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Monopoly of ad market drives massive antitrust suit against Google

Eight states and the Department of Justice filed a diagram-heavy federal complaint against the search and advertising behemoth, accusing it of driving out rivals in the online advertising industry and inflating advertising costs for businesses.

WASHINGTON (CN) — In a move that could result in the breakup of Google’s colossal advertising business, the Biden administration brought a massive antitrust lawsuit Tuesday that accuses the tech giant of crafting a “monopolistic grip” over the U.S. digital advertising industry for the last 15 years.

“Google has engaged in exclusionary conduct that has severely weakened, if not destroyed competition in the ad tech industry,” Attorney General Merrick Garland said at a press conference in Washington this afternoon where he announced the complaint against Google in Alexandria, Virginia.

Alleging violations of the federal Sherman Antitrust Act, the 153-page complaint says Google has made itself calculatingly omnipresent in the digital ad market, unlawfully controlling all aspects of buying, selling and exchange services between advertisers and publishers. 

“Google abuses its monopoly power to disadvantage website publishers and advertisers who dare to use competing ad tech products in a search for higher quality, or lower cost, matches,” says the complaint, which was joined by California, New York, Virginia and five other states. “Google uses its dominion over digital advertising technology to funnel more transactions to its own ad tech products where it extracts inflated fees to line its own pockets at the expense of the advertisers and publishers it purportedly serves.”

The government seeks an injunction that would prevent Google from continuing to engage in anticompetitive practices, noting that the actions the company has taken have resulted in increased costs for both businesses and the U.S. government, including its military. 

Assistant Attorney General Jonathan Kanter added Tuesday at the press conference that Google’s actions “had and continues to have the effect of driving out rivals diminished competition, inflating advertising costs, reducing website publisher revenues, stymieing innovation and flattening our public marketplace of ideas.”

Among other points, the complaint details Google’s patterns of locking in content creators through tying arrangements; giving itself a first look and last look advantage over competing ad exchanges at auctions; and blocking industry participants from using rivals’ technology. 

“Because Google dominates every part of the ad tech industry, it has the power to impose a surcharge on display advertising transactions in an industry where billions of dollars are transacted via instantaneous auctions each year in the U.S.,” Kanter said. “Google's own documents estimate that it keeps on average at least 30 cents of each advertising dollar that flows through Google's ad tech tools for some transactions. For certain customers, Google keeps significantly more.”

The Department of Justice illustrated its Jan. 24, 2023, complaint against Google with this graphic, saying it demonstrates how "Google’s dominance across the ad tech industry is unparalleled." (Screenshot via Courthouse News)

A Google spokesperson responded to the filing Tuesday, saying the government “is doubling down on a flawed argument that would slow innovation, raise advertising fees, and make it harder for thousands of small businesses and publishers to grow." 

“Today’s lawsuit from the DOJ attempts to pick winners and losers in the highly competitive advertising technology sector,” the spokesperson continued on behalf of the company, which in 2021 earned $209 billion in advertisement revenue, or 81% of its total profit.

Federal officials say Google, a subsidiary of Alphabet Inc., has sought to control so much of the digital advertising industry with the goal of becoming “the be-all, and end-all location for all ad serving." Compounding its “outsized influence,” according to the complaint, maintaining a “dominant position on both sides of the industry would give Google the ability to charge supracompetitive fees and also enjoy an abiding dominance sufficient to exclude rivals from competition.” 

Some evidence of Google’s anticompetitive conduct detailed in the complaint include its control of the technology used by nearly every major website publisher to offer ad space; its control of the leading tool used by advertisers to buy that space; and its control of the largest ad exchange that matches publishers and advertisers together.

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“In effect, Google was robbing from Peter (the advertisers) to pay Paul (the publishers), all the while collecting a hefty transaction fee for its own privileged position in the middle,” the complaint notes. “Rather than helping to fund website publishing, Google was siphoning off advertising dollars for itself through the imposition of supra-competitive fees on its platforms. A rival publisher ad server could not compete with Google’s inflated ad prices, especially without access to Google’s captive advertiser demand from Google Ads.”

Garland explained the ramifications of such conduct at the Tuesday conference.

“As a result of this scheme, website creators earn less and advertisers pay more,” Garland said. “That means that fewer publishers are able to offer internet users content without subscriptions, paywalls, or other forms of monetization.”

The complaint quotes one Google employee as having characterized Google's Ad Exchange as “an authoritarian intermediary,” while another conceded that Google made switching ad servers for publishers “a nightmare” that “takes an act of God.” 

“As one Google employee observed, Google Ads was effectively sending a '$3bn yearly check [to publishers] by overcharging our advertisers to ensure we’re strong on the pub[lisher] side,'” the complaint continues, going on to quote another employee, a Google product manager, who wrote of the company’s ad server: “Our goal should be all or nothing — use AdX as your [exchange] or don’t get access to our [advertising] demand.”

Google's 2007 acquisition of the publisher ad server DoubleClick, followed by the mobile ad network AdMob in 2010 and the online advertising optimization platform AdMeld in 2011 are discussed in the complaint among multiple other similar purchases that the government says paved the way for Google to dominate online and mobile ad industries.

In response to these accusations, Google noted in a blogpost Tuesday that the Justice Department reviewed its purchase of DoubleClick and AdMeld at the time — both happened over a decade ago — and allowed them to proceed.

“DOJ is attempting to rewrite history at the expense of publishers, advertisers and internet users,” the Google post states. “Both of these acquisitions enabled us to invest heavily in developing new and innovative advertising technologies.”

This case marks the second government-led antitrust suit filed against Google in just a few years. The first took place in October 2020 under the Trump administration when the Justice Department and several state attorneys general sued the tech giant over online searches. This case has a tentative trial date of September 2023.

Google has also seen numerous other antitrust suits, including one filed by 10 states over its advertising strategies. Led by Texas Attorney General Ken Paxton, the suit was partially dismissed by a federal judge last year but allowed to proceed on its antitrust violations. Google called this suit “unfounded” Tuesday, calling attention to its partial dismissal. 

Calling itself “one of hundreds of companies that enable the placement of ads across the internet,” Google also attempted to divert attention to other fast-growing tech giants including Apple, Amazon, Meta, Microsoft and TikTok.

Going by profit, Google is the largest advertising company in the world followed by Meta, owner of Facebook and Instagram, which earned roughly $115 billion in revenue in 2021 — a little more than half of Google’s earnings.

Garland affirmed Tuesday that the lawsuit is a marker of the Biden administration’s commitment to breaking up monopolies that “threaten the free and fair market upon which our economy is based." Earlier this year, the government went to court to prevent the merger of publishing industry giants Penguin Random House and Simon & Schuster.

Victory here could force Google to sell off some of its advertising business, but a resolution is unlikely to come immediately, as average antitrust suits of this scale can take years or decades to resolve.

Colorado, Connecticut, New Jersey, Rhode Island and Tennessee also joined the Justice Department in the suit Tuesday.

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