big tech

Inside Jedi Blue, Facebook’s Shady Deal With Google

Photo-Illustration: Intelligencer. Photo: Getty Images

As a torrent of bad press consumes Facebook — or whatever the company may soon be renamed — it’s worth remembering that to become an industry-dominating social-media Goliath, sometimes you need a little help from your friends. Perhaps they’re better described as co-conspirators.

Over the past year, a series of court filings by 15 state attorneys general have exposed what amounts to secret collusion between Google and Facebook to rig the online ad market in their favor and to keep out competitors. Details keep percolating up — last week, a New York judge unsealed yet more documents shining light on the arrangement — but we’ve already learned a great deal, revealing just how far two tech giants will go to preserve their lucrative hold over online advertising. (A Google spokesperson said the claims in the suit are “baseless” and riddled with inaccuracies.”)

In March 2017, Facebook announced that it would support “header bidding,” an advertising technology being pushed by outside companies to challenge Google’s adtech dominance. But a year later, Facebook suddenly changed its mind. That’s because in 2018, Google and Facebook quietly agreed to use a Google-managed system for bidding on and managing online ads. Google would give Facebook preferential rates and first dibs on prime ad placement. Facebook would support Google’s efforts and decline to build competing ad technologies or to use header bidding. Both Google and Facebook would benefit while ensuring their continued co-dominance of the online ad market, from which they reap billions of dollars in annual profits.

The project was highly formalized: communications between the two companies, terms exchanged, internal written deliberations about the reputational and legal costs should the deal become public. It even had a geeky code name: Jedi Blue. Facebook chief operating officer Sheryl Sandberg personally signed off on it, as did Philipp Schindler, Google’s chief business officer. As part of the deal, Facebook agreed to try to win 10 percent of the ad auctions in which it participated. The arrangement was expected to yield Google hundreds of millions of dollars from Facebook. For Facebook, it was considered a deal worth making, saving it potentially billions of dollars in costs to build competing systems.

What Facebook and Google did with Jedi Blue may have been illegal. According to Section 2 of the Sherman Act, “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.” As for what it means to monopolize something, the law describes it as “the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” That seems to well describe what Facebook and Google were up to in agreeing to shelve header bidding, among other actions.

Jedi Blue wasn’t the only Google project designed to rig the market in its favor. Under the aegis of something called Project Bernanke, Google “used data about historical bids made through Google Ads to adjust its clients’ bids and increase their chances of winning auctions for ad impressions that would have otherwise been won by rival ad tools,” according to The Wall Street Journal. In other words, because Google rules both the buy and sell sides of the advertising market, it was able to use its vast store of internal data to help its clients win ad auctions before competitors could (these auctions are automated, taking a matter of milliseconds). Publishers were totally in the dark that the ads they were displaying were being steered toward Google’s clients. By Google’s own estimate, Project Bernanke would generate $230 million in revenue in its first year.

It’s important to note that the projects described here aren’t based on rumor: Google has acknowledged their existence and described them in court filings, some of which were improperly filed, allowing journalists to see them before they were placed under seal. The court documents describe close cooperation between the companies on everything from keeping out competitors to fending off regulators. And the agreements they made were not only “a big deal strategically,” as Sandberg told Facebook CEO Mark Zuckerberg; they made enormous amounts of money for both companies.

Google and Facebook knew that what they were up to could have huge legal repercussions. As The Wall Street Journal reported, Google and Facebook’s contract stipulated that they would “cooperate and assist each other in responding to any Antitrust Action” and “promptly and fully inform the Other Party of any Governmental Communication Related to the Agreement.” Antitrust is mentioned at least 20 times in the contract. Their ambition was clear: to head off a competing technology before it could threaten their business models, even if it might be illegal. In the newly unsealed filings, a Google employee is quoted as saying they wanted to “kill” header bidding.

Jason Kint, CEO of Digital Content Next, a trade association for publishers, has been a close observer of the ongoing AG probes into Google and Facebook. In his view, it’s important not to underrate the import of two industry leaders conspiring with each other. “Under the cute label of Jedi Blue, the two largest advertising companies, who were already capturing most of the market and nearly all of the growth in the industry, had a secret deal between the top executives to allegedly rig the market,” said Kint. “Even non-techies can see that is a massive abuse of power.”

Inside Jedi Blue, Facebook’s Shady Deal With Google