Google sued by Justice Department over Antitrust

Earlier this month, the U.S. Department of Justice, along with the attorneys general of eight states, filed a civil antitrust lawsuit against the tech giant Google, alleging that the company's practices in the online advertising space violated sections one and two of the Sherman Act. As a result of the government's action, there has been a debate over how this suit, if successful, could reshape a $500 billion industry over the next decade.

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In 1890, Congress passed the Sherman Act which was referred to as a “comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.”

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As a result of the complaint, Google is alleged to have engaged in anticompetitive and exclusionary conduct that has neutralized or eliminated its ad tech competitors through acquisitions over the past 15 years. As a result of its dominance in digital advertising markets, it has forced many publishers and advertisers to use its products, while preventing others from using competing products..” 

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Merrick B. Garland, Attorney General of the United States, said today's complaint alleges anticompetitive, exclusionary, and unlawful conduct by Google to reduce any threat to its dominance over digital advertising technologies. “No matter what industry or what company you are in, the Justice Department is committed to vigorously enforcing our antitrust laws in order to protect consumers, safeguard competition, and ensure that everyone has equal access to economic opportunities."

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In response, Google denied any wrongdoing and, according to a report published on January 29, said the lawsuit is intended to “ determine who will succeed and who will fail in the highly competitive advertising-technology sector.”

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Finding a buyer

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A number of media executives and ad industry executives told The Wall Street Journal that should the U.S. government win the lawsuit and Google is forced to divest its technology for brokering online ad deals, the separated businesses could be valued at tens of billions of dollars.

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As part of the complaint, Google's advertising server, which is used by publishers to set up and sell ad space on their websites, is the center of the controversy, along with Google's ad exchanges, which enable buyers and sellers to conduct automated transactions.

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It is likely that if the lawsuit is successful, the first hurdle will be to find buyers for the technologies, entities with the know-how and resources to operate the business units if the case succeeds. Considering how small the pool of potential buyers is, it is possible that they could include companies such as Microsoft or Comcast. However, should these companies move in to acquire the business units, they may face their own antitrust challenges.

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Dave Morgan, chief executive of Simulmedia Inc., a marketing technology company, told that, “businesses should be viable on their own, and is more likely to be an acquirer than an acquiree.”

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Due to the length of time it may take for antitrust suits to wind their way through the courts system, it is difficult to speculate which companies will be in a position to take on the business units. It is likely that a decision will be made many years in the future, which opens up the opportunity for a new tech company to set itself up and take on the role. 

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In an interview with Rajeev Goel, co-founder and chief executive of ad-tech firm Pubmatic Inc., said, "This case will take a long time, but its implications will be felt much sooner." Pubmatic Inc. is named in the lawsuit as one of the companies harmed by Google's conduct.

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Market dominance

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A few years ago, the two business units in question, Google's ad server and exchange, were the only ones on the market. According to the complaint, 90% of large publishers use Google's ad server, and the exchange has more than 50% market share. 

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As a result of the merger of these two units, Google has been able to generate around $31.7 billion in revenue on its own in 2021 alone with its “Google Ad Manager.”

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It is estimated that many large technology companies are trying to get a piece of the online advertising market and may be able to gain a solid foothold in the space by purchasing parts of Google's systems in the future.

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This could be an opportunity for Comcast, whose FreeWheel unit is one of the most important players in video advertising. As a result of the purchase of Xandr by Microsoft Inc. last year, the company entered the ad-tech market, and the company has been a major player in that market over the past couple of years, competing directly against Google and Facebook. While Netflix Inc. could be a candidate, the company has expressed interest in developing its own ad technology. 

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Legal hurdles may still exist for companies interested in acquiring parts of Google's business units if the Justice Department succeeds in its lawsuit. There have already been numerous cases in which companies have been forced to deal with U.S. and European regulators.

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According to Richard Kramer, founder of Arete Research, “For any Big Tech company, the last thing they would want to do is to have their business exposed to DOJ regulators.”

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In spite of Google's stranglehold on the market, smaller companies are competing, including Index Exchange Inc., Magnite Inc., and OpenX Technologies Inc., which run marketplaces similar to Google's ad manager.

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Trade Desk Inc., with a market capitalization of approximately $25 billion, is one of the companies outside of the larger player pool that specialize in applications that help businesses purchase advertising space.

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According to several industry executives, companies with a size of less than that will likely find it difficult to secure the resources needed to buy parts of Google's ad manager if they are any smaller.