U.S. goes after Google’s ad tech business in new antitrust case: All you need to know

The US Department of Justice, along with the Attorneys General of eight US states, have filed an antitrust lawsuit against Google for its anticompetitive practices in the digital advertising (ad tech) market, a press release by the Justice Department revealed on January 24.

“Google’s anticompetitive behavior has raised barriers to entry to artificially high levels, forced key competitors to abandon the market for ad tech tools, dissuaded potential competitors from joining the market, and left Google’s few remaining competitors marginalized and unfairly disadvantaged. Google has thwarted meaningful competition and deterred innovation in the digital advertising industry, taken supra-competitive profits for itself, and prevented the free market from functioning fairly to support the interests of the advertisers and publishers who make today’s powerful internet possible”  — Lawsuit.

Update (April 20, 9:55 am): Nine more US states have joined the lawsuit, bringing the total to 17 US states, the Department of Justice revealed in a statement issued on April 17.

Why does this matter: The lawsuit, if successful, will have significant ramifications for Google as the company will be required to overhaul its ad tech business, including divesting acquisitions made over 15 years ago. For Google, this could hurt revenues more than any other antitrust decision in the past, and for website publishers and advertisers, this could open up the digital advertising market to a trove of newer players who charge lower rates of commission.

And the website just made less $ selling ads, forcing its hand to now show you more ads, put up a subscription wall, or start charging you more for a sub.

All the money getting swiped out the middle on billions of micro transactions all day long affects every one of us.

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— Dina Srinivasan (@DinaSrinivasan) January 24, 2023

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Wait, but wasn’t there already a lawsuit against Google on this? Google faces so many antitrust lawsuits and investigations concerning its various businesses around the world that it would be a futile attempt to keep count. In the US, the state of Texas had earlier filed a similar lawsuit against Google’s ad tech business, which was largely dismissed, but the lawsuit contained many of the same arguments that are being made now by the Justice Department, and we have a four-part summary of Texas lawsuit that will get you up to speed with how the market works and why regulators are going after Google. Separately, the Justice Department in 2020 filed a lawsuit concerning Google’s search business, which is set to be heard this September.

How much of the digital advertising market does Google control: The lawsuit points out that Google controls three of the most important parts of the digital advertising market:

1. Publisher tools: This is the tool used by website publishers to offer advertising space for sale. Google’s DoubleClick has over a 90 percent market share here.
2. Advertiser tools: The tools used by advertisers to buy the advertising space that is sold by publishers. Google Ads and Google’s Display & Video 360 have the major market share here.
3. Ad exchange: The platform that matches publishers with advertisers for each ad space. Google AdExchange has captured more than 50 percent market share here.

Google’s dominance across the ad tech industry. Source: US DoJ lawsuit against Google

“Google’s pervasive power over the entire ad tech industry has been questioned by its own digital advertising executives, at least one of whom aptly begged the question: ‘[I]s there a deeper issue with us owning the platform, the exchange, and a huge network? The analogy would be if Goldman or Citibank owned the NYSE.'” — Justice Department lawsuit

What alleged anticompetitive practices has Google engaged in? The Justice Department outlined the following anticompetitive practices:

• Acquiring competitors: Google neutralised or eliminated its ad tech competitors, “actual or potential, through a series of acquisitions.”
• Forcing adoption of Google’s new tools: After acquiring competing tools, Google forced publishers to adopt these new tools by making access to the demand side (advertisers) only possible through these tools. Since Google had a large, “must-have” advertisers base there was no way around it for publishers.
• Distorting and manipulating auction competition: Google only allowed real-time bidding on ad inventory on its own ad exchange “impeding rival ad exchanges’ ability to compete on the same terms as Google’s ad exchange.” Additionally, Google manipulated “auction mechanics across several of its products to insulate Google from competition, deprive rivals of scale, and halt the rise of rival technologies.”

Why this lawsuit stands out: Platformer’s Casey Newton has written a post on why this is “Google’s most serious antitrust challenge to date.” While we encourage you to read the post in its entirety, here are the most relevant snippets:

“There’s reason to believe the government may be on more solid ground with its case against Google. One, it’s rooted in real harms. The government says that the fees on Google’s ad exchanges allow it to keep 30 cents out of every dollar spent on them — a significant tax on struggling digital publishers. As a result, the government says, it was overcharged for $100 million in spending on online ads for federal agencies, including the Army.

Two, these are harms that are very much in line with traditional thinking about the point of antitrust law, which is to protect consumers.  […] This is not a bunch of liberals sitting around trying to redefine antitrust law around some unrelated beef about Google. This is a bunch of Democratic appointees, building on the work of their Republican predecessors, arguing that: a market got too consolidated, prices went up, and users were harmed.

[…]

The government has filed its share of weak antitrust cases in recent years, but at first blush this doesn’t look to be one of them. Google has managed to swat away other regulators for years now with relative ease. But with the Justice Department now trained on its ad business, the company may be facing its most serious challenge yet.”

What is the harm from Google’s conduct: “The harm is clear: website creators earn less, and advertisers pay more, than they would in a market where unfettered competitive pressure could discipline prices and lead to more innovative ad tech tools that would ultimately result in higher quality and lower cost transactions for market participants. And this conduct hurts all of us because, as publishers make less money from advertisements, fewer publishers are able to offer internet content without subscriptions, paywalls, or alternative forms of monetization. One troubling, but revealing, statistic demonstrates the point: on average, Google keeps at least thirty cents—and sometimes far more—of each advertising dollar flowing from advertisers to website publishers through Google’s ad tech tools. Google’s own internal documents concede that Google would earn far less in a competitive market,” the lawsuit points out.

“Today’s complaint is a perfect example of why competition matters. Americans rely on the internet for news and for community. And advertising revenue is essential for publishers to produce and share ideas and writings. But we allege that Google has captured that revenue for its own profits and punished publishers who sought out alternatives. Those actions have weakened the free and open internet and increased advertising costs for businesses and for the United States government, including for our military.” — Associate Attorney General Vanita Gupta

What does the lawsuit seek: The lawsuit wants Google to be ordered to stop its anticompetitive conduct and pay for damages caused including the cost incurred by the government while overpaying for web display advertising. More importantly, the lawsuit seeks the divestment of the “Google Ad Manager suite, including both Google’s publisher ad server, DFP (DoubleClick for Publishers), and Google’s ad exchange, AdX,” at the minimum.

What is Google’s response: Google has staunchly defended itself in a detailed blog post:

• Flawed argument: “DOJ 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,” the company stated. “It largely duplicates an unfounded lawsuit by the Texas Attorney General, much of which was recently dismissed by a federal court,” Google added.
• DOJ is trying to rewrite history: Additionally, Google also complained that the Justice Department is seeking to unwind acquisitions made a decade ago. “DOJ is demanding that we unwind two acquisitions that were reviewed by U.S. regulators 12 years ago (AdMeld) and 15 years ago (DoubleClick). In seeking to reverse these two acquisitions, DOJ is attempting to rewrite history at the expense of publishers, advertisers and internet users,” the company said.
• Google is one of many in the market: “Today’s lawsuit from the DOJ attempts to pick winners and losers in the highly competitive advertising technology sector. […] We are one of hundreds of companies that enable the placement of ads across the Internet. And it’s been well reported that competition is increasing as more and more companies enter and invest in building their advertising businesses,” the company claimed. “Amazon’s advertising business is now growing faster than Google and Meta’s advertising businesses,” it added.