The current structure of digital advertising markets makes the Google-Facebook duopoly an unavoidable trading partner for every party in the content consumption supply chain, creating a typical “bottleneck” problem. The media industry remains the only meaningful market force potentially capable of mitigating the duopolistic order of digital advertising, but traditional media appear to be more interested in partnering with Big Tech than competing with it.
The digital advertising industry shows a remarkable trajectory of growth, both in terms of scaling up as well as technological advancement. Being an omnipotent and omnipresent intermediary between the end-users and their digital life allows a handful of digital champions to hold a unique market position, improving endlessly their algorithmic matching expertise. Extraordinarily, out of all market players active in display advertising in the UK, Facebook generated over 50 percent of revenues. Google alone generated over 90 percent of UK search advertising revenues.
It is a matter of fact that the entire digital advertising supply chain is being dominated by Facebook’s and Google’s expanding duopoly. This dominance is not only about the scope of their presence in the market, and not only about the astonishing absolute figures of their revenues and profits.
These are the consequences. An important trigger of this radical metamorphosis in the area of online advertising was a fundamental reconfiguration of the entire “production process”—the path from the advertiser to the consumer has become much more technologically advanced. The entire process is currently characterized by tailoring and individualization and underpinned by robust algorithmic matching techniques. This allows myriad individual transactions to take place automatically within milliseconds—and despite some quite astonishing revelations and allegations of horizontal collusion and vertical exploitation, the system is incomparably more affordable than traditional advertising. Micro-targeting and consumer profiling allow a very effective matching of advertisers, publishers, and end-users. Clearly, the technological robustness of the model is accompanied by the objective features of the digital markets, which are characterized by strong network effects and oligopolistic structure, and which until recently have been evolving without any systemic regulatory supervision and enforcement. In antitrust circles, this is now a well-known story.
A much less-discussed effect of the above situation concerns an exponential marginalization of all potential horizontal competitors in this new supply chain: content creators, traditional advertising agencies, and content distributors, all of whom are becoming comprehensively and systemically disintermediated from each other and also from the end-users. Essentially, the current structure of digital advertising makes at least one part of the duopoly an unavoidable trading partner for all other participants of supply chain, creating a typical “bottleneck” problem.
Of course, those traditional market players, and those traditional business models, remain important and innovative in their own specific way, inasmuch as the transition from the offline- to algorithmic advertising era is still ongoing and inasmuch as there will always be life on the internet beyond the Google-Facebook duopoly, there will always be television, radio, press, direct mail, product placement, and a host of other advertising formats. Clearly, it is not a zero-sum game. But the shift toward algorithmic advertising is evident.
The traditional established media and advertising outlets have not used their unique position and thus missed their remarkable opportunity to develop global adtech services to a level comparable to the one offered by Google and Facebook. Mere quantitative improvements and refinements of established online advertising techniques were not sufficient to resist the qualitative revolution of big data profiling, individualization, and algorithmic matching.
Against this background, the media industry still remains the only meaningful market force potentially capable of mitigating the new trend and bring some diversity into the duopolistic order of digital advertising.
More Dead Than Alive: Changing the Players
The world of media advertising is diverse. Under the pre-digital offline model, it was driven by those who create and deliver content, as well as those who accumulated marketing communication expertise and were able to connect advertisers with publishers. In that nascent age of digital advertising, the leading players in the field were media companies (that had a unique ability to access end users) and advertising companies, (which had a unique ability to access advertisers).
From the 1990s up to the early 2010s, these established outlets had a window of opportunity to convert their expertise from the offline to the online world. Evidently, they have not used it. To a large extent, the online content of the established media was copy-pasted from their main offline venues. Their digital advertising techniques similarly mirrored the approaches and formats of their principal traditional offline outlets. Clearly, this mechanistic approach couldn’t respond effectively to the growing expectations and opportunities of the digital revolution. The revolution in digital advertising has been made by others, and it benefits mainly the large digital platforms.
The paradigmatic change in the digital advertising industry was triggered by the exponential growth of algorithmic matching and programmatic auctioning. The momentum for Big Media was lost at the beginning of the 2000s, at the time when the main algorithmic advertising techniques began to mature and scale up. It is from this period on that we began seeing consistent decrease in the online advertising revenues of traditional media outlets. During the 2010s, which were characterized by maturing of algorithmic matching, end-user profiling, programmatic advertising, and big data brokerage, the entire global multibillion online advertising industry has been fundamentally reshaped.
In a Darwinian sense, by not taking the chance to benefit from emerging opportunities, the pre-algorithmic media and advertising industries have failed. Most of the resources and expertise—as well as the overall leadership—in the advertising supply chain has been transferred to the duopoly.
This is not to say that all traditional advertising heavyweights and all established media outlets are losing their global impact, dynamism, and innovative spirit. Nominally, many were able to keep their influence, coverage, and revenues. Each, however, remains in its own habitual business-niche. None have demonstrated an exponential growth and innovation comparable to the one enjoyed by the duopoly, and none has used the momentum to take a leading role in the digital advertising intermediation services industry—a decisive element in the architecture of digital markets.
Further, these traditional advertising outlets appear to be losing the very interest and competence in having a more comprehensive participation in the exponentially growing field of adtech.
From Horizontal Competition to Vertical Cooperation
The last puzzle in this conundrum concerns the obvious synergies and complementarities between the current digital advertising giants on one side, and the media industry on the other. Defeated completely in the horizontal strategic race, the media industry is expressing its interest in partnering with Big Tech vertically, subordinating its commercial independence to the blind game of guessing the duopoly algorithms’ preferences, converting its content into instant articles, thereby losing its direct communication both with advertisers and end users.
Even the most emblematic examples of the Big Media resistance to the duopoly’s omnipotence—such as the partnership deal between News Corp and Facebook or between AFP and Google—are mainly limited to instances of assuring some (small) fraction of revenue sharing, in the form of royalties for using copyrighted content. However attractive from the perspective of public vindication or narrow commercial interests, such deals only cement the status quo, confirming the interests of Big Media in receiving compensation from the reigning advertising scheme rather than in designing their own adtech infrastructure of comparable calibre and impact. Symbolically, these paradigmatic cases assign the exclusivity status of operating the scheme to the duopoly: they make the money, we receive a fair share. This is a symptom of de-industrialization.
The dilemmatic nature of this situation is that the partnership model with Big Tech platforms is hard to resist. Beside allowing many benefits and synergies in various markets, it also could be seen in some Pickwickian sense as being pro-competitive, allowing matching even more small- and medium-size advertisers with their niche end-users. However, the vertical subordination of the media outlets to the digital advertising gatekeepers would imply the end of the horizontal competition between the media and the duopoly.
The emerging regulatory approach, more privacy-mindful and accompanied by the increase of various commercial practices by the data incumbents to prohibit third-party cookies, is likely to close the opportunity window for any meaningful horizontal entry into the adtech market. This will prevent Big Media from developing any meaningful alternative advertising channels based on profiling and intermediation, leaving the fruits of the toxic but powerful mechanisms of digital advertising benefiting only to the current gatekeepers, via the “use yourself and then ban for others” formula.
The main issue emerging in this context is whether the trend is reversible at all? Will the traditional media and advertising companies ever be capable of taking a more active role in the field of algorithmic advertising? Is there any remaining competence left that would be sufficient to go beyond the local commercial interests of a specific media and advertising outlet, allowing at least some of them to scale up and challenge the technological adtech exclusivity of the digital giants?
Protecting Competition by Shaping It
A solution to this systemic challenge may be found in emerging digital competition laws, particularly recent proposed legislations in the EU, UK, and US.
Other jurisdictions will certainly follow this systemic trend. An approach that combines the rules and techniques of the traditional ex-post antitrust with intense and proactive ex-ante sectoral regulation, is emerging synchronously in different antitrust jurisdictions. Such a remarkable regulatory shift is understandable and unavoidable: the world is rapidly transitioning from the period of internet optimism, which emerged on the eve the digitization and perceived the internet as the apotheosis of freedom and liberalism, towards a more pragmatic and more interventionist regulatory modality. The all-permissive hands-off approach to Big Tech that characterized the previous era of internet optimism, accompanied as it was by strict regulation of traditional media, helps explain the current situation. In that sense, this new era of internet governance aims to cure the systemic failures of the previous one.
The emerging trend of ex-ante regulation seems to imply that the current ex-post competition rules alone cannot suffice to protect and shape the development of the competitive process in digital advertising. The existing rules usually penalize a narrow, case-specific anticompetitive conduct rather than remedying this tendency; and they are usually characterized by slow and (overly-)complex procedures. Shaping well-functioning, contestable, fair, and healthy digital advertising markets must be done via proactive—not just protective—regulatory visions. The new digital reality requires a new regulatory mentality.
Over the last few years, a number of authoritative reports and studies have been produced in all major jurisdictions around the world. This was followed by unprecedented legislative activism, with the most remarkable initiatives being the antitrust bills currently being debated in Congress and President Biden’s “Executive Order on Promoting Competition in the American Economy” and the EU’s proposed Digital Services Act and Digital Markets Act. Instead of being retrospective and responsive, these laws are forward-looking and proactive. This trend is accompanied by a more synergetic coordination between different sectoral regulators, a more ‘creative’ application of the existing and the adoption of new competition rules. We see similar proactive initiatives aiming at restoring systemic market failures in the UK, Australia, France, and other jurisdictions.
It remains to be seen if the enforcement of these emerging digital competition laws will be robust enough to address the systemic issues described above, or whether it would be chiefly confined to remedying the consequences—rather than dealing with the sources—of these market failures and focus mainly on the vertical aspects of competition inside the gatekeeping platforms.
Dr Oles Andriychuk is a Senior Lecturer in Competition and Internet Law at the University of Strathclyde School of Law (Glasgow), where he also directs the Centre for Internet Law and Policy.
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