Google has been raising ad prices for years. That could cost $100 billion.

It could be a long time before such penalties are determined, and the company plans to appeal. But another big risk lurks in the foreground.

Bernstein Research analyst Mark Shmulik points out that Google may need to worry about other lawsuits arriving at its door. Yelp just filed one, and advertisers could be next.

The judge ruled last month that Google violated antitrust law by not only paying Apple and other partners to suppress competition in the search market. The other, less-discussed finding relates to Google’s unusually strong pricing power in the search ad market.

Google’s monopoly has allowed the company to artificially inflate ad prices for years and see little impact from advertisers using alternative search marketing products. As such, advertisers have unknowingly overpaid to advertise through Google.

“We could very well see a class action lawsuit from advertisers seeking monetary penalties for being ‘charged’ for years,” Shmulik wrote.

“It is plausible to see a lawsuit seeking over $100 billion in damages,” he added in a recent note to investors.

Unusual power and monetary damage

When companies raise prices in healthy markets, rivals are usually lured by the promise of higher profits. This creates competition that often puts a natural ceiling on further price increases or even reverses previous increases. These rivalries benefit the end consumer – in this case advertisers.

In the online search market, this kind of healthy competition hasn’t happened in at least a decade. Instead, Google raised ad prices countless times and there were no serious rivals. It is extremely unusual.

Evidence from the trial and ruling showed that Google was able to raise ad prices between 5 and 15 percent without a significant shift in advertiser spending to competitors, Shmulik explained.

Shmulik estimated the potential monetary damages sought by angry advertisers. He began by assuming that Google has raised ad prices by about 5% per year over the past decade. Then he added treble damages, which is an established way to punish monopolies. That brought his total to at least $100 billion.

“Code Yellow”

In Judge Mehta’s ruling, he said Google raised prices for advertisers as a way to meet revenue targets.

Last September, Google CEO Jerry Dischler testified that the company adjusted its ad auctions to ensure it met revenue targets, which sometimes involved raising ad prices by as much as 5 percent.

This is referred to as “supra-competitive pricing”, i.e. prices that would not normally fly in a truly competitive market.

“If Google became concerned about meeting revenue goals, it requested a ‘Code Yellow effort,’ in which its ‘top priority’ would be to ‘provide (the) revenue launches’ through intentional pricing,” the judge’s ruling said.

As we learned through discovery in the Google DOJ lawsuit, a “Code Yellow” occurred in 2019 when Google became concerned that it might miss one of these revenue targets. Ben Gomes, then head of Search, sent an email to executives complaining that the Search team was “getting too close to the money”.

Some action is already being taken against the search giant by parties who see a new opportunity. Last week, longtime Google critic Yelp sued the company, accusing Google of favoring its local search features over superior alternatives offered by rivals. Yelp believes the recent DOJ ruling against Google has set a new precedent that could work in its favor.

“Expect further lawsuits from competitors, advertisers and users,” warned Bernstein’s Shmulik. “The evidence at trial clearly showed Google’s ability to raise text ad prices through price buttons, which came at a cost to advertisers.”

Google declined to comment.

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