Google’s Click-tatorship
Flashy Pixels Issue 27: The Department of Justice Could End Google’s Digital Advertising Reign
Google faces a double-barreled challenge from the Department of Justice in the form of two significant antitrust cases. The first, regarding their dominance in search, concentrates on an agreement with Apple to secure the default search engine position on the iPhone. While that one seems to be getting the lion’s share of the coverage, the second lawsuit, focusing on digital advertising, could reshape not just Google but the entire internet ecosystem. It’s regarding their dominance in digital advertising, focusing on a 2008 acquisition that helped connect publishers and advertisers.
At the heart of this lawsuit is DoubleClick, a brand name Google retired but whose technology underpins the tech giant's lucrative Google Marketing Cloud business. Forcing Google to unravel a nearly twenty-year-old acquisition could drastically change how the internet works and how websites sustain themselves financially. Publishers are divided; some are looking forward to a future with more opportunities in the marketplace to drive diverse revenue streams, while others are nervous about disrupting the consistent revenue they currently get from Google.
DoubleClick's story began in 1995 when Kevin O'Connor and Dwight Merriman hatched the idea of aggregating advertisers, akin to how cable services aggregate networks, in O'Connor's Georgia basement. After coming up with DoubleClick, they quickly relocated to New York. The company experienced such rapid growth that employees found themselves working in makeshift spaces, including desks set up in hallways. Their first round of private equity funding allowed them to move into a sprawling office space on Tenth Avenue, which they referred to as Click City.
They created a service for publishers to host their available digital advertising inventory and a corresponding platform where advertisers could host all their digital ad inventory. This dual-platform approach allowed the two sides to communicate, offering a far more seamless way to purchase ad inventory. It also permitted publishers and advertisers to tap into the growing biddable ad marketplace exchanges. The largest of these, AdX (Ad Exchange), is owned by Google and applies the company's search engine bidding logic to digital advertising across the web. In short, advertisers bid on available ad inventory and paid one penny higher than the second-highest bidder.
Google purchased DoubleClick in 2008 to port into Adx so publishers could monetize their sites without ever leaving the Google ecosystem. The suit claims this ecosystem created the monopoly by not allowing other ad exchanges to compete for publisher inventory. Google has a ninety-one percent share of the ad-serving market, and nine out of ten global publishers rely on Google to support their ad inventory.
The Department of Justice suit claims that Google’s dominance results in website creators earning less and advertisers paying more than they would in a market where unfettered competitive pressure could discipline prices. Most recently, an email from a Google executive questioning the legality of purchasing DoubleClick came to light during the trial, likening it to Goldman Sachs attempting to buy the New York Stock Exchange.
Many predict that a likely outcome of the antitrust case will be a forced sale of the ad-serving business. However, it’s unclear if that will suffice, as spinning it off into its own company would still leave Google with a dominant share of the programmatic marketplace. It’s also unclear how Google would unwind twenty years of integration, as one Wall Street Journal reporter said it would be akin to trying to separate two ice cream flavors after they melted into a puddle.
Whatever the outcome of this particular lawsuit, it feels like we’re at a turning point in how the Internet is funded. Both publishers and advertisers agree that a more diverse marketplace would be beneficial. The challenge is for the digital advertising ecosystem to evolve to foster innovation and fair competition without undermining the user experience and publisher revenues that have become integral to the modern web.