Yesterday, the Justice Department and eight states sued Google, accusing the company of illegally abusing its monopoly on the technology that powers online advertising. According to the Department’s complaint, Google’s dominance enables the company to take at least $0.30 of every dollar spent using Google’s advertising technology. The Department is seeking to unlock competition within the online advertising industry and, incidentally, diminish Google’s pricing power.
The Justice Department’s case – this lawsuit is the fifth of its kind since 2020 – cites numerous examples of Google’s dominance, escalating pressure on Google to sell much of its advertising technology business, including the company’s ad server for publishers (which it’s been developing since buying DoubleClick in 2007) and its ad exchange. Google’s executives are cognizant of their advertising technology’s dominance and, at times, uneasy about it. For example, the lawsuit quoted one Google executive asking, during an internal meeting, whether there was “a deeper issue with [Google] owning the platform, the exchange and a huge network” in a way that’s analogous to “Goldman or Citibank own[ing] the” New York Stock Exchange. Google responded to the lawsuit by claiming that the Justice Department is ignoring “enormous competition” in the online advertising industry.
For now, this announcement doesn’t change anything for marketers.
Decades of precedent suggest that this case will be decided by judges who determine antitrust violations based on whether they increase prices for consumers. This precedent favors Google, whose services are mostly free for and preferred by consumers. However, the Justice Department seems willing to lose cases like this to broaden the scope of antitrust law, setting them up for a successful lawsuit in the future.
If that happens, it would trigger significant changes for the online advertising industry:
- For advertisers, the costs of advertising transactions might go down, but the performance of ads would be harmed by weaker signals within Google’s ecosystem, like what’s happened on Meta since iOS 14.
- For competing platforms, Google’s divestiture of its ad exchange and publisher ad server would eliminate its key competitive advantage: visibility into every aspect of advertising transactions. However, a successful suit would also threaten companies like Xandr and The Trade Desk, whose development of products like Xandr Monetize and Xandr Invest or The Trade Desk’s OpenPath could be interpreted as conflicts of interest akin to Google’s ownership of an ad exchange and a publisher ad server.
- For publishers, a successful suit would mean that they could offer their inventory across multiple exchanges. This would allow them to compete for impressions in ways that Google currently constraints. In the meantime, publishers are lobbying Congress to allow groups of publishers to collectively negotiate deals with Google, coordination that is currently illegal according to antitrust laws.
If you’re interested in learning more, click here to set up a guidance session with me. Stay tuned for our coverage of Google’s earnings next week.