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OTTAWA, April 19, 2016 — Today, the Commissioner of Competition (Commissioner) announced that he has discontinued an investigation into allegations that Google Inc. (Google) engaged in conduct contrary to the abuse of dominance provisions of the Competition Act (Act). This statement summarizes the extensive investigation conducted by the Competition Bureau (Bureau) in its review of allegations that Google engaged in anti‑competitive business practices related to online search, search advertising and display advertising services in Canada.
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The collection, analysis and use of data is increasingly becoming an important source of competitive advantage in the digital economy, driving innovation and product improvement. In this vein, certain firms may become large by benefiting from a first‑mover advantage and accessing marketplace data that enables them to offer an attractive product to consumers. The size of a business, however, even one that dominates a particular market, does not, of itself, raise an issue under the Act. A strong market position may be gained in a number of legitimate ways, including by competing vigorously, even aggressively, and offering consumers something that is preferred to the offerings of rivals. However, any steps taken by a dominant firm to hold onto or enhance that market position through anti‑competitive conduct that inhibits the ability of competing firms to grow their customer base by competing on the merits may raise concerns under the abuse of dominance provisions in the Act.
For both businesses and consumers, online search and search advertising markets are critical for access to, and participation in, the digital economy. Given the importance and rapidly evolving nature of the digital economy the Bureau is vigilant in investigating allegations of anti‑competitive conduct in this sector. Anti‑competitive activity by a dominant firm, particularly in an industry characterized by “network effects”Footnote 1, may negatively affect competition, and may inhibit the development of an open, dynamic and innovative digital marketplace for consumers and businesses.
Following the receipt of complaints, the Bureau opened an inquiry in 2013 to investigate Google’s conduct related to online search and search advertising. Over the course of this inquiry the Bureau received additional complaints regarding Google’s conduct in the online display advertising sector, which prompted a further review.
To properly test the allegations, the Bureau took a number of steps to determine the relevant facts.Footnote 2 The Bureau consulted with industry and economic experts and conducted over 130 interviews with a broad range of market participants, including competitors, publishers, advertisers, original equipment manufacturers, wireless carriers and firms that provide online advertising solutions. The Bureau also analyzed a substantial volume of information collected from various stakeholders and obtained an order under section 11 of the Act compelling Google to provide documents and written returns of information.
In conducting its investigation, the Bureau also consulted and worked with international counterparts, including the U.S. Federal Trade Commission (FTC) and the European Commission. The Bureau’s review was focused on the facts and evidence related to alleged anti‑competitive conduct affecting the Canadian marketplace.
Summary of Bureau conclusions
During its investigation, the Bureau examined whether Google possesses market power in the markets for online search, search advertising and display advertising, and whether Google used that market power to exclude or otherwise disadvantage its rivals. Specifically, the Bureau examined allegations that Google engaged in several practices intended to raise its rivals’ costs, inhibit their ability to expand and generally make it more difficult for them to compete. These allegations are described in detail below.
As a result of an in‑depth investigation, the Bureau concluded that Google used anti‑competitive clauses in its AdWords Application Programming Interface (API) Terms and Conditions. The Bureau concluded that these clauses were intended to exclude rivals and negatively affected advertisers. Google has removed these clauses and has provided a commitment to the Commissioner not to reintroduce them (or others which have the same effect) for a period of five years. With respect to the other allegations of anti‑competitive conduct, the Bureau did not find sufficient evidence that Google engaged in these practices for an anti‑competitive purpose, and/or that the practices resulted in a substantial lessening or prevention of competition in any relevant market.
However, the Bureau will be closely following developments with respect to Google’s ongoing conduct, including the results from investigations of our international counterparts. More generally, the Bureau will continue actively monitoring the digital marketplace given its importance to innovation and the economy. As stated in the Bureau’s 2015‑2018 Strategic Vision, the Bureau will deter or prevent anti‑competitive conduct hindering the emergence of innovation. The Bureau will not hesitate to take appropriate action should new evidence come to light of anti‑competitive conduct by Google that may affect the Canadian marketplace.
Search and search advertising review
Google is a multinational company that offers a number of internet‑related products and services, including its search engine and related search advertising services. Canadian internet users rely on search engines to find information, consume entertainment, and shop for products and services. Search engines function by indexing web pages; when a user types words into a search engine, the search engine reviews its index and provides the user with various results related to the query, including a list of web pages ranked in order of relevance. Users do not pay to use search engines, but they provide search engines with important data with each search query, and when they click on the links provided in response to those queries. Search engines typically analyze this user data to optimize their search algorithms and display more relevant results.
When a search engine displays its search results, it may also place ads on its search engine results page (SERP). Advertisers can pay to have their ads placed on a SERP in response to specific queries in order to target consumers with advertisements for products and services that are relevant to them. Search engines earn revenues primarily from the sale of these ads. Search engines also gather and analyze information from users who click on the ads, allowing them to provide even more targeted, relevant ads to users and charge advertisers accordingly.
As a result of the above, the online search and search advertising markets are characterized by “network effects”: the more users and advertisers use a given search engine, the more it is able to leverage data to improve its product and, by extension, attract more users and advertisers.
In addition to its general search engine, Google operates several specialized search engines such as Google Maps and Google Flights. These specialized search engines are known as “vertical” search engines. They provide users with information about a specific topic, such as shopping, travel, or weather.
Under Canadian competition law, abuse of a dominant position occurs when a dominant firm or a dominant group of firms in a market engages in a practice of anti‑competitive acts, with the result that competition has been or is likely to be prevented or lessened substantially.Footnote 3
Based on information gathered throughout the investigation, the Bureau concluded that the primary relevant markets are online search and search advertising services in Canada. However, given the nature of certain allegations (e.g. search manipulation) the price and non‑price effects of the alleged business practices may be felt in other relevant markets (e.g. the market for online local review services in Canada).
Google’s search engine accounts for the vast majority of search queries that are made by Canadian users and search advertising purchases that are made by businesses in Canada. Based on information gathered throughout its investigation, including the high market shares that Google has in Canada and high barriers to entry in the search engine market, the Bureau concluded that Google possesses market power in the markets for online search and search advertising services in Canada.
During its investigation, the Bureau considered allegations that Google used its dominant position in the markets for online search and search advertising in order to exclude rivals (e.g., competing general and vertical search engines). Specifically, the Bureau examined allegations that Google engaged in the following conduct:
- AdWords API Restrictions — preventing advertisers or other third parties from effectively engaging in “cross‑platform” search advertising campaigns between Google and other search engines;
- Search Manipulation — the manipulation of Google’s search results, so that Google‑related links appear higher in what is presented to users, and/or that competitor‑related links appear lower than they otherwise would in an objective ranking based on the relevancy of these links;
- Preferential Treatment of Google Services — the preferential treatment of Google’s services (Google Maps, Google Flights, etc.) compared to the services of competitors on Google’s SERP;
- Syndication Agreements — entering into long‑term agreements with websites that create search entry points for Google directly on the websites (e.g., search toolbars “powered by Google” on news websites) and/or restrict the manner in which ads are displayed on third party websites in response to search queries;
- Distribution Agreements — entering into long‑term agreements with hardware manufacturers and software developers to set Google as the default search engine (on smartphones, personal computers, browsers, etc.); and
- Other Allegations — denying competitors access to a high‑quality YouTube mobile application; and tying the sale of ads on tablets and personal computers to the sale of ads on mobile phones.
The Bureau’s conclusions with respect to each of these allegations were based on a careful review of the facts and evidence relevant to the Canadian market.
1. AdWords API restrictions
Firms in the digital economy can use “Application Programming Interfaces” to allow different programs to communicate with one another. For example, APIs ensure that mobile applications work on mobile devices by facilitating the communication between the application’s software and the device’s operating system. The Bureau considered allegations that Google’s AdWords API Terms and Conditions prevented software developers that help companies manage their search advertising campaigns (known as “licensees”) from easily transferring information between Google advertising campaigns and advertising campaigns on competing platforms. These AdWords API restrictions allegedly were making it more difficult for companies to advertise on multiple platforms (known as “multi‑homing”). The problematic AdWords API clauses related to certain input and copying restrictions, which hindered the ability of licensees to multi‑home, and by doing so, enable their clients to advertise on competing search engines.
Evidence collected by the Bureau supports the conclusion that Google used certain AdWords API clauses with the intent to exclude rival search engines. There did not appear to be any technical or efficiency justification for creating these restrictions. The evidence obtained also showed anti‑competitive effects resulting from these AdWords API clauses. Market participants expressed serious concerns with these clauses, and provided the Bureau with evidence of the negative effects of Google’s AdWords API restrictions on their businesses, and on the market generally.
In 2013, Google made changes to its AdWords API Terms and Conditions in response to concerns raised by the FTC. However, Google’s commitment to the FTC did not specifically govern the manner in which it does business in Canada, nor did it apply to both its English‑language and French‑language AdWords API Terms and Conditions. As a result, in response to concerns identified by the Bureau, Google has committed to the Commissioner that it will not reintroduce these restrictive API clauses in Canada or introduce any other API clauses that may have the same effect, in either its English‑language or French‑language AdWords API Terms and Conditions, for a period of five years. The Bureau believes that, as a result of these changes, market participants are able to freely transfer advertising campaign data between competing search advertising platforms, which allows for greater multi‑homing and, by extension, competition in search advertising.
2. Search manipulation
The Bureau considered allegations that Google alters its search results to exclude rivals that provide competing services (e.g., maps, local reviews, travel) and provide Google‑related services with preferential placement that would not otherwise occur based on an objective ranking determined by relevance. Alterations to the algorithm that determines the ordering of search results on the basis of factors other than relevance could potentially harm websites that are moved further down the Google SERP by reducing traffic to these sites. This conduct could be considered anti‑competitive if Google altered its search results for the purpose of harming a competitor and if the conduct substantially prevented or lessened competition in a market. In addition to the potential impact on price in the market, the Bureau also focussed on non‑price factors such as quality, convenience, value‑added features, and, particularly, innovation in this rapidly‑evolving space.
Although Google frequently makes changes to the algorithm it uses to rank search results, evidence obtained over the course of the investigation indicates that Google’s changes are generally made to improve user experiences. For example, Google takes steps to demote websites that attempt to artificially increase their ranking in the search results independent of the quality or relevancy of their content. The Bureau did not find adequate evidence to support the conclusion that Google’s changes to its search results were intended to exclude rivals in Canada.
The Bureau also sought evidence of the harm allegedly caused to market participants in Canada as a result of any alleged search manipulation. However, the Bureau did not find adequate evidence to support the conclusion that any alleged search manipulation was having an exclusionary effect on rivals (e.g., by materially affecting sales or revenue data of these parties in Canada), or that the conduct has resulted in a substantial lessening or prevention of competition in a market (e.g., a material impact on prices or impeding the development, diffusion and marketing of innovative services).
3. Preferential treatment of Google services
The Bureau considered allegations that Google promotes its own services on the SERP in order to exclude rivals.Footnote 4 For example, when a user searches for “Dentists in Halifax”, Google may display a map or a collection of consumer reviews of local dentists in Halifax. Preferential treatment of Google services could include placing these services in prominent places on the SERP (e.g., inserting a Google Maps information box at the top of the page) or using graphics to draw users’ attention to its services (e.g., using images or displaying Google services in an information box).
While Google often displays its services in prominent places on the SERP, the Bureau does not consider the provision of objective answers to be an anti‑competitive act (e.g., providing a numeric response to the query “How tall is the Calgary Tower?”). In fact, providing objective answers in prominent places on the SERP is generally beneficial to consumers. However, a search engine’s provision of answers that are more subjective in nature could be considered anti‑competitive if this practice is engaged in by a dominant firm for the purpose of excluding rivals and with the result that competition is substantially lessened or prevented. For example, the Bureau considered the potential effect that this practice may have on the incentive for firms to innovate and compete with Google in these markets and, particularly where competing services have superior quality, the potential harm to consumers in the form of reduced product quality, choice, or innovation.
The Bureau sought evidence of the harm allegedly caused to market participants in Canada as a result of any alleged preferential treatment of Google’s services. The Bureau did not find adequate evidence to support the conclusion that this conduct has had an exclusionary effect on rivals, or that it has resulted in a substantial lessening or prevention of competition in a market.
4. Syndication agreements
Search engines enter into syndication agreements with third party websites. These agreements may perform two functions: (1) create search entry points directly on websites (e.g., Google search toolbars on news websites); and (2) govern the manner in which ads are displayed on the website, following a user’s search query. Syndication agreements provide additional search entry points for users by placing the toolbar in a convenient place on the website, increase traffic to the search engine, and increase revenue for both the website and the search engine.Footnote 5
The Bureau considered whether Google’s syndication agreements exclude search rivals by denying them search queries that may have otherwise been made on their search engines and, by extension, denying them the “search scale” necessary to compete with Google. The Bureau also considered whether competing search advertising platforms were excluded as a result of the preferential placement of Google ads on third party websites.
Based on the information obtained over the course of the investigation, it does not appear that Google’s syndication agreements have imposed significant switching costs on publishers or users. The evidence does not support a conclusion that Google’s syndication partners are locked into long‑term agreements that render the market significantly less competitive. On the contrary, Google and its rivals regularly compete for the business of third party websites, as evidenced by bidding activity, which may lead to websites switching search providers. The Bureau analyzed data related to publishers’ use of multiple search engines over time and concluded that the switching activity was significant between search engines. With respect to users of websites that partner with Google, they can easily switch to a different search provider if they are unhappy with the syndicated search results.
Accordingly, the Bureau concluded that Google’s syndication agreements have not resulted in a substantial lessening or prevention of competition in Canada.
5. Distribution agreements
Search engines also enter into distribution agreements with hardware manufacturers and software developers that set the default search engine on smartphones, personal computers, browsers, etc. Similar to syndication agreements, the Bureau considered allegations that distribution agreements exclude search rivals by denying them the number of searches necessary to compete with Google.Footnote 6
The evidence obtained over the course of the investigation supports the conclusion that Google competes with other search engines for the business of hardware manufacturers and software developers. Other search engines can and do compete for these agreements so they appear as the default search engine. The Bureau analyzed data related to the use by hardware manufacturers and software developers of multiple search engines and concluded that the switching activity over time was significant and that these parties are able, for example, to ship multiple devices with different pre‑loaded search engine defaults. Finally, consumers can and do change the default search engine on their desktop and mobile devices if they prefer a different one to the pre‑loaded default.
Accordingly, the Bureau concluded that Google’s distribution agreements have not resulted in a substantial lessening or prevention of competition in Canada.
6. Other allegations
Finally, the Bureau evaluated two other allegations related to Google’s conduct in the markets for online search and search advertising in Canada. First, allegations were raised that Google prevented mobile competitors from accessing a high‑quality YouTube mobile application. Second, concerns were raised that Google’s “Enhanced Campaigns” forces advertisers that want to buy ads displayed on mobile devices to also buy ads on personal computers and tablets.
The Bureau did not uncover adequate evidence to support a finding that Google engaged in either of these practices to exclude rivals. The Bureau also did not find adequate evidence that these practices substantially lessened or prevented competition in Canada.
Display advertising review
The online display advertising ecosystem comprises advertisers that purchase ad space from website publishers. The product they exchange is “display advertising inventory” where one unit of advertising inventory is an impression on a website. An advertiser can purchase display advertising inventory directly from the publisher or through indirect channels using real‑time auctions. These real‑time auctions (referred to as “ad exchanges”) are digital marketplaces that enable advertisers and publishers to buy and sell advertising space.
The purchase and sale of display advertising inventory was historically done through written commitments between advertisers and publishers to run a particular advertising campaign on a website. In recent years, “programmatic advertising” has emerged as a popular method of buying and selling display advertising inventory. This involves using automated systems to buy and sell display advertising inventory.
Google owns and operates leading technology products across the entire online display advertising ecosystem:
- Publisher Side: Google operates a popular ad serving tool called DoubleClick for Publishers (DFP), and a significant ad exchange, DoubleClick Ad Exchange (AdX). Ad servers are computer servers that allow publishers to manage their display advertising inventory and deliver ads on their websites. Ad exchanges are technology platforms that operate as online marketplaces, matching advertiser demand with publisher inventory programmatically.
- Advertiser Side: Google operates a demand‑side platform called DoubleClick Bid Manager (DBM). Demand‑side platforms are technology interfaces that centralize and aggregate the purchase of display advertising inventory for advertisers from multiple inventory sources, including from ad exchanges. In addition, Google’s AdWords is, arguably, one of the largest buyers of display advertising inventory.
Given that the allegations described below relate to inventory sold through Google’s ad exchange, the Bureau focussed its review on the market for exchange‑based online display advertising services in North America. While Google is a significant player, it is not clear that it possesses market power in this space. Google operates leading products across the entire online display advertising ecosystem, which may give it an advantage over non‑integrated competitors. However, the market is highly fragmented and features a number of new and existing competitors, which suggests that barriers to entry are low. That being said, given the limited number of well‑established players in the market, barriers to expansion may not be low. Lastly, market participants provided evidence that it is easy to switch between competing ad exchanges, casting further doubt that Google has market power in this particular market.
Notwithstanding the uncertainty regarding Google’s market power in this space, the Bureau considered allegations that Google engaged in conduct to exclude rivals such as competing ad exchanges and demand‑side platforms. Specifically, the Bureau examined allegations that Google engaged in the following conduct:
- AdX Terms of Service — amending its AdX terms of service to exclude competing ad exchanges;
- Enhanced Dynamic Allocation — implementing a software setting in DFP that unfairly advantages Google over competing ad exchanges;
- Bundling — inducing exclusive use by advertisers of multiple Google products through incentives; and
- Control of Information — controlling information across the entire online display advertising ecosystem as a result of Google’s end‑to‑end integration.
As described in greater detail below, the Bureau concluded that there is no compelling evidence to suggest this conduct has excluded rivals or harmed Canadian publishers or advertisers, or that it has resulted in a substantial lessening or prevention of competition in this market. The Bureau’s conclusions with respect to these allegations were based on a careful review of the evidence obtained over the course of its investigation.
1. Google’s AdX terms of service
If a publisher decides to use Google’s AdX to sell its display advertising inventory, it must adhere to Google’s AdX Seller Program Guidelines (the Guidelines). The Bureau considered whether the Guidelines require publishers, as a precondition to using AdX, to commit to exclusively directing their inventory through AdX, thereby excluding ad exchange rivals from competing effectively in this space.
Based on the information obtained over the course of the investigation, it is evident that publishers are not obligated to use Google’s AdX exclusively, and in fact, have control over how their inventory is filled. The evidence also supports the conclusion that publishers commonly switch between ad exchanges, that it is not difficult for publishers to switch between ad exchanges, and that competing ad exchanges are growing in the exchange‑based online display advertising market in North America.
Accordingly, the Bureau concluded that Google’s AdX terms of service have not resulted in a substantial lessening or prevention of competition in this market.
2. Enhanced dynamic allocation
When Google’s DFP receives a request for an ad from a website, under certain circumstances Google’s Enhanced Dynamic Allocation (EDA) feature in DFP will check AdX (and only AdX) to see if any advertisers are willing to pay more for the ad impression. The Bureau considered allegations that this gives AdX an unfair advantage because it gives Google a right of first refusal on valuable ad impressions and because it reduces the number of ad impressions available for competing ad exchanges to bid on. The Bureau also considered allegations that the EDA feature in DFP may disadvantage publishers because DFP does not check other ad exchanges to see if they could obtain more value for their ad impressions.
The information gathered by the Bureau suggests that there has been no exclusionary effect on competing ad exchanges as a result of EDA. Moreover, publishers were not generally concerned about EDA owing to the benefits of the feature and the flexibility they retain notwithstanding EDA. In particular, publishers suggest that EDA is beneficial because it provides them with an opportunity to increase revenue. With respect to flexibility, publishers ultimately decide which ad exchanges to use and can set a “price floor” for each ad exchange. Lastly, EDA is optional, so publishers can decide for themselves whether or not to use this feature in DFP.
An advanced programmatic technique called “header bidding” has also emerged, giving publishers additional flexibility in filling their display advertising inventory. Prior to header bidding, publishers would prioritize their inventory sequentially (e.g. direct sales would normally have a higher priority level than indirect sales through ad exchanges). When a publisher’s ad server received a request for an ad, it would check each priority level, one‑by‑one, to see, first, if any of its direct sales are appropriate to fill a given ad impression. If the publisher’s direct sales were not appropriate, the publisher’s ad server would try to sell the ad impression at the next priority level all the way down to open auctions. Header bidding essentially gives all ad exchanges (including Google’s AdX) a chance to compete across the publisher’s entire display advertising inventory. This process brings the digital media industry closer to a single unified auction where demand sources compete side by side rather than sequentially, ultimately yielding higher revenues for publishers.
Accordingly, the Bureau concluded that EDA has not resulted in a substantial lessening or prevention of competition in the market.
The Bureau also considered allegations that Google offers incentives to advertisers to encourage them to use only Google’s services across the display advertising ecosystem. For example, complainants alleged that Google uses below‑cost pricing and provides incentives for advertisers that use Google’s demand‑side platform (DBM) to also purchase inventory on Google’s ad exchange (AdX). These practices allegedly foreclose the market to competing demand‑side platforms.
Based on the information collected by the Bureau, the incentives that Google offers to advertisers are marginal and would not likely induce exclusivity. Many advertisers continue to use multiple demand‑side platforms to meet their needs and there is no evidence that rivals have been excluded from competing effectively as a result of such incentives. The Bureau also did not find evidence that these practices substantially lessened or prevented competition in this market.
4. Control of information
The Bureau evaluated a general concern that Google’s end‑to‑end integration across the entire online display advertising ecosystem gives it visibility into market price and volume information. The concerns were that Google may be in a conflict of interest (representing advertisers on one hand and publishers on the other) and that Google’s access to superior information may enable it to engage in conduct to exclude rivals in each segment of the exchange‑based online display advertising market.
The Bureau does not currently have reason to believe that the data Google has obtained from its offerings across the online display advertising ecosystem has been used to exclude a competitor. While Google’s control of information across the ecosystem may be relevant in determining whether or not it has market power, there is no allegation of a corresponding anti‑competitive practice for the Bureau to evaluate.
The Bureau conducted an extensive investigation into allegations that Google engaged in a variety of anti‑competitive business practices related to online search, search advertising and display advertising services in Canada. For the reasons set out above, the Bureau concluded that there is inadequate evidence to support a conclusion that Google’s conduct, outside its practices related to the AdWords API Terms and Conditions, was engaged in for an anti‑competitive purpose and/or that the conduct substantially lessened or prevented competition in Canada. In respect of its AdWords API Terms and Conditions, Google has provided a commitment to the Commissioner that resolves his concerns.
The digital economy, including the increasing competitive significance of data, will continue to play a crucial role for Canadian businesses and consumers. Robust competition policy and enforcement in this sector will nurture a competitive and innovative Canadian marketplace.
The Commissioner makes his enforcement decisions based on the available evidence. The Bureau will closely follow developments with respect to Google’s ongoing conduct, including the results from investigations of our international counterparts. More generally, the Bureau will continue actively monitoring the digital marketplace. Should new evidence come to light of harm in the Canadian marketplace, whether through subsequent complaints or the Bureau’s ongoing monitoring efforts, the Bureau will not hesitate to take appropriate action.
The Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace. The Bureau investigates allegations of anti‑competitive practices and promotes compliance with the laws under its jurisdiction, including the Act.
This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.
However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.