The Threat to Google Advertising Dominance is Back – With Teeth

In 2007 Google feared for its future as the digital ad leader. There were two huge technology holes in their advertising business strategy that could be exploited by others. These were real threats.

One was the browser. The browser controls the DOM (Document Object Model) which controls the delivery and experience of content on a web page, including ads. If an ad is getting served on the web the browser makes that happen, along with all other content that appears on a page.

Back in 2007, Microsoft dominated the browser market and Firefox was starting to gain real share. MSFT also had just purchased $6B worth of advertising companies. So Google got to work on its own browser and by September 2008 Google released Chrome for Windows. A year later they release Chrome for OS X. You want some irony? In 2018 Google will use Chrome to stop showing ads. Google’s rise to market dominance in the browser war is arguably the most compelling and important story of the digital economy the past decade. But that’s not our story.

As difficult as it would be to build a browser and then gain market share, filling the other technology hole that threatened Google’s business was even more difficult. That hole was the tech layer between the browser and the consumer. The veritable “last mile” which of course belonged not to Google but to ISPs (Internet Service Providers).

At the same time Google was building Chrome two very heavily funded start-ups were working to allow ISPs to collect and use the consumer data flowing through their pipes using something called Deep Packet Inspection for the purposes of selling targeted advertising. This meant every search, every website visit, every purchase, every email, every text, was going to be collected and then used to target ads by the ISP. Effectively it would cut the legs out from Google’s proprietary keyword and contextual data, the backbone of its entire ad business.

The companies were Phorm and NebuAd.

Phorm was founded by Kent Ertugrul who recruited “100 of the best computer programmers” in Russia to build an advanced system of tracking people across the web. In 2008 Phorm signed deals with the UK’s three largest ISPs, BT, TalkTalk and Virgin. ISPs were going to get into the advertising game. Google was scared.

At the same time, across the pond NebuAd led by networking exec Bob Dykes was building its business and technology. Similar to Phorm, NebuAd had hardware devices and software that were able to take every piece of consumer data flowing through the ISP and use that for ad targeting. NebuAd struck in deals in 2007 with about 30 ISPs in the States and started deploying its tech. Google was scared.

Under the guise of privacy and consumer protection Google launched a large lobbying campaign in the States focused on Ed Markey, the chairman of the House Subcommittee on Telecommunications and the Internet, and Joe Barton, a ranking member of the House Committee on Energy and Commerce to block DPI.

It worked.

Along with pressure from privacy conscious Europe the ISP threat was eliminated before it really got started and the decade of dominance from Google and then Facebook in online advertising was cleared for takeoff. Interestingly, Google did a great amount of work trying to build an ISP of its own during the last decade seemingly as a hedge.

Ten years later the same two threats are back. Facebook with its app and the app world in general is a threat to the open web that Google controls. More threatening however are the ISPs and this time they are ready for battle. Backed with high-powered lobbyists of their own they have been feasting in Washington. One of the first things the Trump administration did was repeal regulation that prevented ISPs from selling user data. Next of course was repealing Net Neutrality. it seems the bastion of power in media and communications is moving back from Silicon Valley to places like Basking Ridge, NJ, Dallas, TX and Philadelphia, PA.

Ahead of this the ISPs have been buying ad tech companies. AT&T, Verizon and Comcast in the States and Telefonica, Altice, Singtel, Telenor globally, all have ad tech companies under their umbrella that use data for targeting ads. It will not be difficult for the other ISPs to build or buy what’s needed.

And DPI? DPI hasn’t gone anywhere. There are 27 companies that provide hardware and software for it including Cisco, Broadcom and Huawei. If you want to geek out on DPI here’s a video from French DPI company Qosmos using two of my favorite technologies, ElasticSearch and Kibana to show how they collect and organize the data, even “secure” data that is moving through HTTPS.

Are these renewed threats to Google’s ad business dominance good or bad?

Despite Google’s dominance the past 10 years Facebook was able to grow a very large ad business from scratch. Others like Amazon seemingly can also compete with Google. Now ISPs will enter the game. A game where they have been able to change the rules.

Of course it is impossible to know where and how the market will change. Few industries move as fast as ad tech. What we do know is that consumers and brands need better ad products than the ones they’ve been getting. We know the majority of consumers (at least in the US) seem willing to trade their privacy for the services they use. We also know that 5G networks are coming soon.

Should old acquaintance be forgot, and never brought to mind? Not this time. The next ten years will decide the future of advertising but one thing is certain. The threat to Google from the ISPs is once again real and this time, they were not able to stop it. Happy ad tech New Year.