Changes ahead for Australian advertising regulation: the ACCC releases the Digital Advertising Services Inquiry Final Report

The AdTech Report is a response to the fifth recommendation of the ACCC’s Digital Platforms Inquiry, and follows the publication and subsequent enactment of News Media and Digital Platforms Mandatory Bargaining Code (the “Mandatory Bargaining Code”) earlier this year.

In the AdTech Report, the ACCC concludes that Google is dominant across the Ad Tech supply chain and that this creates significant problems for competition, advertisers, publishers (and ultimately, consumers).

The Ad Tech supply chain is broadly comprised of publisher ad servers, advertiser ad servers, supply side platforms (“SSPs”) and demand side platforms (“DSPs”).

The Commission estimated that in 2020, over 90% of ad impressions traded via the ad tech supply chain passed through at least one Google service. Furthermore, it considered that at each stage of the ad tech supply chain, Google’s share of impressions exceeded 70%.

The Scope of the AdTech Report was limited to the online advertising of display ads using open display channels, whereby ad tech services are employed to sell ad inventory from a diverse range of publishers to advertisers. Thus, other digital platforms that have successfully commercialised display advertising (via closed channels) were out of scope. The Commission estimates that in 2020 $2.8B AUD was spent on open display channel advertising in Australia (being approximately 43% of the total display advertising expenditure).

The ACCC’s Competition Concerns

The Report says that the ACCC has the following concerns:

1. Use of first party data: The ACCC considers that Google may use the first-party data it collects from consumers using its services (such as Search, or Maps) in providing Ad Tech services (in particular by its DSPs) for the sale of third-party inventory.
While Google contends that it makes extremely limited use of the first party data it collects, the ACCC considered that, at a minimum, Google benefits from the perception that it uses this data, and that even if it does not use data for this purpose at present, there is nothing to preclude it from doing so in the future.

2. Google’s vertical integration leads to conflicts of interest: The ACCC concluded that as Google operates across the entire supply chain, it can act for both buyer/advertiser and the seller/publisher, while also operating the ad exchange that connects the two parties. In addition to which it also sells its own advertising space. The ACCC considers that this can lead to conflicts both between different types of customers and between Google customers and other Google group entities within the supply chain.

3. Self-preferencing: The ACCC report found that Google may favour its own related services to the detriment of third-party ad tech services. Particular concerns raised by the ACCC include:

• Purchase of YouTube inventory is restricted to Google’s own DSPs;
• Directs demand from its DSPs to its own SSP;
• Restricts how it’s SSP works with third-party ad servers and has its own published ad server preference its SSP;
• Using its control of the auction rules within its published ad server to benefit its other services.

While the ACCC didn’t express a view on the competitive effects of these examples individually, the ACCC expressed the view that “the cumulative effect of this behaviour over time has been to lessen competition in the supply of a range of ad tech services and entrenched Google’s dominance and strength in ad tech services”.

4. Lack of transparency: The Commission considers that there is a lack of transparency in the auction process in relation to pricing and fees which affects both advertisers and publishers. In addition, the Commission found that Google has limited the ability of advertisers to use third party attribution providers to collect information about ad impressions sold. The Commission considered that this increased the likelihood that advertisers would use Google’s own attribution services and limited their ability to compare the performance of ads.

Ad Tech Report Recommendations

The Commission considered that enforcement action under the Competition & Consumer Act 2010 (presumably including, the s.46 Misuse of Market Power provisions) was insufficient to address these issues in a timely manner and instead argues that additional ex-ante regulation would be preferable.

As such, the ACCC made six recommendations to address the concerns it raised in the Ad Tech Report. These include:

1. Google should amend its public material to illustrate how it uses first-party data to provide ad tech services: this would apply to consumer terms of service, privacy policy as well as B2B materials.

2. The ACCC should have the power to develop sector specific rules to address conflicts of interest and competition issues: these rules would apply only to providers that meet criteria related to their market power or strategic position. Rules would be devised in consultation with industry and would need to be proportionate to the risks faced.

Of particular interest, is the Commission noting that rivals should have non-discriminatory access to certain services and its looking to the telecommunications access regime as an example of where this has worked effectively in the past.

The ACCC has set out some potential ways in which rules could tackle the concerns raised in the Ad Tech Report. This provides some insight into the types of rules that may be employed. For instance, rules could:

• preclude Google from making YouTube inventory only available for purchase through its own DSPs;
• prevent Google from charging third party SSPs a fee for using Google’s publisher ad server but nots its own SSP;
• require ad tech providers to act in the best interests of their client (much like rules employed in financial services); and
• require that an ad tech provider not use information about one ad tech product to supply another ad tech product.

3. The power to introduce sector specific rules would be likely to allow the ACCC to address competition issues caused by an Ad Tech provider’s “data advantage”. These measures should apply where the data advantage arises from the Ad Tech provider’s market power and/or strategic position and the data advantage increases the Ad Tech provider’s market power. As discussed below, this recommendation will need to be balanced against consumer privacy considerations.

4. Industry should establish standards to require Ad Tech Providers to publish average fees and “take rates” for Ad Tech services, and to enable verification of DSP services.

5. Google should provide publishers with additional information about the operation and outcomes of its publisher ad server auctions.

6. The ACCC should be given powers to develop and enforce rules to improve transparency across the Ad Tech supply chain.

Privacy implications

The ACCC notes in the Ad Tech Report that it has considered the potential implications of recommendations for consumer privacy, and that it has carefully considered how the recommendations in the Ad Tech Report can be implemented so that consumer privacy is protected.

Data access, portability and interoperability

In particular, in relation to Recommendation 3, the ACCC acknowledges that it may be difficult for data access requirements designed to address issues arising from Google’s data advantage to be implemented in a way that adequately protects consumer privacy and complies with the Privacy Act 1988 (Cth).

The ACCC indicates that it does not currently propose that data portability measures should be extended to apply to the ad tech sector as it is not convinced that this would effectively address issues arising from Google’s data advantage, though it notes that technological developments may make this possible in the future.

The ACCC also indicates that it is not recommending that data interoperability proposals should be introduced at this time due to concern on its part that the competition benefits of measures like common user IDs are outweighed by privacy risks and associated consumer harm.

Potential Consumer harms arising from ad targeting

The Ad Tech Report also refers to perceived potential consumer harms arising from the use of data for ad targeting purposes, including:

• Programmatic advertising and real-time bidding auctions relying on potentially invasive data practices, and that bid requests which may contain sensitive personal data are frequently shared between numerous ad tech providers.
• Unfair use of data contributing to consumer mistrust of the digital industry. These include practices such as unfair or inappropriate targeting, over-collection or misuse of personal information.
• The use of data collected to deliver highly personalised and targeted ads to vulnerable consumers, including children, for alcohol, gambling, or unhealthy food and beverages.
• The application of price discrimination, using advertiser interfaces that encourage addiction to products, lack of consumer control over data, and risks to personal security and the safety of children.
• The ability of consumers to understand the use of their data through ad tech and make informed decisions that reflect their true preferences, which one stakeholder submits cannot be fully addressed through improved consent practices or an unfair trading prohibition.

The ACCC notes that it made two recommendations in the Digital Platforms Inquiry Final Report that could help address these consumer harms, which it continues to support.

The first of those recommendations was that the Australian Consumer Law should be amended to prohibit certain unfair trading practices. The ACCC indicates that it remains of the view that this would enable it to undertake strategic enforcement action against members of the ad tech industry to address the risk of them collecting or using data in ways that have the potential to result in substantial consumer harm.

The second of those recommendations was that an enforceable privacy code of practice should be developed by the Office of the Australian Information Commissioner (OAIC) for digital platforms. The ACCC notes that the government has confirmed that it will introduce legislation to enable the OAIC to develop this code and that an exposure draft of that legislation is expected to be released for public consultation in 2021.

Final observations

The ACCC has stressed the need for regulatory alignment with other jurisdictions in relation to digital platforms more broadly. To this end, the Ad Tech Report has highlighted the work being undertaken by the UK Competition & Markets Authority, the European Union, Japan and the United States.

Recommendations 4 and 5 of the Ad Tech Report both suggest that if industry can not come up with appropriate solutions then the ACCC may use the proposed sector-specific powers contemplated in Recommendation 2 to create its own solution. There are certain parallels between the events that led to the Mandatory Bargaining Code and these new recommendations in the Ad Tech Report. It will be interesting to see how platforms, publishers and advertisers respond in this case.