It’s no secret that the digital advertising market is dominated by a few big companies. They have been able to exert tremendous power and control over the market. And this has drawn the attention of lawmakers, alarmed by this situation.
To address the problem, several legislators have introduced a bill in Congress called the Competition and Transparency in Digital Advertising Act. What is the Competition and Transparency in Digital Advertising Act? Here are the basics.
A separation of powers
The purpose of the legislation is to separate digital platforms that provide both advertising and publishing services. Because some companies, most notably Google, operate supply-side platforms and demand-side platforms, as well as ad exchanges, it may lead to a conflict of interest and increase their power in the market.
The proposed law is an addition to the Clayton Act, which is an antitrust law put into place in 1921. The Digital Advertising Act outlines requirements for competition and transparency in digital advertising.
The law is intended to act as a counterweight to the lack of competition among the big tech ad platforms and could lead to an appreciable disruption of the industry.
It proposes to increase competition by prohibiting large digital advertising firms– those with more than $20 billion in ad revenue annually — from owning more than one element of the digital ad structure. This means that these companies cannot sell and buy advertisements and offer digital advertising space all at the same time.
According to one of the sponsors of the law, Utah Senator Mike Lee, companies such as Google and Facebook have been able to amass tremendous amounts of detailed user data, which has given them almost absolute control over digital advertising, and helped them to gain power on every side of the market, using this power to eliminate competition.
Specifically, the legislation does three things:
- It stipulates that ad exchange owners cannot own supply-side or demand-side platforms.
- It stipulates that companies cannot own both a demand-side and supply-side platform.
- It stipulates that companies that buy and sell digital advertising cannot also own a demand-side or supply-side platform, other than to sell their own advertising inventory.
The law is specifically targeted at digital advertising behemoths like Google because they are involved in every aspect of the advertising transaction, which leads to a decrease in competition.
If the act should become law, companies such as Google, Facebook, and Amazon would most likely have to sell parts of their advertising business. This would probably cause a great deal of disruption in the digital advertising market, according to those in the business.
In addition to increasing competition, the act seeks to increase transparency in the digital ad market. It does this by mandating that companies provide their advertising customers with information about the performance of the ads.
This kind of data has been a bone of contention for some time because of concerns that platforms can give preference to their own products over a competitor’s offerings. By providing greater transparency, the legislation seeks to address this issue. Providing this transparency will reveal changes in bidding algorithms that may disadvantage some who are buying and selling ads.