Google-Doubleclick Merger: Consolidating Online Advertising Amidst Antitrust and Privacy Concerns

Introduction

After one year of red tape, the recent EU approval of the Google-Doubleclick merger finalizes a deal certain to change the current landscape of online advertising. [1]. Despite antitrust and privacy concerns, the merger was approved upon reasoning that (a) Google’s market of internet search technology does not directly compete with Doubleclick’s market of online advertising; and (b) the issue of privacy is not properly addressed by antitrust hearings. [2]. With the acquisition, Google becomes the heavy frontrunner in internet search and online advertising, a booming market expected to be valued at $60 billion by 2011. [3]

Google-Doubleclick Merger

Google agreed to purchase Doubleclick for $3.1 billion in March 2007. [4]. The U.S. Federal Trade Commission approved the deal in December, stating that a merger was unlikely to lessen competition. [5]. Despite strong opposition from companies like Microsoft and claims that competition in the digital era is implicitly intertwined, the EU approved the deal March on the grounds that Google and Doubleclick did not previously exert competitive power on each other, the companies were involved in different markets, and privacy concerns are not considered in antitrust hearings. [6].

The merger will create a behemoth. During the 4th Quarter of 2007, Google’s advertising network alone generated a slightly under $2 billion of the $7.3 billion expended on online ads. [7]. The pairing matches Google’s search-based advertising network, a market that accounts for 40% of online advertising spending, with Doubleclick’s online display advertising, a market that brings in another 20%. [8]. Doubleclick itself produces around $300 million in revenue annually and provides Google with contacts it could not otherwise achieve in the industry. [9]. Google has significantly strengthened its already firm grasp on power in the online advertising industry.

Antitrust Concerns

Concerns that Google will command an online monopoly after the merger are not entirely unfounded; however, the issue turns on how the relevant market is defined. “Google controls 70% of the global search market, while Double Click has cornered 80% of the online display advertising market.” [10]. If the market were defined broadly, as encompassing all of online advertising, the result would lean more toward monopoly. Online advertising, however, is a large industry and may properly be divided; thus, the markets may be split into search-based advertising and online display advertising. While complimentary markets and vertical mergers can violate antitrust law, this was found not to be the case.

The Google-Doubleclick merger will allow Google to possess unprecedented information on web browser preferences by combining its’ records of Internet-user search histories with Doubleclick’s expansive database of web browser’s sites visited. [11]. Yet, no evidence exists that Google has abused its power or intends to exert its influence by raising prices in the market. [12]. Rather, Google auctions off advertising spots to allow the market, rather than Google itself, to set the price while buyers make bids based on an objective return-on-investment method. [13]. Despite its size in the overall online advertising marketplace, the Google-Doubleclick merger resulted in no antitrust violation because the companies competed in complimentary, rather than competitive, markets.

Privacy Concerns

Currently, Google’s influence in the internet domain is vast. Doubleclick touches an estimated 80 percent of internet users, YouTube - Google’s recent acquisition - reaches 30 percent of internet users, and as many as 3.5 billion searches were performed on Google just in March 2007. [14]. Early in 2007, Google began keeping user-specific information for a period of up to 2 years. [15]. Combining Google’s search histories with Doubleclick’s web sites visited permits Google to maintain expansive and accounts that may be used to promote behavioural targeting, a technique that has been subject to recent controversy. [16]. Facebook recently stopped using behavioural targeting software and issued a public apology when faced with a much publicized user petition to immediately stop the practice. [17].

Internet users face potential harm if search engines misuse or reveal private information, and so far case law suggests that users will not be able to recover from search engines for improper use of private information. [18]. Google has protected users through litigation and won a recent suit to keep users’ private information from discovery by the Department of Justice. [19]. Still, Google’s potential to influence the industry elicits response from some prominent critics. Senator Herb Kohl, speaking on the proposed merger, strongly asserted that antitrust policy must concern itself with privacy when industry consolidation threatens privacy interests so precious to democracy. [20]. Despite privacy reservations, the FTC and EU approved the merger without considering the issue; in the future, questions will be reserved to the domain of litigants and the courts.

Future of Google’s Online Advertising

Recent concerns over falling ad clicks don’t change the fact that the online advertising industry is expanding and Google is at the forefront. [21]. Google’s own advertising platform, AdSense, generated $2.7 billion in revenue during 2005. [22]. The merger, in turn, will enable Google to favor itself in the marketplace by using Doubleclick’s technology that selects advertisers to prefer Google’s AdSense over other options or by discretely changing AdSense’s code to exploit the Doubleclick algorithm and return results favorable to AdSense. [23]. Google’s actions have yet to raise any alarms and their history in the online marketplace provides no foundation to assume that they will exploit their hefty share of the online advertising market; however, temptation exists, and it is unclear whether Google’s argument that safeguards including advertising performance reporting measures will prevent an abuse of power. [24]. Microsoft’s recent $6 billion acquisition of aQuantive presents a real competitor to Google in the online advertising market. [25]. Yahoo, additionally, can substantially influence the market; either outsourcing advertising to Google or merging with Microsoft would send rifts throughout the online ad industry. Clearly, the online advertisement market is gaining substantial power and attention from major players in the industry; Google is leading the charge, and the FTC and EU declared that their substantial marketplace power is not too much. Web browsers are left to hope that this is the case.

Sources

[1] David Lawsky, Google Closes Doubleclick Merger after EU Approval, Reuters, Mar. 11, 2008, available at http://www.reuters.com/article/CMPTRS/idUSBFA00058020080311 (last visited Mar. 16, 2008).

[2] Richard Waters, Google Gains EU Approval on Doubleclick, Financial Times, Mar. 6, 2008, available at http://www.ft.com/cms/s/0/ff94dc56-eb1e-11dc-a5f4-0000779fd2ac.html (last visited Mar. 10, 2008).

[3] Mike Shields, Google Leads Search Party, Adweek, Feb. 18, 2008, available at http://www.insidebrandedentertainment.com/bep/article_display.jsp?vnu_content_id=1003711856 (last visited Mar. 10, 2008).

[4] David Lawsky, Google-Doubleclick Deal Likely to Win EU Go-Ahead, Reuters, Jan. 25, 2008, available at http://www.reuters.com/article/reutersEdge/idUSL2589361220080125?pageNumber=1&virtualBrandChannel=10004 (last visited Mar. 10, 2008).

[5] Privacy? Proposed Google/Doubleclick Deal, Electronic Privacy Information Center, 2008, available at http://epic.org/privacy/ftc/google/ (last visited Mar. 10, 2008).

[6] Lawsky, supra, note [4].

[7] Kevin Allison, Google Pushes into Online Video Ads, Financial Times, Feb. 21, 2008, available at http://www.ft.com/cms/s/0/dc0f0492-e04b-11dc-b0d7-0000779fd2ac.html?nclick_check=1 (last visited Mar. 10, 2008).

[8] Andrew Frank, Google Extends Advertising Dominance with Doubleclick Deal, Gartner, Apr. 19, 2007, available at http://www.gartner.com/DisplayDocument?id=503926 (last visited Mar. 10, 2008).

[9] Louise Story and Miguel Helft, Google Buys an Online Ad Firm for $3.1 Billion, NY Times, Apr. 14, 2007, available at http://www.nytimes.com/2007/04/14/technology/14deal.html?ex=1334203200&en=d94eb7f788b32db5&ei=5090&partner=rssuserland&emc=rss (last visited Mar. 10, 2008).

[10] Leigh Phillips, Concerns Linger over Google-Doubleclick, BusinessWeek, Mar. 7, 2008, available at http://www.businessweek.com/globalbiz/content/mar2008/gb2008037_878121.htm?campaign_id=rss_topStories (last visited Mar. 10, 2008).

[11] Id.

[12] Shields, supra, note [3].

[13] Shields, supra, note [3].

[14] Privacy, supra, note [5].

[15] Id.

[16] Phillips, supra, note [10].

[17] Phillips, supra, note [10].

[18] James Grimmelmann, The Structure of Search Engine Law, 93 Iowa L. Rev. 1, 18 (November 2007).

[19] Id. at 19.

[20] Privacy, supra, note [5].

[21] Catherine Holahan, Google: Are Ad Concerns Overblown?, BusinessWeek, Feb. 27, 2008, available at http://www.businessweek.com/technology/content/feb2008/tc20080226_937691.htm?campaign_id=rss_topStories (last visited Mar. 10, 2008).

[22] Carolyn O’Hara and Travis Taub, Google’s Hidden Payroll, The Christian Science Monitor, Mar. 28, 2006, available at http://www.usatoday.com/tech/news/2006-03-28-googe-adsense_x.htm (last visited Mar. 10, 2008).

[23] Lawsky, supra, note [4].

[24] Lawsky, supra, note [4].

[25] Susan Hall, aQuantive Shareholders OK Microsoft Buyout, ITBusinessEdge, Aug. 9, 2007, available at http://www.itbusinessedge.com/blogs/hdw/?p=681.