On Jan. 24, the U.S. Department of Justice in conjunction with attorneys-general from eight states filed a civil antitrust suit against tech giant Google alleging the company’s practices in the online advertising space violated sections one and two of the Sherman Act. The government’s action sparked debate over how this suit, should it be successful, could reshape the $500 billion industry.
The Sherman Act was passed by Congress in 1890 as a “comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.”
The complaint alleges that Google “over the past 15 years … has engaged in a course of anticompetitive and exclusionary conduct that consisted of neutralizing or eliminating ad tech competitors through acquisitions; wielding its dominance across digital advertising markets to force more publishers and advertisers to use its products; and thwarting the ability to use competing products.”
“Today’s complaint alleges that Google has used anticompetitive, exclusionary, and unlawful conduct to eliminate or severely diminish any threat to its dominance over digital advertising technologies,” said Attorney General Merrick B. Garland. “No matter the industry and no matter the company, the Justice Department will vigorously enforce our antitrust laws to protect consumers, safeguard competition, and ensure economic fairness and opportunity for all.”
Google has denied any wrongdoing and, according to a Jan. 29 report by the Wall Street Journal (WSJ), said the lawsuit is trying to “pick winners and losers in the highly competitive advertising-technology sector.”
Finding a buyer
According to ad and media-industry executives, should the U.S. government win the suit and Google is forced to divest technology for brokering ad deals online the separated businesses would be valued at tens of billions of dollars, the Wall Street Journal (WSJ) reported.
Two key pieces of technology are at the center of the complaint: Google’s advertising server, which publishers use to place ad space on their websites for sale; and Google’s ad exchange, which facilitates automated transactions between buyers and sellers.
Should the suit succeed, the first hurdle will be finding buyers for the technologies, entities with the knowhow and resources to operate the business units. The pool of potential buyers is shallow and could include tech companies like Microsoft or Comcast; however, should they move in to lap up the business units, these companies may face antitrust challenges of their own.
Dave Morgan, chief executive of Simulmedia Inc., a marketing technology company, told the WSJ, “It has to be a business that’s viable on its own, and is more likely to be an acquirer than an acquiree.”
However, it may be too early to speculate which companies would be in the position to take on the business units due to how long antitrust suits take to wind their way through the court system. A decision is most likely years away, opening up the door for an emerging tech company to establish itself and take the helm.
Rajeev Goel, co-founder and chief executive of the ad-tech firm PubMatic Inc., told the WSJ, “This case will take a long time, but the implications will be felt much sooner.” Pubmatic Inc. is named in the suit as one of the company’s harmed by Google’s alleged behavior.
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A cornered market
The two business units in question, Google’s ad server and exchange, have cornered the market for some time. It’s estimated that Google’s ad server is used by 90 percent of large publishers and its exchange has more than 50 percent of the market share, according to the complaint.
Google has merged the two units into what it calls the “Google Ad Manager,” which in 2021 alone brought in around $31.7 billion in revenue.
Numerous large tech companies are attempting to take a piece of the online advertising market and could establish a solid foothold in the space by purchasing parts of Google’s systems.
Comcast, whose FreeWheel unit is a major player in video-ad sales, could be a candidate. Last year, Microsoft Inc. purchased ad-tech company Xandr, limping into the space, and Amazon.com Inc. has become a major player over recent years, competing directly with Google and Facebook. Netflix Inc. could also be a candidate, but has indicated that it’s more interested in developing its own ad technology.
Should the Justice Department’s lawsuit succeed, companies that swoop in to acquire portions of Google’s business units could still face regulatory hurdles. Numerous companies have already come head-to-head with U.S. and European regulators.
Richard Kramer, a founder of Arete Research, an equity-research firm, told the WSJ, “The last thing Big Tech companies would want to do is expose their businesses to DOJ regulators.”
Despite Google’s stranglehold on the market, there are smaller companies attempting to compete, including Index Exchange Inc., Magnite Inc., and OpenX Technologies Inc., which run marketplaces similar to Google’s ad manager.
Outside of the larger player pool, there do exist companies that specialize in applications that help businesses purchase ad space such as Trade Desk Inc., which has a market capitalization of approximately $25 billion.
Companies any smaller than that will most likely struggle to secure the resources required to purchase parts of Google’s ad manager, several industry executives told the WSJ.