Google's advertising empire on trial

In one of the most significant battles between a state and Big Tech, the U.S. Department of Justice (DOJ) has indicted Google for monopolizing digital advertising technologies.

The case challenges the business model of one of the most powerful companies in the tech world and seeks to redefine the rules of the game in digital markets. The DOJ has ordered Google to divest its Chrome browser, the most widely used in the world. The measure would dismantle one of the most sophisticated and profitable networks of modern digital capitalism.

The lawsuit, filed in 2023 along with several states including New York, California, and Virginia, accuses Google of “corrupting legitimate competition in the advertising technology industry” through a systematic plan to control all key tools in the digital advertising ecosystem.

This ecosystem is based on three elements: ad servers for publishers , buying tools for advertisers, and exchanges where advertising space is auctioned in real time. Google controls all three links.

The DOJ claims that Google, with its Google Ads platform, its DoubleClick for Publishers (DFP) ad server , and its AdX exchange , acts simultaneously as a buyer, seller, and auctioneer. It's as if Goldman Sachs simultaneously controlled the New York Stock Exchange and the tools for buyers and sellers.

Furthermore, Google allegedly manipulated its systems to favor its own products and charge inflated commissions: according to internal documents, the company keeps 35% of every dollar spent on digital advertising.

Among the monopolistic practices identified are making access to Google Ads (the strongest demand) exclusive to its AdX exchange ; manipulating auctions and prices to limit competition; preventing publishers from freely choosing which platforms to sell their inventory to; and eliminating emerging threats, such as AdMeld, a yield management platform, through acquisitions and then disabling its interoperability with other systems.

The DOJ maintains that these actions impeded competition, stifled innovation, and increased costs for both publishers and advertisers.

Google has responded that the lawsuit ignores the real dynamics of the advertising market and the risks to user privacy. It argues that its tools are effective and popular, and that advertisers and publishers choose its services because they are the best, not because they are forced to. Furthermore, forcing it to split its business, including a potential sale or spinoff of Chrome, would pose a risk to user security and impact their internet experience.

According to Google, its services have democratized online advertising. They have allowed millions of small advertisers to access global audiences and made digital content more affordable. It maintains that the digital advertising ecosystem is highly competitive, with players like Amazon, Meta, and TikTok rapidly gaining market share.

Google's defense addresses an old antitrust dilemma: Is a better product illegal dominance? In digital markets, the line is blurred. Size and vertical integration provide efficiencies, but they can foreclose new entrants. When Google prevents competitors from accessing the same information or traffic, it protects its business, but it also makes it difficult for alternatives to emerge.

According to the DOJ, Google has used its privileged access to browsing data through Chrome to strengthen its advertising dominance. Its control over cookies and user data (which should be subject to user consent and fair competition) creates an unfair advantage over its rivals. At the same time, it limits the data its competitors can see, as if creating a "black box" that only Google understands and controls.

The case also exposes the difficulties of applying traditional antitrust laws to digital markets. Unlike traditional industries where prices are visible and concentration is easily measured, digital markets operate with algorithms, network externalities, and freemium models that are difficult to audit.

Google's anticompetitive actions aren't always presented as such, but rather have a justification. Tool integration equates to operational efficiency; blocking third-party technologies is justified in the name of security and privacy; limiting competitors' access is understood as performance optimization.

The central questions are: Can a company dominate the entire value chain without impeding competition? How can we ensure that such dominance does not harm the public interest?

Although the DOJ is calling for the spinoff of key parts of Google's business, such as its ad exchange and Chrome, the solution isn't straightforward either. Separating Chrome from its ad business would address invasive user tracking practices, but it would fragment its experience and compromise security features. The knock-on effects on the digital ecosystem of ad funding and its impact on users are not foreseen.

A structural remedy such as corporate break-ups is considered effective and definitive by regulators, but it is costly, slow, and unpredictable. In the past, cases like those of AT&T and Microsoft have ultimately created new dominant players. Regardless of the verdict, the fundamental question remains: who controls the digital market and for whose benefit?

Twitter: @beltmondi