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‘Power and predation:’ Advertising monopoly draws fire at Google

A bipartisan bill would limit big tech companies from participating simultaneously in every stage of the digital ads ecosystem.

WASHINGTON (CN) — Democrats and Republicans don't agree on much lately, but on big technology companies, there is a big bipartisan stink about their end-to-end involvement in the digital advertising ecosystem.

Google controls large percentages of each stage of the online advertising process — the company works both with publishers selling ad space and with companies looking to buy that digital real estate, and also oversees an automated ad exchange that facilitates those transactions.

The federal government is already pursuing Google in this area. A federal judge ruled last month to advance the Department of Justice’s ongoing suit against the company.

In a hearing Wednesday of the Senate Judiciary Committee’s antitrust panel, Utah Republican Mike Lee was clear that he saw such sweeping domination of the digital advertising as a monopoly.

“The fact is that all of [Big Tech’s] technological and financial hegemony rests on one thing — digital advertising — because digital ads are how you turn data into money,” Lee said. “This is the lifeblood of the tech sector, in many respects. That’s why the first step towards reigning in the power and predation of the monopolist tech companies is to bring transparency and competition into the digital advertising market.”

Lee is not alone in that perception. Alongside Minnesota Democrat Amy Klobuchar, the lawmaker is sponsoring the America Act, short for Advertising Middlemen Endangering Rigorous Internet Competition Accountability Act, to break up Google’s control over the digital ads market.

The measure takes aim at companies that process more that $20 billion in digital ad transactions, barring them from having a controlling stake in any of the layers of the advertising ecosystem, including software designed to assist buyers and sellers, as well as the automated ad exchange used to connect the two.

Smaller advertising companies would also face regulation: The legislation requires more transparency from those that do at least $5 billion worth of business in the market, and says they must ensure there are no conflicts of interest when operating on both sides of the advertising ecosystem.

Klobuchar stressed Wednesday the importance of breaking up Google’s dominance of the digital ads market. “Like much of the digital economy, there is a lack of competition in digital advertising markets that has been harmful to small businesses and consumers,” said the senator, who chairs the judiciary subcommittee. “This end-to-end control gives Google unique access to information about virtually all digital ad transactions and allows it to extract a higher percentage of revenue than they would be able to get in a competitive ad technology market.”

The Minnesota Democrat also tied the business model to the collapse of local newspapers, where advertising revenue is lifeblood, since Google not only sells ad space, it also takes a portion of the cash generated by such a transaction.

“This threatens more than competition,” Klobuchar said. “It threatens the viability of a free and independent press, which is essential to our democracy, and it is especially hurting small local radio, TV and newspapers.”

Witnesses invited by both parties to testify at Wednesday's hearing agreed that a legislative solution was necessary.

“The America Act is really just a simple piece of legislation that will fix a major problem at the heart of online markets,” said Dina Srinivasan, a fellow at Yale University’s antitrust research program the Thurman Arnold Project.

Srinivasan noted that, like in the stock market, brokers in an ad exchange buy and sell advertising at the behest of third parties. But unlike the stock market, she continued, ad "brokers operate without any of the common-sense rules that Congress has enforced on Wall Street for nearly a century.”

Companies such as Google that own ad exchanges and the brokers that operate within them are under no obligation to fetch the best advertising prices for their consumers without proper regulation, Srinivasan added.

Roger Alford, a self-described conservative antitrust scholar, praised lawmakers for their proposed legislation and argued that regulation targeting Big Tech monopolies is an effective complement to antitrust litigation — a method favored by some conservatives.

“While litigation is appropriate to curb Big Tech’s abuse of power, it is not sufficient,” said Alford, a professor at the University of Notre Dame.

Amid the resounding support for reigning in tech companies, at least one witness Wednesday cautioned Congress against overregulating the digital advertising marketplace. Todd Henderson, a law professor at the University of Chicago, argued that the limits on companies prescribed by the America Act would be bad for business.

“If you make it such that, once you get to a certain size, then you have to get rid of that business, you’re going to impede companies from trying to build their own internal improvements,” Henderson said.

Despite his reservations, the professor praised the bill’s efforts to build out transparency in the digital advertising market. “I like the transparency aspect of this bill,” Henderson said, “and if my vote mattered, I would vote for that. The other parts are more troubling to me.”

As of Wednesday evening, the America Act was before the Senate Judiciary Committee but had yet to receive a vote.

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Categories / Business, Government, Media, Technology

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