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Tuesday, May 18, 2021

Google buys DoubleClick, government blocks the sale

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The Department of Justice filed a civil antitrust lawsuit to block the acquisition of digital ad giant DoubleClick by Google.

The government, in suing, alleged that Google was abusing its dominance of internet search by discriminating against third-party ad networks in its search results.

Here are some of the major points.

What exactly is this acquisition meant to do?

This acquisition was aimed at giving Google a massive reach across all online consumer markets.

DoubleClick is the largest independent third-party advertising technology company, and it has a globally known brand name.

Google needs advertising clout in order to compete for high-quality online ad slots that are worth hundreds of millions and even billions of dollars.

Google today dominates around 90 percent of US search and its market share makes it very difficult for new ad technology companies to gain market share, or for existing companies with better technical know-how to thrive.

Advertising is one of the most profitable business models in the United States, but for ad networks competing with Google must now both hope that they can offer the same services and promising user experience, and compete with Google in price.

Google’s hoped-for monopoly in the search market is surely weakened by these antitrust concerns.

Since 2006, Google has built one of the most powerful brands in the digital marketing world. It offers advertisers vastly different services and can offer them multiple formats of search and display ads, including search marketing services and display advertising services.

This may have led Google to pressure third-party advertising agencies to choose which products and features to include in Google search ads. The department alleges that Google then enticed advertisers who were unhappy with the offerings from those agencies to leave those agencies and contract with DoubleClick.

Google pays DoubleClick about $2 billion a year in fees, mostly as a percentage of the overall revenues generated by the DoubleClick purchase.

In May 2014, the European Union issued a formal antitrust investigation into the same issue, suggesting that Google was singling out competing ad agencies by prioritizing Google’s own products such as AdWords, DoubleClick Ad Exchange and the DoubleClick Ad Manager in its search advertising marketplace.

The European investigation is still ongoing.

What else is the Department of Justice objecting to?

Google’s own competitors could also be affected by this acquisition.

Certain types of advertising, such as behavioral targeting, generate less revenue than other formats of advertising, and they rely on the special mechanisms and processes that Google uses to track users to tailor display and search ads to their interests.

Google makes a substantial portion of its revenue from ad contracts with advertisers around the world, and hundreds of those contracts pay Google a percentage of that advertiser’s total advertising revenue. Google does not disclose how much of the revenue they get from those contracts, but it is clear that Google has a fair bit of revenue from advertisers who run such ad campaigns, and that is substantial money.

Beyond the kinds of advertising where Google shows ads based on user interests, the department also objects to Google’s ability to use specialized search marketing services. The department alleges that Google effectively gets these ad units “pre-qualified” into search results in order to highlight them as a higher priority than third-party advertising options.

If the Department of Justice prevails in this suit, it will have the potential to push Google’s massive ad sales business back towards profitability by forcing Google to develop better market tactics.

This might help other businesses, too. For instance, if Google seeks to take away competing ad technology from third-party agencies because they’re not yet part of Google’s advertising network, its rivals can step in to fill that gap. That would just make Google’s revenue more competitive and decrease the monopolistic impact of its search dominance.

The Department of Justice’s lawsuit also expresses concern about antitrust concerns with some other Google products and platforms.

For instance, Google provides these services out of Google Play, Google Wallet, Google Shopping, and the Google Apps Enterprise Platform. The department points out that these offerings are owned and operated by Google, and cannot be merged with the DoubleClick business in a way that is anticompetitive.

The lawsuit also relates to Google’s proposed YouTube application for business users. According to the Department of Justice, this business application will be integrated in a way that will limit the ability of non-Google advertisers to advertise on YouTube videos.

The Department of Justice has to go through the administrative process before the deal would be blocked. Google can ask a federal court to dismiss the complaint, before a trial, or ask a judge to issue a decision mandating that the lawsuit be dropped or modified.

The case will be heard in federal court in Washington, D.C.

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