Will Google’s ‘Stranglehold’ on Online Ad Tech Spur Its Breakup? | Analysis

For the second time in less than a year, Google was found to have an illegal monopoly. This time, it was over online advertising, with a federal judge on Thursday ruling Google’s ad business stamped out competition and “substantially harmed” its customers.

The ruling adds to the growing federal pressure for Alphabet, Google’s parent company, to break up its business, which includes YouTube and Search, the foundations of its Silicon Valley empire.

One byproduct of a breakup, as vastly complicated as that might be, is a lower barrier to entry for competitors that in theory could help to reduce costs for advertisers. Still, whether the Google ad business is part of Alphabet or not, it won’t diminish its appeal with easier-t0-use tools for advertisers, experts say.

U.S. District Judge Leonie Brinkema was direct in her ruling, saying that by building a “stack” that tied its ad server and ad exchange together, the $1.85 trillion tech giant was able to engage in a “series of anticompetitive acts to acquire and maintain monopoly power.”

The ruling sided with the Justice Department, which had argued Google’s practices allowed it to dominate 87% of the online U.S. ad market — and help drive more than $31 billion in annual revenue for the company, which is led by CEO Sundar Pichai.

And it came just as another tech behemoth, Meta, is on trial facing the Federal Trade Commission over very similar issues. The FTC contends that Meta’s acquisitions of Instagram and WhatsApp constitute an illegal monopoly in the social media market by stifling competition and maintaining its dominance. 

Google said it would appeal the ruling immediately. “Publishers have many options, and they choose Google because our ad tech tools are simple, affordable and effective,” the company said in a statement.

Randall Rothenberg, the former CEO of the Interactive Advertising Bureau, likened Thursday’s ruling to the United States v. Paramount Pictures, the 1948 Supreme Court case that led to several Hollywood studios being forced to divest from their theater chains. Google’s closely linked ad buying and selling operation, Rothenberg said, made it an easy target for a government crackdown.

“When you have a dominant position on all sides of a marketplace, you’re at risk,” Rothenberg told TheWrap. “If you’re both a buyer and a seller and an intermediary to boot, you’re going to have to — at some point in your history — face difficulty.”

Google is certainly facing difficulty now. Here’s a breakdown of how it got to this point, whether this increases the odds Google will be broken up, and what that would mean moving forward.

What Google has meant for publishers

Google’s overwhelming control of the online ad market has been bolstered by the one-stop-shop nature of its network of ad tools, Ari Paparo, CEO of Marketecture Media, a company that specializes in online advertising, told TheWrap.

“Google is really known for its dominance in search, but it’s also dominant in all the ads that run on all the websites and all the streaming platforms everywhere else that you see an ad. They’re often buying the ad and selling the ad and determining the price,” Paparo explained. “So their stranglehold over what is generally called ‘display advertising’ is very significant, and the impact of that is that media companies feel like sharecroppers on Google’s farm.”

That dominance has allowed Google to overcharge publishers that use its Ad Exchange platform, the Justice Department argued. Ad Exchange has charged a 20% fee on open web transactions, which are the most common kind, and that has not budged in about 15 years, which the government said proves Google’s online ad business is immune to competition.

One expert witness for the government said that fee should be closer to 16%; that 4% gap, when looking at an estimated $10 billion in Ad Exchange transactions per year, comes out to about $400 million that is being overcharged annually to companies and publishers, Paparo said.

“That’s a starting point of the damage, but it could be much more than that,” he said.

Overall, Google Network — which encompasses the websites, apps and other platforms where ads can be displayed — contributed $31.3 billion in revenue in 2023, the year the DoJ’s lawsuit was filed; Google’s total ad revenue that year was $237.9 billion.

Does this increase the odds Google will be broken up?

The odds of Google having parts of its business spun off increased following Thursday’s ruling.

But determining which sectors would be broken off is the tricky part, Barak D. Richman, a professor and antitrust expert at George Washington University Law School, told TheWrap. One reason: Google’s businesses are closely intertwined, with its search business linked to its online ad operation.

“Finding that Google is a monopolist — as complicated as this case is — that was the easy part,” Richman said. “Figuring out what the remedy is will be really challenging, especially since this technology is a moving target.”

Breaking off one side of its online ad business could be one move. That would stop ad buying and ad selling from happening in the same silo and theoretically allow new competitors to emerge.

Complicating matters is the fact that Google is facing another remedies trial, set to start next week, after a federal judge found it holds an illegal monopoly on online search last year.

“How all these [cases] interact with one another will be really complicated,” Richman continued. “Google will probably have to deal with multiple court orders, and maybe one of those would involve requiring Google to sell off a certain part of its business.”

Before any aspects of Google are broken off, a few things will happen: There will be a remedies case, and Google will “for sure” appeal, Richman said — a move the tech giant already announced it will make Thursday. And the parallel antitrust cases could ultimately lead to them being lumped together into an action that goes before the Supreme Court. That would be the point where it is determined if parts of Google’s online ad network are broken apart, or if its search business is spun off.

“[Thursday’s] opinion is a really significant one,” George Washington’s Richman added. “This is a large market, and it’s a complicated market, and I think that the government and the state plaintiffs have achieved a significant victory by getting this ruling — but it’s just the beginning.”

How a breakup would affect the online ad market

Here’s the funny part of it all: If Google’s digital ad business is split apart down the road, it may not change much about how its customers operate.

“I don’t think it’s going to have a material impact on publishers or their businesses,” Rothenberg told TheWrap. “There’s always going to be an oversupply of advertising inventory relative to the demand for that inventory. That’s not going to change.”

Rothenberg — who now runs Randall Ltd., a marketing advisory firm — said there are a few reasons why. First, customers will still gravitate towards Google’s ad tools, even if they are separated, because they are easy to use. “There’s a really strong argument that says if you take Google out of the marketplace, you’re just increasing everybody’s complexity costs,” he said.

The second reason is because advertising tends to be fairly consistent. Advertising’s slice of U.S. GDP going back to 2010 ranges between 0.94% and 1.15%. As expected, the amount companies are willing to spend on advertising increases when the economy is strong, Rothenberg said, and dips when the economy is in rougher shape.

One healthy byproduct of a breakup, both Rothenberg and Paparo said, is that it could lead to more competitors gaining traction — something that would theoretically drive down costs for advertisers. Magnite and PubMatic are two companies Paparo pointed to that could “immediately benefit” from loosening Google’s grip on the online ad tech market.

Rothenberg, meanwhile, said that whatever form the breakup takes, it will not change who truly runs the online ad market: “If you spin this off, you’ve just created another dominant open web advertising company.”

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