Google used its monopoly power to artificially raise ad prices for years. That could cost it $100 billion or more.

It could be a long time before such punishments 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 landing on its doorstep. Yelp just filed one, and advertisers could be next.

The judge ruled last month that Google broke antitrust law not only by paying Apple and other partners to suppress competition in the search market. The other finding, which has been discussed less, is related to Google’s unusually strong pricing power in the Search ad market.

Google’s monopoly allowed the company to artificially raise ad prices for years and see little impact in terms of advertisers using alternative marketing products in the search market. As such, advertisers unknowingly overpaid to advertise through Google.

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

“It’s plausible to see a lawsuit seeking $100B+ in damages,” he added in a recent note to investors.

Unusual power and monetary damages

When companies raise prices in healthy markets, rivals are usually attracted in by the promise of higher profit. That creates competition that often puts a natural cap on further price hikes, or even reverses the previous increases. These rivalries benefit the end consumer — in this case advertisers.

In the online search market, this type of healthy competition hasn’t happened for at least a decade. Instead, Google has raised ad prices over and over and there have been no serious rivals. That’s highly unusual.

Evidence from the trial and ruling showed that Google was able to increase ad pricing between 5-15% without a significant shift in advertisers spending to competitors, Shmulik explained.

Shmulik estimated potential monetary damages sought by angry advertisers. He started by assuming Google raised ad prices by about 5% per year for the last decade. Then he added trebled damages, which is an established way to punish monopolies. That got him to the total of at least $100 billion.

“Code Yellow”

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

Last September, Google executive Jerry Dischler testified that the company tweaked its advertising auctions to make sure it hit revenue goals, which sometimes involved increasing ad prices by as much as 5%.

This is referred to as “supra-competitive pricing,” meaning pricing that would not usually fly in a truly competitive market.

“If Google grew concerned about meeting its revenue targets, it called for a ‘Code Yellow effort,’ where its ‘top priority’ would be to ‘deliver [] revenue launches’ through intentional pricing,” the judge’s ruling reads.

As we learned through discovery in the DOJ Google lawsuit, a “Code Yellow” occurred in 2019 when Google worried it might not hit 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 self-preferencing its local search features over superior alternatives offered by rivals. Yelp believes the recent ruling against Google in the DOJ has set a new precedent that may work in its favor.

“Expect follow-on lawsuits from competitors, advertisers, and users,” Bernstein’s Shmulik warned. “The trial evidence clearly showed Google’s ability to ramp up Text ads pricing through their pricing knobs, which came at a price to their advertisers.”

Google declined to comment.

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