directed at the question of whether they have chosen the "Dark Side of the Force". The Jedi Order, on the other hand, stands for peace and justice in the Star Wars film world.
It is estimated that about 30% of every US dollar spent online goes to Google in the form of fees. A similar profit margin can be assumed for other currencies. Such a margin could theoretically lead to lower profits for website operators, the content providers, who could potentially create lower quality clickbait content in an attempt to compensate for these losses.
Google has already been fined 8.8 billion US dollars in antitrust fines worldwide in the last 10 years. While rumours of a planned break-up of the Meta group are circulating in the USA after the "Jedi Blue" affair, the EU tends to focus on ongoing monitoring. The EU's Digital Markets Act, which will come into force in 2023, aims to regulate the tech giants and enable quick, targeted interventions in the future.
In the current legal framework of European antitrust law, a violation of the prohibition of cartels under Art 101 TFEU as well as a possible abuse of a dominant position under Art 102 TFEU is examined.
Instead of the hoped-for "Jedi Blue" synergies, Meta and Google are now threatened with numerous antitrust proceedings and private class actions. Does the competition law empire strike back?
Please note: This blog merely provides general information and does not constitute legal advice of any kind from Binder Grösswang Rechtsanwälte GmbH. The blog cannot replace individual legal consultation. Binder Grösswang Rechtsanwälte GmbH assumes no liability whatsoever for the content and correctness of the blog.