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Google May Break Up $209B Ad-Tech Unit To Appease Regulators

By  |  July 11, 2022
Google

As one of the most powerful companies in online searches and digital advertising, Google is accustomed to regulatory risks stemming from new legislation, antitrust probes or litigation. However, for the last few months, the company seems to have adopted a more collaborative approach with regulators and policymakers to manage, and eventually reduce, these regulatory risks. 

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    The latest example is the concessions offered by the company to the Department of Justice (DOJ) to fend off a possible U.S. antitrust lawsuit aimed at its ad-tech business, according to the Wall Street Journal. 

    One of these commitments is a proposal to split off the part of its business that auctions and places ads on websites and apps, although the new entity would still be kept under the Alphabet umbrella. Google holds a strong position in most of the different parts of the ad-tech business, from the supply side to the demand side — and the marketplace where the orders from both sides are exchanged. However, it is unclear whether any commitment that falls short of selling part of the business to a third party would satisfy DOJ officials.  

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    DOJ could be readying a lawsuit against Google alleging that the company’s ad-tech practices are anticompetitive. This wouldn’t be the first time that the company has faced antitrust issues for its ad-tech business. In 2019, the U.K. Competition Market Authority (CMA) launched a market study in digital advertising, and it found that “competition in these markets was not working well.” The report showed that because of the position of Google (and Facebook) on the ad-tech chain, the market was not competitive, and prices were higher than could have been otherwise. As a result, the CMA recommended the government to pass new legislation to address this issue. 

    In Europe, Google also faces another ad-tech investigation. The company also made an offer to settle the allegations that is using its strong position on YouTube to force advertisers to use Google’s ad-buying tools to access the video sharing platform. With its latest concessions, Google would allow competitors to access YouTube directly — but it didn’t offer to sell parts of the business to third parties. 

    The ad-tech business is not the only area of the business where Google is offering concessions to defuse antitrust risks. For instance, on June 30 the company announced in its blog an agreement with a group of U.S. developers to avoid costly and lengthy litigation about terms and conditions of the Google Play Store, including the fees charged. Google not only offered economic relief as part of the settlement, but it also offered app developers more powers to reach customers and allowed developers to install other app stores in Android devices. 

    The concessions in Europe and the U.S. show that the company may be willing to increase the scope of potential remedies to appease regulators and avoid lengthy antitrust probes and litigation.  

    Offering concessions isn’t new for Google. It has done it in the past, even in the investigations that concluded with an antitrust fine. The difference, arguably, is that the company is now willing to offer a more comprehensive package to appease regulators and eventually avoid a probe or litigation where it is more difficult for Google to control the outcome and negotiate a remedy. 

    Additionally, Google, as well as other Big Tech firms, is facing new antitrust bills that will regulate online platforms and limit to a certain extent some of their practices. In Europe, these bills were approved last week, and they may be fully implemented in 18 months. In the U.S., the proposed legislation is on the Senate, and it could be voted on soon.