Better Offline - The Department of Justice V Google Ads: Part 2
Episode Date: September 18, 2024Ed Zitron is once again joined by Jason Kint, CEO of DCN, for the second episode of Better Offline's coverage of the Department of Justice's second antitrust case against Google, one that alleges that... "through Serial Acquisitions and Anticompetitive Auction Manipulation, Google Subverted Competition in Internet Advertising Technologies." This is the second episode of our ongoing coverage of the trial, which Jason will be attending in-person in Washington DC. For more information, visit https://usvgoogleads.com/ and follow Jason at https://x.com/jason_kint LINKS: https://www.tinyurl.com/betterofflinelinks Newsletter: https://www.wheresyoured.at/ Reddit: https://www.reddit.com/r/BetterOffline/ Discord: chat.wheresyoured.at Ed's Socials: https://twitter.com/edzitron https://www.instagram.com/edzitron https://bsky.app/profile/zitron.bsky.social https://www.threads.net/@edzitronSee omnystudio.com/listener for privacy information.
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I'm your host, Ed Zittron.
I am joined by Jason Kint, once again, the CEO, DCN, who will be telling us more about
the first week of the Department of Justice versus Google Ads.
Jason, thank you so much for joining.
Thanks for having me back, Ed.
I'm thrilled to be here.
So what's been happening since we last spoke?
How'd the first week go?
It's a blur.
I mean, it's an impressive operation.
I think we talked about how this district is known as the Rocket Docket, and that's how they got from filing a complaint to actual trial in like a year and a half.
So it has that reputation.
And you kind of, we saw it in action this week.
I mean, every day we started at 9 a.m. sharp, like clockwork until 6 p.m.
with, you know, three or four senior executives testifying every day.
And who's testified so far?
three or four ex-Google employees we've heard from.
We've had CEOs of all the major ad tech companies,
Andrew Casalee from Index Exchange, CEO of Magnite, and Rubicon.
Actually, it's now called Magnite.
And then who else do we hear from?
We heard two different publishers, executives.
So we kind of gone down the list.
We've had one expert witness, computer science professor from Carnegie
on. And so is this currently the Department of Justice's case? Like it's them, them laying out their case.
Yeah, yeah, this is what they call their case in chief. And it'll take probably about, I think, two weeks.
And then Google have a chance to defend itself. So what's the thrust of their argument other than
they have a monopoly? Well, it said, you know, that there are three different markets at work here that
that they have a monopoly in. So, you know, some of the back and forth is still Google trying to break that
apart and blur into one single kind of two-sided market, they call it. But the Justice Department
is their complaint is, again, that there's three markets. There's the sell side, there's the ad
exchange, and then there's the buy side. Google, and their opening statement has already tried
to make that into one market that's a two-sided market trying to lean into a prior Supreme Court
decision that involved American Express. I don't think they'll have much success there.
But once you get past proving that there's three markets there and that they've got monopoly power in them,
then it's also a tying argument that they've used one of those to build up and maintain market power through bad conduct to do that.
So do me a favorite. Break me down those three parts then, and then we can get into the agree.
Sure. So the publisher side, the sell side, Google has.
the product that a lot of people still know as DFP,
which came from their double-click acquisition.
So that's the publisher ad server.
And according to the Justice Department's opening statement,
they've got like 91% of the market share for the publisher side.
And a publisher in this case is like a website.
It would be like a website that shows Google ads on them.
Exactly.
And so that's the server that's kind of the sort.
I guess what you call the source of truth.
We've always called it, but it's the ad server that says,
hey, I've got this ad.
And then it takes care of deciding who wins it and ultimately rendering and serving the ad.
And then actually dealing with all the accounting and inventory projections, et cetera.
So that's what's the sell side of this auction market, this real-time auction market.
And then to go to the other side, you've got on the buy side, Google has.
their ad demand that they have through their ad network, that they also have, I think the
Justice Department's arguing they have like 80 some percent of that market. That's really important
because a lot of the arguments are that you couldn't use other products and still have access to
that Google demand. And so they use that advertising demand of advertisers that want to spend money
in order to ensure that everyone else stays on their supply chain.
And then in the middle is the ad exchange, which Google's called AdX,
and that's the exchange that acts as the ability to take in bids of that ad inventory and then clear them.
So it's the place where Google sells ads on Google to Google?
No, it's the adX would be the what would take the cell side, so the publisher ad server,
so all the different websites that are out there across the web, it would take their inventory and say,
hey, I've got this ad impression, I'm requesting somebody to bid on it,
and then Google could handle the bid because of its demand, but other parties could come in too and bid,
and it would decide the highest bid.
So how are they using this as a monopolist?
them. Where is the other than being on every single transaction, are they doing anything else to
basically intervene and drive up price? Well, I mean, a couple of the main themes that are going on
throughout the entire week is that that ad ex, which is the exchange, Google takes 20%
of the revenue and they've never had to come off of that price. And so the CEOs of like
index exchange and these other exchanges that are out there were testifying, and they charge
like half of what Google charges, sometimes even as low as 5%. Andrew Casale, the CEO of Index
Exchange, said they actually went down to zero and they weren't able to take away business
from Google. So Google's able to keep that 20% and extract monopoly rents according to one of their
own internal emails. Go ahead. Forgive my ignorance here, but how do they extract, like, is it that
just there's a bunch of ad inventory that Google only has access to?
It's the opposite of it.
It's actually, it's the, that you can only have access to the demand, the ad spend that
Google has if you're using ad X.
So that ad demand won't travel through any other exchange.
And why is that?
Is it just because it's a decision by Google.
Oh, and so, yeah.
So they've made the decision.
to only allow their demand to go through ad-X.
So what's stopping people from building their own ad-X?
There's other exchanges out there that try to compete with ad-x,
but they're not able to because they can't get access to all the ad demand and that spend.
It's that critical, and everybody wants to stay on ad-x,
and Google has then advantages, which we can go through because of the way the ad-X operates.
So what are those advantages?
You know, I think the biggest one that was part of the opening statements is what's now last look.
They call it.
There was something called First Look, which was really before the auctions really opened up with header bidding.
And First Looks kind of just to simplify, it's basically, if you put in a publisher said,
hey, I've got this ad unit and I'm willing to sell it to anybody.
and the floor, the lowest price I'll sell for is $5,
then Google always had the chance to say,
I'll take it before it even goes into the auction.
They could say, they had first look,
and they could just say, I'll take it for $5 and a penny, basically,
before they even put it in the auction.
And over time, that transitioned into something called last look,
so that when auctions started to open up,
because of their privileged position that Google had,
They had something called Last Look, where after all the auction took place,
they could then look at the winning bid and decide if they wanted to beat it by another penny.
Oh, so they can literally just rig the dice pretty much as they want?
I mean, that's the way it's, I mean, that's the reading in the room.
And it's interesting because, you know, I think one of the biggest questions always going into this trial was, you know,
it was originally going to be a jury.
Now it's a, this judge Brinkama was, you know, can you explain.
these live, high-speed trading auctions of ad tech, you know, to the average American.
And they're doing a really good job of explaining it. I think the judge gets it. The people in
the room get it. And, you know, I think last look was one of the better examples where the
Justice Department and their opening statement described it as kind of like a classic silent auction
where every party writes down their bid on the slip of paper. It's in a sealed envelope. And
you only get to bid once and then at the end of the auction Google gets to peek into the envelope
see what the highest bid is and say you know I'll pay a penny higher for that and so Google gets
to big twice where everyone else gets to bid once essentially that's essentially what happens right and
so they get to pick off wherever they think there's additional value because of the quality of the
impression and this is in the tool that lets you let's publish a sell ad space right yeah that's basically
what's called an SSP it's the supply side platform that
that takes their inventory, puts it out for auctions.
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So as you're finding from my litany of very simple questions, this stuff is pretty complex.
Is the judge getting it?
I think she is, yeah.
I mean, they're coming up with, I think, simple ways to explain it.
She seems sharp as attack, and she's, you know,
fair as can be. I mean, she's runs a courtroom like I've never seen. But the technical aspects of it,
I think they're going as deep as they really need to. And, you know, they had an expert witness in
Carnegie, Mellon, computer science professor, Dr. Robbie. And he did a really good job of, of,
with some visuals of explaining the kind of the three or four kind of most important ways in which
they were quote unquote rigging or allegedly rigging the auctions and he kind of walked through
each of those and it was it was easy to follow and what was his testimony exactly what did he get into
well he walked through that that last look and why that was so important um as an example that we
just talked about he he talked through something called dynamic revenue sharing which is
a pretty big advantage that google just gave itself in adex awesome
where, you know, they, the way he testified was that Google recognized, and there's,
there's tons of emails that they put up that back this up. So it's not, or maybe past the stage
of having to say their allegations because there was evidence going up on screens.
But what they did was, you know, Google takes 20% as I mentioned of, of the transactions that go
through AdEx. And so the other 80% goes to the publisher. So in simple terms, if it's a dollar,
if it's a dollar transaction, Google's going to take 20 cents, the publisher's going to take 80 cents.
And what they did was they said, you know what, if we've got this last look and we know that
somebody else is going to win this ad at 81 cents, because we're only going to get 80 cents across
to the publisher, why don't we take our revenue share down off 20% to 15%? And so then we'll win.
And 85 cents will go through and we'll win the bid.
And so in Google's own words in their own email, they described it as just another way to exploit the fact that they have last look.
So we've got this last look.
Why don't we come off of our 20% share if it allows us to win the impression?
And so that's a way to, you know, it didn't actually drive that much more revenue through.
But what it did was it gave them a lot more volume and activity.
A lot more of the bids were won through their exchange rather than the other competitive exchanges that were out there, if that makes sense.
It does.
So you talk about them needing addicts to, like, forgive me, I'm from the sense to this, but the demand that they have, that's really their secret source, the demand that they can source.
Why isn't, why can't anyone else get that kind of demand?
What is it that's stopping them?
Well, it starts, that's where this is interesting, because it kind of starts with the search trial that they just won last month, right?
And so that, you remember the other case over in D.C. was that Google has monopoly power over search text advertising too.
And so they've got this platform in which advertisers are going in to buy ads in which they've got monopoly power.
And so trying to convince, you know, a lot of smaller.
business advertisers out there, small market advertisers to go through another platform, is in itself
difficult. There's friction there. And so everybody spends money on Google already. And so they
already come in with that massive advantage. And is it more expensive to use other platforms? Is it
more burdensome to set up with them? You know, we haven't really got into the quality of the buy-side
platforms. They seem, you know, to be described as relatively comparable. So it's more a matter having one
central interface in which you're buying.
So, but it's clearly, you know, that money is going to be coming through from the Google site,
no matter what that's going to go to Google's platforms, it's going to go to the wider web.
And so they just walk in with a massive advantage on the demand side.
And so the real, you know, the real challenge is that that's, or the issue is that demand
should be able to go to other exchanges, not just to Google's.
And that's where I think Google's trying to set up its defense is that they shouldn't have to
connect their demand to other platforms.
There's no issue with, well, we'll get into the legal piece of it, but go ahead.
Yeah, even though that seems a perfectly reasonable thing to say for anything like this.
Right.
So is this suggesting that all Google properties run through AdEx?
Like you can't buy advertising on Google ads without going through AdEx?
Can't buy.
No.
So I'm sorry to, yeah.
I wish to have my visual.
We're talking.
But you can't, if the advertising demand on the buy side on Google, that has to go through
ad X in order to go to other publishers.
And so, yeah, I think that's the same thing you were saying.
Yes.
And that demand is coming from advertisers, as in people who want to advertise on different
platforms.
That's right.
But then it goes through adex and then.
Google basically gets to monkey with it at the beginning of the end of it. It's just, it, it feels
fairly, fairly crooked. That's the feeling when you're sitting in the room. It very much does.
And there's a lot of, you know, emails from Google employees where you can tell they feel like
this might be a little crooked, you know, so. So there was a thing, the Verge quoted a particular
witness from News Corp that seemed quite interesting, who said she, she felt like they were being held
hostage by Google?
Yeah, I did. Yeah, she was
really solidly. Stephanie Laser.
She no longer is with
News Corp. She's actually at Amazon now,
which is interesting, but she
gave really clear
evidence and testimony. And
you know, she
was explaining how there was
really no choice to use
any platform but DFP as their ad
server. And therefore
with it, it comes with all
these other obligations.
The one thing that Google did that she seemed to really not like was there was a point that was important in time where Google said to publishers, you can no longer have floors, price floors on individual exchanges.
And what does that mean?
Essentially, if you're a publisher, if you're a website and you're saying I have this ad that's available and I will allow.
five different exchanges to put forward their highest bid for it.
And when you say ad available, you mean like space on a website to advertise?
Like a banner on their homepage. Yeah. So a banner on their homepage. And they're making it
available to, let's say, five different exchanges. One of those is ad-X, but then let's say also
Pubmatic and Rubicon in exchange, these various SSPs we call them. And for a while,
you could actually set a price floor, essentially the lowest price you were willing to sell that
banner on the homepage. And you could set it individually based on the exchange. So what publishers
were often doing was they were putting a higher price floor for AdEx, for Google, for Addex,
for a number of reasons. And some of those reasons included wanting to diversify. So not all
the revenue and spend was coming from Google, because that could create risk, as we see. They also
wanted to manage the quality of the ads
because sometimes the ads weren't as
a high quality coming through ADX
so by having a higher price point, it kind of weeded out
some of the garbage. And so there
were a number of reasons. And at this moment
in time, Google said, you know what?
You now need to have a universal price
floor across everyone.
And that basically gave AdEx
the same, you know, the same
advantage. It made sure it had the same price floor
as everyone else. But how do they
maintain a price floor across other
platforms? Like, did they
just say if you violate this, you're off of our ad platform?
Well, it's because again, DFP, the ad server is also Google.
So it's the final source of truth.
Yeah.
So they own the place where ads are negotiated, the place where ads come from, and then
the server that puts the ads on places.
Bingo.
That's really, that's good.
That seems like, if you can keep it, right?
Yeah, but that might be a problem for them.
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help an a cappella band with their between songs banter.
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The worst?
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Is there anything to the idea that because you're from Harvard,
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Parents made a huge donation.
The group.
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That's the name.
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From the WMBA standout, Kate Martin, and rising hockey star, Layla Edwards.
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The ability to show a gold medal to someone
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that means the world to me.
And that's what motivates me to
win more gold medals. At our level,
at this scale, like being able to
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Like, I can do anything.
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Because resilience isn't just about winning.
It's about showing up, even when it's hard.
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So were there on the other really cool, like publisher witnesses, interesting people?
So on the publisher side for listeners, just saying that's the people putting ads up.
Sorry, they're the ones providing ad inventory. Yeah, you know, we heard from Gannett was awesome.
He was actually the first witness, Gidette, the big newspaper company, their head of their ad operations group.
That was the very first witness on Monday.
You know, he really set up some of the basic foundation of the case.
So, you know, I think it was enough, really, from the publisher's side.
Now we're actually deeper in the weeds of the conduct issues.
And some of these, like, you know, the revenue sharing were going through and some of these other games that they played.
I think the most actually the most interesting one, if I can digress for a second, the revenue,
the dynamic revenue sharing where they would come off the 20% and drop down, they actually
came out with dynamic revenue sharing two, where they seemed to realize that it was hurting
their margins coming down off 20% in order to win the transaction.
So they decided they would also go higher than 20% when they had a high enough business.
it already, and that would allow them to recoup that margin. And so they essentially described it
as a bank in which they could, as the expert would have said, he described it as imposing a debt
on the publishers, where basically Google would say, you know what, we're going to go off or take less
than 20% revenue share in order to win an ad. But then we're going to go ahead and hold a little
debt for you, publisher, and we're going to take that money back later on and pay ourselves back.
Wait, so when they came up, so when they reduced their car,
to win a bid. They would then take the remainder of the cut that they'd lost and then charge the
people they were meant to give money. So the place where the ad was going? Yes, later, but later on.
So, you know, maybe this one ad goes through at a 15% revenue share that they came down off 20%
in order to win that transaction. And then maybe the next time an ad went through on that site,
they would take, you know, 24% or whatever it is in order to pay themselves back. How did, how the
Pardon my French, how the fuck is that late?
Like, what the, that's insane.
Well, that's what we're going to find out, right?
I mean, imposing a debt on publishers.
I wrote that down in my notebook as soon as he said it,
because I was thinking, yeah, that's what that is.
And so if the publisher didn't know that that debt was being imposed on them,
or if it was unclear or they were being misled,
which seems to be the case often, then, you know,
that's significant harm to the publishers.
We're talking billions of dollars,
if it's a matter of 20% versus 18%.
You know, coming down off that number.
So are there any other harms they've discussed, otherwise that Google's actions have harmed others?
Well, I mean, certainly there's been harm to the other ad exchange or the other ad tech companies, too, that haven't been able to compete because of that monopoly power.
We haven't really seen from the buy side yet in terms of, you know, how it affects the advertisers.
We had two different ad agency executives testify.
You know, it was good.
It was solid.
it was kind of foundational, but I want to really see the Justice Department connect the dots still
on how this harmed advertisers because it's fairly clear that Google is going to, as its defense,
say, you know what, we made a market that, yes, we dominate the buy side, the sell side,
and we control the auctions and we do all these funny business games, but we do it to be more efficient.
And, you know, and our advertisers are all happy.
And so what's the harm?
That's, I mean, that's clearly where they're going.
And so I think those dots need to be connected a bit.
It feels like they can't really say that that's the case, though,
because the way this harms advertisers is this must raise prices,
or at least manipulate them to benefit Google.
Yeah.
I mean, there's both that and then, you know, what we don't know, too.
And I think, you know, there'll be one or two economists
that will probably have testify next week.
And I think that's the part that they'll also land in.
Has anyone from Google kind of, like, said anything?
Have they managed to get anyone to flip on the Google side?
There was only one of the ex-employees.
I think all the ex-employees were somewhat damaging,
but only one of them that was, I think, really sympathetic to the case.
And he just seemed to have no love for the, he called it the machine.
He would describe, like, where he knew things were not right.
They were not doing the right thing as a company.
company and his colleagues would agree and then they would propose a change and then it would get denied.
It would come back from the machine and the people on the other side, he said, that would
overrule what they wanted to do.
He never figured out who was on the other side, he said.
He kind of commented on it.
I never really knew where that decision was coming from, but it would come back as a no.
And so that was the closest we saw.
Isar Lipkubits.
It was. Oh, yeah, good, good call.
Yes.
Oh, yeah.
So that's what I'm here for.
It's really funny because all of this has been going on decades.
That's what really astonishes me.
This isn't even subtle what's going on.
I haven't really dug, dug too deeply, and I know I will, into the discovery.
And actually, have they been providing a bunch of internal?
So you said there's a bunch of emails.
There's been a lot of them.
There's been a lot of new documents.
Yeah, a lot of emails.
And I'd say about 20 or 30.
30 are going up on the Justice Department site per day. And I think I mentioned on our opening session,
but USB googlelads.com has all the exhibits and they're all searchable, et cetera. They're doing a
great job managing that. But, you know, there's a lot of material. And the other thing that is
happening, because we talked about it on the first show, is they're really landing. The Dust
Department is really landing that there is evidence that we're not seeing. And so they've asked
a number of the ex-Google employees about having their chats automatically deleted after 24 hours
and why they didn't honor the litigation hold. And the judge leaned in several times on that where
she asked questions of the witness and said, why, you know, when did you get this litigation hold?
Why didn't you preserve your chats? What did you understand? And so I think that's also going to
hang over them the rest of the trial. And has that been a consistent theme? Because I did, yeah, I did see a
with friend of the show, Prabagar Ragavan, saying, responding to someone and saying,
oh, wait, this chat's on the record, which is so bad.
That's really bad.
That's really bad.
Wow.
Yeah, it's a consistent theme.
And I wouldn't take it lightly if I were Google.
And because, you know, she already said that she was going to affect the credibility of every witness.
And so you've got Aizar, we mentioned, a guy named Chris La Sala, who ran their publisher
operations globally testified this morning, Brad Bender a couple days ago. These are former employees.
And so, you know, even though they weren't, I think, really damaging as witnesses, I think
the judge also knows she didn't, we're not seeing everything, probably. So, and she has to make
that inference. And, and then on top of that, I think the first witness every day next week is
also a Google employee. I mean, Monday is, Monday at 9 a.m. will be Neil Mohan, who was the CEO of
double-click when they sold it to Google. He brought the deal in and he continued to run it
for quite some time. And now he's the CEO of YouTube. So I think that'll be a really important
witness. He's probably one of the guys on the other side that, you know, the machine. Go ahead.
So right now the Department of Justice is making their case. How long left do we have of that
before Google gets to make theirs? I would have to imagine at least another week to a week
and a half, and then Google will have another week or so, probably, for their defense, and we'll
get to closing arguments by the first week of October.
Very cool.
And do you think that the Department of Justice is making their case convincingly?
I think they are.
Yeah.
I mean, Google's strategy in the beginning seemed to be confusion.
It was both to try to confuse the market.
That's not three markets.
They've tried to argue that the display.
ads are the same as TikTok ads and Facebook ads, and they've lost that. And the opening statement
that they did, which I think it got some reporting on this, it was Karen Dunn, who's their lead
defense attorney from Paul Weiss. She did the opening statement for a half an hour, and she just
really tried to sandwich in just, I mean, she ran out of time and had to cut on the fly, just a lot
of technical terms and a lot of jargon from the industry. I think to try to confuse the
the judge up front, she got some press because, interesting enough, she ran out of the room.
As soon as she finished at whatever was 10 a.m. on Monday, she ran out of the room to go because
she was also the lead advisor and coach for Kamala Harris for the debate. And so she literally,
she opened up on Monday and she's leading to defense. And then she also was helping to prep Kamala.
So busy woman. Yeah. So, I mean, kind of exciting, but also,
It doesn't feel like Google is particularly well prepared for this.
I guess we'll see more in their defense.
But it doesn't seem like their plan is anything other than let's confuse as much as humanely possible.
Yeah.
I mean, I think that is my read on it too.
I think it's a good read on, even though they had four years.
I think because the state AGs filed back in 2020.
So they've had time to work through their defense on this.
But I think ultimately it's going to come down to a legal issue.
They're trying to make the case.
about something that's called refusal to deal, which there's some Supreme Court precedent on,
that they shouldn't have to provide APIs or do deals with their rivals. But with the monopoly
power that they have, I don't think that that's really the, that's not the case. It's a tying case
where they're saying you can't have our advertising demand unless you use these other products
where we also have monopoly power. And I think that will be enough for the Justice Department to win.
Also kind of feels like an argument that you could win much better if it didn't seem like you were deleting all this stuff.
That's exactly right.
There's a lot of smoke in the room for sure.
So, you know.
Well, Jason, thank you so much for joining us again for this.
Where can people find you?
You can find me at, on Twitter is probably easiest.
Jason underscore Kent, K-I-N-T.
And I always look for feedback.
Okay.
And also go to usv-Googleads.com.
and if any of this was slightly confusing,
they have an incredible trial resources bear
with a glossary of terms with ad tech explainers.
I know listeners, this is a lot.
It's a lot for me, and I'm steeped in this crap all the time.
But the people running USV Google,
who was actually running that, Jason?
Do you know?
It's a coalition, but there's a group called Check My Ads
that's taking lead on it.
And I appreciate the other mention of it
because they're just doing a phenomenal job.
They really are.
And also, genuinely,
A lot of people, I would argue this is undercover in the tech industry, just because this is the biggest thing happening in tech.
It is. And there's literally like, you know, $300 billion of advertising spend, you know, that goes through Google.
So it's what pays for all this journalism. I also should mention, because it's different than the search trial, that the national press, New York Times, Washington Post, CNN, they were all there.
The wire services were all there. The DC groups like MLEX and Capital Forum were there. But also the,
industry kind of advertising trade press ad week digidae business insider marketing brew and um ad exchange
you were all there there there must have been 30 reporters there many of them were there the whole week
and there were 10 cameras i counted outside the courthouse and so there actually was a lot of attention on
it which is wonderful which is great and i think everyone please go and check out us v google ads go check out
jason and you can check out my various stuff that you'll hear in a recorded clip after this thank you for
listening. Thank you for listening to Better Offline. The editor and composer of the Better Offline
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