The Wall Street Journal recently reported that Google is planning to introduce an ad-blocker to both the mobile and desktop versions of its popular web browser, Google Chrome. The ad-blocker will reportedly filter out advertisements deemed to provide users with “bad experiences”. Such unacceptable ad types include pop-ups and videos that play automatically with sound, according to the Coalition for Better Ads (an industry group that counts both Google and Facebook as members). These ads fall “beneath a threshold of consumer acceptability”.
Google’s strategy is obvious. It is well known that revenue from online advertising is Google’s bread and butter. By bundling ad-blocking software with its browser and whitelisting its own services by default, Google can get out in front of the growth of users that manually install ad-blocking software that does not whitelist Google’s ads by default. Google currently gets around this problem by paying certain ad-blocker providers, such as Adblock Plus, to whitelist its ads. Relying on the power of defaults, Google is hoping that users will not manually blacklist its advertisements (if this will even be possible) or download additional blocking software to screen out its ads.
Given the attention Google has received from antitrust regulators globally for its practices in search, online advertising and mobile software, it comes at no surprise that antitrust alarm bells were ringing as the news broke. Margrethe Vestager, European Commissioner for Competition, tweeted that she would be following the effects of the new feature “closely”.
— Margrethe Vestager (@vestager) April 20, 2017
But is Google’s new feature capable of negatively affecting competition online? There are two possible theories under which Google’s new feature could attract antitrust attention.
Foreclosure of rival ad-blockers
By bundling its own ad-blocker with Chrome, Google could in theory foreclose rival providers of ad-blocker software. Under the traditional law on tying arrangements, a complainant or intervening authority would have to show: first, that Chrome and Google’s ad-blocker are two separate products; second, that Google is dominant in the market for web-browsers; third; that Google restricts the choice of consumers to obtain Chrome and its ad-blocker separately; and fourth, that the arrangement is liable to foreclose competition in the browser and/or ad-blocker markets. Generally, the idea is that the monopolist commands so much power in the upstream market that it can “force” consumers to take its downstream product and in so doing foreclose rivals in the downstream product market.
The details of Google’s ad-blocker are unknown. In particular, it is not known whether Google will restrict users’ ability to download competing ad-blockers. However, even if Google still allows rival ad-blockers access to the market through the Chrome Web Store, the bundling of its own ad-blocker with Chrome could still stifle competition in the ad-blocker market by harnessing consumer default-bias towards Google’s pre-installed offering. The European Commission has, in the past, found that Microsoft illegally tied both Internet Explorer and Windows Media Player to its Windows operating system, even though users could download competing offerings from the internet. This was due to consumers’ demonstrable tendency to stick with the default options. Although consumer choice was not technically restricted, downstream competitors had to expend considerable resources to overcome users’ default-bias. In this case, any intervening authority would have to show that modern internet users exhibited a similar bias towards sticking with Google’s own ad-blocker.
However, the authority may face another hurdle in showing that Google commands market power in the market for desktop and mobile web-browsers. This is a prerequisite for a finding that a tie is illegal because, if the tying firm faces competition in the tying product market (web-browsers), consumers would have sufficient alternatives to choose from. If Google does not command a high-market share in web-browsers, it cannot shield its ad-blocker from competition on the merits from other ad-blockers by bundling it with Chrome. That said, Chrome’s market share stands at just over 50% according to one report:
While sufficient to attract antitrust liability in Europe, the extent of Chrome’s dominance is a far-cry from the “super-dominance” standard found to exist in the Microsoft cases. Microsoft commanded a share in the market for PC operating systems of over 90% when it was found to have illegally tied Windows Media Player and Internet Explorer to Windows. In these circumstances, consumers had no choice over whether or not they received a PC operating system that came bundled with Microsoft’s downstream products. Windows was therefore a key distribution channel for rival downstream applications. Here, however, users that are dissatisfied with Google’s ad-blocker have choices that can thwart the bundle: they can switch to a different browser or switch to a different ad-blocker (again, we don’t know quite how Google’s ad-blocker will work yet). By extension, rival ad-blockers will have access to the market through other distribution channels, i.e. other browsers. Segmenting the market according to device complicates things further: though Google’s share of browsers on desktop is over 60%, its usage share on tablets is just over 20%.
Furthermore, barriers to entry in the browser market are low. In the Microsoft cases, Microsoft’s high market share was protected by the “applications barrier to entry” whereby a greater number of applications available for the Windows OS garnered greater popularity for the platform with end-users, which, in turn, spurred more developers to build applications for the platform, and so on. This made it much harder for rival OS providers to penetrate the market. Though browsers too serve as a platform between extension developers and end-users, the availability of extensions is ancillary to the browsing experience, whereas operating systems are worthless without applications. Furthermore, Google itself decreases barriers to entry by providing Chromium, the engine behind Chrome, on an open-source basis. Amateur developers can build their own web-browser in a matter of minutes.
Though rival ad-blockers could build an antitrust case against Google if it bundles its ad-blocker with Chrome, they won’t have an easy ride. Even if one accepts that Chrome is the dominant browser in the antitrust sense of reducing product quality without sacrificing usage and/or profits, plaintiffs must still show that competition is foreclosed by users’ practice of sticking with Google’s default option. In the age of the modern web user, this will be a tough task.
Foreclosure of rival ad platforms
However, there remains another group of online operators that will be aggrieved if Google switches its ad-blocker on by default. As commentators noted when word of the ad-blocker spread, Google faces a clear conflict of interest when selecting whether to block certain ads because Google itself operates a highly lucrative advertising platform. To illustrate, say that Google has market power in the browsing market. If Google “switches off” ads from a third party advertising platform, its advertisers may switch to a whitelisted ad platform (such as Google), thereby foreclosing that third party from the market for online advertising platforms. In antitrust lingo, Chrome would be an essential facility; a piece of infrastructure that is a necessary in order for downstream market participants to compete. The facility or infrastructure, due to various factors such as large sunk and fixed costs or network effects, exhibits characteristics of a natural monopoly or de facto standard. In denying competitors access to its “facility”, the monopolist forecloses competition in a downstream market.
However, this doctrine is virtually non-existent in US law and has been severely curtailed by the courts in Europe. This is because it is the essence of competition that a firm can choose freely with which undertakings to do business. To constitute an essential facility under which equal access is warranted, complainants must show that access to Chrome is indispensable to the carrying on of business in the market for advertising platforms, and that refusal of access eliminates all competition in the downstream market. A facility is not essential if alternative routes to the market exist, even if those routes are less advantageous. Chrome’s market share of 50% would be insufficient to attract liability as an essential facility because aggrieved advertising platforms can still access the market through alternative browsers, such as Safari or Microsoft Edge (formerly Internet Explorer). They can also persuade users to manually whitelist their platform by, for example, signing deals with content providers to condition access to the content upon manual whitelisting.
By blacklisting certain ad types, Google is sending a clear message to advertisers that, in order to have their ads displayed on Chrome, they must adhere to certain standards that conform to consumer expectations. It is well-known that web platforms must enact systems of governance to manage the potential for certain users to create negative externalities that reduce the value of the platform for all users. As long as Chrome faces competition in the browser market, it must continually improve its offering in line with or above its competitors’ browsers. Users clearly value a web-browsing experience that encompasses as few intrusive ads as possible, so Google’s election to set filtering as the default option should benefit consumers. If it does not, Google should be punished by the market: consumers that like intrusive ads should switch to rival browsers (or switch off Google’s blocker), and consumers that hate all ads (including Google’s) should switch to an ad-blocker that filters out all ads.
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Google has attracted waves of antitrust scrutiny across the globe as it increases the extent of its vertical integration, continually tweaks its products and experiments with the extent to which they are mingled together. The revelation that the company is soon to bundle an ad-blocker with Chrome therefore understandably catches the attention of those who have closely followed Google’s legal wrangles, as the facts are to some extent comparable. However, bringing either a tying or essential facilities case against Google in this instance may prove arduous. First, barriers to entry in the browser market are not high and Chrome’s share does not render it super-dominant. As such, there are other routes to the market for ad-blockers and advertising platforms. Second, consumer demand for ad-blockers is constantly rising. Google may believe that its ad blocker beats the competition by blocking the optimal number of ads. Yes, I hate annoying pop-ups, but can I really complain when Facebook shows me a picture of a product I was looking at on the internet earlier that day? If Google’s ad-blocker really will be the best available, pre-installing its own offering is justified by providing consumers with the best web browsing experience.