Submission to the House of Lords Communication Committee’s inquiry on the UK advertising industry
1.1 Google welcomes the House of Lords Communication Committee’s inquiry into the UK’s advertising industry - one of the UK’s economic success stories - and we appreciate the opportunity to provide input. Our submission is split into two key sections: an overview of Google’s advertising business; and our views on the specific questions raised by the committee, focussing on section four and the UK’s digital advertising market.
1.2 Advertising is integral to Google’s work and has enabled the internet to become a largely free, open and accessible space. Because of the advertising funded digital publishing business model, anyone with a device and an internet connection can access news and information from all over the world. It has driven economic growth both online and offline - helping to level the playing field between small and large businesses and enabling businesses of all sizes to find new customers and provide new services, boosting economic growth. The advertising funded internet has also contributed significantly in enabling actors like small publishers, bloggers and video bloggers (vloggers) to find an audience and earn money from providing content to that audience.
1.3 The UK is a world-leader in the digital ad industry - with an advertising market that is vibrant and highly competitive; one in which various formats are in direct competition with each other, and where advertisers utilise a range of different services - online, print, TV, radio and outdoor display. And while digital advertising has experienced rapid expansion and innovation, the UK advertising industry as a whole continues to grow - the latest Advertising Association/WARC figures showed that UK advertising grew 3.7% in H1 2017.
1.4 Despite its strengths and global status, the UK advertising industry faces several challenges - most notably maintaining uninterrupted data flows and access to international talent.
1.7 It is therefore welcome that the Committee will examine these challenges and the measures needed to address them.
2. Google’s advertising business
2.1 Google’s mission is to organise the world’s information and make it universally accessible and useful. Advertising is integral to enabling this mission. Because of advertising, we can help people reach an audience they could not reach before and we can offer the same free products and services to an entrepreneur in Exmouth as we do to an architect in Aberdeen. A report by Deloitte estimated that British businesses using Search and AdWords (Google’s main advertising platform) generated at least £11 billion in economic activity and supported over 200,000 jobs in 2014.
2.2 Our most used and useful products, including Search, Gmail, Maps and YouTube, are free because of the ad funded model. Similarly, the majority of the websites, blogs, social networks, mobile apps, and videos that people consume every day across the web are free to access because they are funded by ads.
2.3 There are two broad categories of Google ads: search ads and display ads. Search ads appear in response to a search by a user in Google Search. By contrast, display ads are typically embedded in some other content on a publisher’s web page. Google runs a range of different search and display ads across our platforms:
2.9 All of these Google ad formats are underpinned by data to help advertisers and publishers understand the type of traffic and returns they’re getting.
2.10 Google also runs its own programmatic ad exchange called ‘DoubleClick Ad Exchange’. An ad exchange is a digital marketplace that enables advertisers and publishers to buy and sell advertising space through real-time auctions, based on information such as the web interests of the user an ad is being served to, the time of day, device type, ad position etc. Ad exchanges are most often used to sell display, video and mobile ad inventory. They enable advertisers to easily buy ads across a range of sites at once and they offer publishers an efficient way of filling ad inventory on their sites. Because of their scale, transparency, and targeting features, exchanges are generally seen as a very effective and efficient way to buy and sell advertising.
2.11 There are numerous different ad exchanges in the market, so many advertisers and agencies will use ‘demand side platforms’ to help them take advantage of the huge pools of inventory available. In basic terms, a demand side platform is a technology that enables buyers to plug into different ad exchanges and access inventory from publishers across the web as efficiently as possible. There are many competing demand side platforms and Google offers one called ‘DoubleClick Bid Manager’.
2.12 Similarly, Publishers regularly use ‘Supply Side Platforms’ to help them access buyers on the numerous different ad exchanges available to get the best yield for their available inventory. Again there are a number of competing supply side platforms. Google’s publisher solutions include the ‘DoubleClick for Publishers’ ad server and the DoubleClick AdExchange.
2.13 DoubleClick Ad Exchange, DoubleClick Bid Manager and Doubleclick for Publishers form part of our full service programmatic advertising solutions offer, which is often referred to as the ‘DoubleClick stack’. These ad tech tools, alongside other DoubleClick tools that help with campaign management, creative production and attribution analysis, are designed to help buyers and sellers improve speed and efficiency when trading digital advertising inventory.
2.14 Ad tech is a highly competitive part of the market, with many established businesses, but also regular new entrants and start-ups. This competition has resulted in rapid innovation, which has benefited both advertisers and publishers.
3. Google’s ads business is transparent, secure and protects users’ privacy
3.1 Google wants to support the proper functioning of the ad-supported ecosystem, and people’s continued trust in it. That means serving only ads that are relevant, that respect users’ privacy, and that users can trust.
3.2 Google never sells its users’ personal data. Nor do we let advertisers access users’ personal data. Instead, we provide advertising services that enable advertisers to select audiences with certain characteristics. We don’t let advertisers use our services to directly identify who individuals are, and we do not allow ads to be targeted based on sensitive information such as race, sexual orientation or health.
3.3 Over the years, we have developed many tools to help our users clearly understand what data we collect and how we secure it. For instance:
3.4 We also strive to provide users with transparency into (and control over) the ads they see.
3.5 Google also protects businesses that advertise across our network. We offer brand controls to our advertisers, and our partners can also choose not to appear against content they consider to be inappropriate.
4. By protecting trust in ads, we can support a free internet that drives economic growth
4.1 Digital advertising has helped open up access to information, pluralism, user choice, and competition. Thanks to advertising, anyone with a business, large or small, can use the power of the internet to get new customers and grow their business. And in exchange for ads we also get more original and creative content and more economic opportunity and entrepreneurs. The alternative - an internet dependent on subscriptions and paywalls - would have put these opportunities out of reach for many and constructed a digital divide.
4.2 Google’s tools and technology have helped behind the scenes, empowering businesses to sell more of their products and to compete successfully regardless of size and budget. Once businesses are online, hundreds of thousands across the UK use Google’s products and advertising platforms to make themselves even more visible on the web and drive millions of customers to their website, shop or call centre. The benefits are also not confined to online activity: online ads lead users to make purchases online and offline, helping advertisers and businesses grow locally too.
4.3 The Advertising Association estimates that every pound spent on advertising returns £6 to GDP. With advertising spend expected to be over £21 billion this year, the industry will contribute over £120bn towards GDP and support over 1 million jobs across the UK. The UK is also the largest exporter of advertising services in Europe, at £4.3 billion per annum.
4.4 Advertising is the second largest creative industry in terms of GVA, and also funds culture and the other creative industry sectors, from TV and publishing to the arts, through advertising and sponsorship.
5. Google plays an active role in the UK advertising industry
5.1 Google plays an active role in the UK advertising industry beyond its core business, helping to boost skills, strengthen self-regulation and support the work of leading industry associations. Our Digital Academy helps our agency and client partners build the capabilities they need to stay ahead. Offering a wide range of programmes, from beginner to advanced, two-day long to five months, part-time and full-time, the Academy help to give marketers the skills they need to grow in the digital economy.
5.2 In 2015 we also expanded the programme to create the Digital Garage, which offers training workshops and 1:1 mentoring sessions to small businesses, charities, and individuals, enabling them to harness the power of the Internet. Over 150,000 people have so far been trained through the programme, and people who complete the full course receive a certificate endorsed by Google and the Interactive Advertising Bureau Europe.
5.3 Alongside the Home Learning College, Google also developed Squared Online - an award-winning digital marketing leadership course. Over the course of 5 months, participants learn about the digital landscape and marketing practices, including how to apply them strategically to a business challenge or opportunity.
5.4 Google works closely with publishers on the Digital News Initiative (DNI), which aims to support high-quality journalism through technology and innovation. As part of the initiative, we support the DNI’s Innovation Fund, which has awarded £70m to more than 350 projects in 29 European countries, including the UK.
5.5 Google also supports organisations such as MediaSmart, the UK ad industry’s advertising literacy programme for schools; we are active supporters of two of the biggest industry charities, the National Advertising Benevolent Society and Media Trust. We’re also a member of the Advertising Association, the Internet Advertising Bureau and represented on the board of Asbof. This work is just one part of Google’s overall commitment to the UK ad industry and the country as a whole. Recently we announced our investment in a new London HQ with space for 7,000 people. Currently Google employs around 4,000 people in the UK.
6. Digital advertising - a rapidly growing industry
Question 11: How is the UK advertising industry adapting to the shift to digital media advertising? How does this compare with other countries and other industries?
6.1 The UK digital advertising industry has grown strongly in recent years. According to the Internet Advertising Bureau (IAB) and PwC’s 2017 Digital Adspend report, as of the first half of 2017, the market is worth £5.56 billion - up 13.8% on the previous year. Within this, mobile advertising has posted particularly strong growth for the half year, accounting for 43% (or £2.7bn) of overall digital spend and 57% of digital display advertising.
6.2 As a part of the digital advertising sector, video advertising has also expanded rapidly - with £699 million spent on video ads in the first half of 2017, more than was spent on ‘banner ads’ (static image display ads) for the first time. Video ads now account for 35% of all digital display advertising in the UK.
6.3 Research by the IAB has shown that the UK leads the rest of Europe on digital advertising. Total spend on digital advertising across Europe in 2016 reached £34.34bn, an increase of 12.3% compared with the previous year. £10.3bn of that spend was in the UK - more than was spent in Germany and France combined.
6.4 This rapid growth has been driven by changes in people’s behaviour (the average number of devices per household has risen 12% since 2015) - with businesses looking to digital platforms in order to be where their target consumers are. Ofcom data shows 83% of UK adults (16+) have broadband internet access at home and 76% have a smartphone. Two-thirds of UK adults (66%) say they go online via their mobile phone (among 16-24s this is 89%, compared to 22% of those aged 65+).
7. Digital is just one part of the advertising ecosystem
Question 12: what is the future of television, print, radio, out of home and other forms of non-digital advertising?
7.1 Digital makes up around the a third of the global ads market, accounting for 37.2% of total expenditure. Most traditional advertising media in the UK are now at least in part digital, whether this be connected digital outdoor billboards, online radio, connected TV, and news publishers on the web. Even so, the advertising market is much larger than just the web.
7.2 Online and offline formats compete with one another to reach the same consumers. Ad buyers use Google services alongside others because they are useful and maximise return on investment, not because advertising platforms are limited. Most advertisers and agencies use a mix of different media as the most effective way to reach a target audience.
7.3 However, the growth of digital advertising is not a zero-sum game in which money shifts only from offline incumbents to online tech platforms: according to one study, ad revenues overall grew by +5.7% in 2016, representing the strongest such rate since 2010.
7.4 Overall, the story of online and offline advertising is one of rapid convergence. Different advertising formats compete to attract the same people’s attention so both online and offline advertising need to be considered to get a full picture of the advertising market.
8. The digital UK advertising industry is highly competitive and constantly innovating
Question 13: Is the current digital media market fair, open and competitive? What legislative measures, if any, should be adopted?
8.1.1 Online advertising has only existed for about 20 years, yet it has all the hallmarks of a competitive marketplace: it has become fast growing, dynamic, competitive and crowded, with constant and disruptive innovation and new firms and technologies rapidly emerging. This contributes to delivering value to all stakeholders - advertisers, agencies, publishers and users.
8.1.2 Key innovations include the emergence of programmatic advertising technologies, header bidding technologies, advanced data analytics, marketing mix optimisation tools, and innovation in targeting technologies arising from developments in social network and mobile advertising.
8.2 The online advertising sector is characterised by continuous innovation
8.2.1 Amongst the most important innovations in the online advertising sector is the development of programmatic advertising technologies (algorithm-driven buying of ads in real-time), which was introduced around a decade ago. Competing with traditional non-programmatic buying, programmatic advertising has had a significant impact on online advertising, for the benefit of advertisers/agencies, publishers and users. It improves the effectiveness of advertising for advertisers and enables publishers to maximise the monetisation of their content and minimise the risk of inventory remaining unsold. For users, it means that they are more likely to see advertisements that are aligned with their interests.
8.2.2 The emergence of programmatic advertising has led ad tech companies to develop sophisticated publisher ad servers and associated yield management real-time bidding technologies, such as header bidding, which, as some commentators have noted, "has changed the ad tech ecosystem". Header bidding is used by publishers to offer their inventory to multiple ad exchanges simultaneously, helping to optimise demand and revenue for every impression.
8.2.3 The past few years have seen a surge in the number of header bidding technologies available in the market. Indeed, many players now offer header bidding technologies (e.g. Amazon, PubMatic, Criteo, AppNexus, and Rubicon).
8.2.4 Thanks to the emergence of advanced data analytics and marketing mix optimisation tools, publishers can also now determine the performance of their online advertising campaigns. For example Amazon has recently launched its Shopping Insights Service, which aims to help publishers better understand who is visiting their sites, using Amazon's rich set of consumer shopping data.
8.2.5 A further trend in online advertising is the emergence and growth of social media platforms, from Facebook, LinkedIn, Twitter, Tumblr and Pinterest, to Instagram and Snapchat. Most of these platforms now have well-established advertising businesses and their emergence is further evidence of the innovation, competition, vibrancy and growth that are hallmarks of the online advertising sector.
8.2.6 New categories of advertising are also emerging. Take native advertising, which enables marketers to promote their brands in ways that immerse consumers in experiences the publishers themselves control. Native advertising is generally defined as paid-for content that fits seamlessly with the non-paid content in a non-disruptive way. An example might be a news publisher travel page with a paid-for article by a tourist board, which is advertising the attractions of a particular destination. The article will be clearly marked as an ad, but may be written as an article, not a traditional ad.
8.2.7 Buzzfeed and content-sharing sites like Pinterest are well positioned to capitalize on this native advertising trend, and native ad startups such as Revcontent and Outbrain have also witnessed rapid growth. This is to say nothing of Netflix and Spotify, which have disrupted TV and radio advertising by building mammoth ad-free subscription businesses.
8.2.8 More broadly, the rise in use of mobile devices such as smartphones and tablets has prompted further innovation and competition, including through the development of cross-device targeting and reporting technologies and ‘mobile-friendly’ ad formats. Competition in advertising on mobile is intense, with a high degree of fragmentation.
8.2.9 As these examples demonstrate, the UK’s online advertising sector is characterised by constant product innovation - one of the hallmarks of a dynamic and highly competitive ecosystem.
8.3 Innovation in digital advertising has benefitted advertisers and publishers
8.3.1 Our interests and those of the advertising and publishing industries are aligned; our business succeeds when our publisher and advertiser partners succeed and so we work with partners across the ecosystem to support the interests of publishers and advertisers.
8.3.2 Fundamentally, digital innovation has helped develop more effective advertising. Advertisers have access to detailed reporting on the performance of their campaigns with the development of advanced data analytics, marketing mix and budget optimisation tools. These tools enable them to switch between different ad formats and channels on the basis of performance - thereby boosting competition.
8.3.3 Advertising agencies are sophisticated buyers and foster competition between different forms of online and offline advertising, different media, and different ad tech service providers to maximise ROI for their clients. They typically work with a very broad range of media and are well positioned to maximise the benefits in the digital ad market for their clients’ benefit.
8.3.4 Innovation in digital advertising has also helped many publishers find new and better ways of monetising their content, which has been particularly valuable for smaller publishers. For traditional news publishers, such innovations in online advertising have enabled them to manage the disruption to their offline business model by the internet. It is widely recognised that traditional newspapers generated less ad revenue through news than through non-news sections, which were more attractive to advertisers: food, travel, entertainment and sport. The rise of the ad supported web enabled smaller, specialist publishers in these non-news areas (such as food and travel blogs, sport fan sites and social media), making it much harder for newspapers to cross-subsidise the unique news content that they provide.
8.3.5 The market response has been to develop technologies to show ads based on the user’s interests - which products or services a user looked for recently, which types of web pages they often visit and so on. Targeting based on user history is especially useful for news sites. According to estimates, programmatic, third-party enabled advertising is shown by 12% of content providers globally; this reliance is concentrated in news publishing, where the rate is 91%.
8.4 Google supports publishers through our revenue share model
8.4.1 Google's publisher partners and YouTube creators receive the majority of advertising revenue generated from showing ads on their websites or in connection with their YouTube videos. In 2016 alone, Google passed through USD 11 billion to publishers globally. On average, Google distributes approximately 70% of its display ad revenues across all formats to publishers on a revenue share basis, and the proportion shared with publishers has increased each year since 2014. It rose from 67.8% in 2014 to 68.1% in 2015 and 69.9% in 2016.
8.4.2 It is also worth noting the proportion of ad revenue earned by ad tech intermediaries - an important segment of the digital ad industry, which helps advertisers and publishers maximise their return on investment. Ad tech intermediaries act as conduits in the exchange between publishers and advertisers and perform a variety of functions including improving trading efficiencies, data management, measurement and analytics, and creative optimisation to name a few. Although Google has a full service offer for advertisers and publishers in this buying/selling process (the ‘DoubleClick stack’) the market is highly competitive and often publishers and advertisers will use a variety of different intermediaries. In these instances each intermediary in the ad buying process will take a share of the ad spend, which reduces the final share received by the publisher.
8.4.3 We support publishers not just by driving revenue, but also by working to support our publisher partners through initiatives that tackle the key issues they are facing:
9. What the industry needs to win and the role that government can play
9.1 Despite the UK digital advertising industry’s success, it faces a number of challenges that risk disrupting its future growth and the level of innovation that has underpinned its rapid expansion. Many of these issues have been covered in greater detail within the Internet Advertising Bureau and Advertising Association’s submission to the committee, and Google supports the recommendations put forward by both organisations. However, among the most pressing issues that Google believes it will be important for the Committee to consider are:
It will also be important for the Government to prioritise the digital ad industry and its reliance on data standards in any future trade agreements with non-EU countries. We support the Advertising Association’s recommendation of including an Advertising Services Annex in trade agreements to ensure as much market access and mutual recognition as possible.
9.4 We also support the Advertising Association and the IAB’s recommendation that there is no need for the remit of the Advertising Standards Authority to be widened. As both organisations note, the ASA currently regulates Online Behavioural Advertising as well as advertising that businesses use on their own websites, amounting to a robust and effective system.
10. Conclusion
10.1 Google strongly believes that the UK advertising market is highly competitive and innovative. UK consumers have a global reputation as early adopters of new digital technologies and the UK ad industry is responding and adapting in response more quickly than many other markets. UK advertising also has a long established global reputation for talent and quality, which leaves it well set up for continued success. Google sees itself as part of the UK advertising industry and our participation in industry forums and groups means we're part of the fabric of the community, with a stake in its long-term success.
10.2 However, the importance of continued access to international talent and maintaining cross-border data flows cannot be underestimated in determining the long-term future of the UK advertising industry. The openness of the UK to people, ideas and information is a unique selling point of our market and so we welcome the Committee's focus on these challenges and the measures needed to address them.