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Google second antitrust case advertising model


Google second antitrust case advertising model

A pedestrian walks past the Google office in New York City on January 25, 2023.

Leonardo Munoz | View press | Getty Images

One month after losing a landmark antitrust case brought by the Department of Justice, Google has to go to court again to face federal prosecutors for a second time.

In August, a judge ruled that Google had a monopoly on internet search, the largest antitrust ruling in the technology industry since the case against Microsoft more than 20 years ago. This time, Google is defending itself against accusations that its advertising business acted as a monopoly, which led to higher ad prices for customers.

The trial begins Monday in Alexandria, Virginia, and is expected to last at least several weeks. It is the first antitrust trial in the technology sector in a case brought by the Biden administration. The department’s previous lawsuit was first filed in October 2020, when Donald Trump was in the White House.

While U.S. authorities have spent the past few years pursuing the big tech companies, only Google has ended up in federal court so far. The U.S. Justice Department sued Apple in March, claiming the company’s iPhone ecosystem was a monopoly that had inflated its “astronomical valuation” at the expense of consumers, developers and rival phone makers.

At the end of 2020, the Federal Trade Commission filed an antitrust lawsuit against Facebook (now Meta), arguing that the company had built a monopoly through its acquisitions of Instagram and WhatsApp. Earlier this year, Meta filed a motion to dismiss the lawsuit. In 2023, the FTC and 17 states sued Amazon because the company allegedly abused its “monopoly power” to drive up prices, reduce quality for buyers and unlawfully exclude competitors, thereby undermining competition.

At Google, the focus is on its advertising tools, which are part of the company’s $200 billion digital advertising business.

The government claims Google violated Sections 1 and 2 of the Sherman Act, which prohibit anti-competitive behavior. The Justice Department argues that Google locked publishers and advertisers into its products and that websites had to develop workarounds in response. A coalition of states, including California, Colorado, Connecticut, New Jersey, New York, Rhode Island and Tennessee, have joined the lawsuit.

Justice Department considers breaking up Google after victory in antitrust case

Google’s ad business has drawn numerous critics over the years because the platform operates on multiple sides of the market – buying, selling and an ad exchange – giving the company unique insights and potential leverage. In its first lawsuit, the Justice Department cited internal communications from a Google ad executive who said controlling multiple sides of the ad sales process was “like if Goldman or Citibank owned the NYSE” (by which he meant the New York Stock Exchange).

At issue is how Google is allowed to operate its portfolio of advertising products. If the Justice Department is successful, it will at least seek to divest the Google Ad Manager Suite (GAM), a marketplace that allows brands to create and manage ad units and track advertising campaigns, and that allows publishers to sell ad inventory.

This is different from Google’s flagship platform, Google Ads, which is primarily aimed at businesses that want to promote their products or services through search engines, websites, YouTube and other partner sites.

Last quarter, Google parent company Alphabet reported advertising revenue of $64.6 billion, accounting for more than three-quarters of total revenue. Of that, $48.5 billion came from search and other businesses such as Gmail and Maps, and $8.7 billion from YouTube.

The GAM suite is part of the Google Network business, which generated revenue of $7.4 billion in the second quarter, or about 11 percent of total ad revenue.

In addition to a possible partial breakup, if the Justice Department is successful, Google could face a flood of lawsuits from advertisers demanding financial compensation. Bernstein analysts believe that Google can expect lawsuits totaling up to $100 billion.

In the first antitrust case, the court found that Google violated Section 2 of the Sherman Act, which prohibits monopolies. Judge Amit Mehta of the U.S. District Court for the District of Columbia sided with the Justice Department, which argued that Google maintained its share of the general search market by creating strong barriers to entry and creating a feedback loop that maintained its dominance.

“Google is a monopolist and has acted like one to maintain its monopoly,” Mehta wrote.

Google is now awaiting punishment in that case. The Justice Department is asking for an extension until February to offer remedies, followed by a hearing in April. Google says the Justice Department has already done its homework and should be ready to present its proposal in October.

What each side will argue

In the second case, the Justice Department seeks to prove that Google has built unprecedented power by acquiring companies like DoubleClick in 2008 and by developing services that allow ad buyers to target users across the Internet.

The company’s M&A strategy “set the stage for Google’s subsequent exclusionary behavior across the ad tech industry,” the Justice Department alleges. The agency claims Google controls 91% of the ad server market, the space publishers use to sell ads, and abuses its power by unfairly raising ad prices.

The Justice Department plans to subpoena YouTube CEO Neal Mohan for live testimony. Mohan was a vice president at DoubleClick before the acquisition. After being integrated into Google’s ad tech stack, DoubleClick’s technology allowed Google to, in some cases, require publishers to use all of its tools to access any one of them. That meant they couldn’t use competing services for parts of the online ad-buying process, the agency alleges.

“Website creators earn less and advertisers pay more than they would in a market where unbridled competitive pressures could discipline prices and lead to more innovative ad tech tools that would ultimately result in higher quality, lower cost transactions for market participants,” the Justice Department statement said.

Some publishers have been forced to resort to alternative models such as subscriptions to finance their operations, while others have gone out of business, government sources say.

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Google has long fought back against claims that it dominates the online advertising market, pointing to the market shares of competitors such as Meta. Google argues that buyers and sellers have many options, especially given the evolution of the online advertising market.

Google also argues that the Justice Department’s actions would slow innovation, increase advertising fees and make it difficult for thousands of small businesses and publishers to grow.

The company says its advertising tools adapt to the billions of ad auctions that take place online every day, and that the Justice Department does not have an accurate picture of the ad space. Google will also tell the court that it has always offered competitive prices to its customers, who often combine different advertising platforms.

As for making deals, Google will claim that DoubleClick and AdMeld were not killer acquisitions at the time and that regulators approved them.

To prove its position, the Justice Department has listed possible testimony from Jerry Dischler, the former vice president of Google’s advertising platform who currently leads the company’s cloud applications. It also notes that several Google product managers could potentially be subpoenaed.

Also on the Justice Department’s list are Google AI executive Sissie Hsiao, who was formerly director of global display, video and mobile app advertising, and Scott Sheffer, who is listed as vice president of Google partnerships. The government plans to include evidence from internal Google communications, testimony from publishers, advertisers and companies that have tried to compete with Google, as well as experts and professors from Stanford and Harvard, the filings show.

Google also said it may bring in Nitish Korula, the engineering lead for Google Assistant who was formerly a senior engineering adviser to search chief Prabhakar Raghavan. It also requested testimony from Simon Whitcombe, a vice president at Meta, and suggested testimony from executives at BuzzFeed and the New York Times.

Although the Justice Department and Google have submitted a list of executives named for possible testimony or deposition, those individuals will not necessarily be subpoenaed.

Google declined to comment on this article.

REGARD: Google’s antitrust problems are increasing

Google's antitrust problems are increasing

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