Google offers concessions to ward off US antitrust lawsuit

Alphabet Inc.’s Google has offered concessions to avert a potential US antitrust lawsuit targeting its massive ad-tech business, according to people familiar with the matter, a sign that legal and regulatory pressure is on the way for the tech giant a head.

As part of a bid, Google has proposed splitting parts of its business, which auctions and places ads on websites and apps, into a separate company under the Alphabet umbrella, some of the people said. This unit could potentially be valued at tens of billions of dollars depending on the assets it contained.

It couldn’t determine whether an offer without the sale of assets would satisfy the US Department of Justice, where antitrust officials have signaled a preference for deep structural changes in Google’s ad tech business, rather than promising to change business practices, said the people.

The Justice Department has conducted a long-running investigation into allegations that Google misused its role as a broker and auctioneer of digital advertising to run its business at the expense of competitors. The department is preparing a lawsuit alleging Google’s ad tech practices are anticompetitive, a lawsuit that could be filed as early as this summer, the people said.

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“We have worked constructively with regulators to address their concerns,” a Google spokesman said in a statement. “As we have said before, we have no plans to sell or exit this business.” He added, “The rigorous competition in ad technology has made online ads more relevant, lowered fees and expanded options for publishers and advertisers.”

A spokeswoman for the Justice Department declined to comment.

In the European Union, where Google faces another ad-tech investigation, Google has made an offer to settle another allegation of anti-competitive behavior linked to YouTube, some people familiar with the matter said.

Facade of the Google building in California

MOUNTAIN VIEW, CA – OCTOBER 28: The Google headquarters is seen on October 28, 2021 in Mountain View, California, United States. (Photo by Tayfun Coskun/Anadolu Agency via Getty Images) (Tayfun Coskun/Anadolu Agency via Getty Images/Getty Images)

As part of that offer, Google would allow competitors to broker the sale of ads directly through the video service, these people added. Currently, the only way to buy ads on YouTube, the world’s largest video sharing platform, is to use Google’s ad buying tools.

A spokeswoman for the European Commission, the EU’s top antitrust authority, declined to comment on its investigation into Google’s ad tech business, which it says is ongoing. “As always, we are cooperating with other agencies in our investigations,” including the Justice Department, she said. Reuters previously reported on Google’s YouTube-related bid in Europe.

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Antitrust watchdogs have long awaited a second US lawsuit against Google, following the Justice Department’s lawsuit nearly two years ago alleging the company used anticompetitive tactics to maintain its dominant position in online search. Google has denied the allegations and the case is ongoing.

Google’s willingness to offer concessions to avoid a US lawsuit is an evolution of the company’s strategy to deal with mounting legal and regulatory pressures.

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The US Department of Justice seals a podium in Washington, DC on Thursday, August 5, 2021. (Samuel Corum/Bloomberg via Getty Images/Getty Images)

In addition to investigations by the Department of Justice, the EU and the UK, Google is preparing to face trial in a Texas-led US state lawsuit arguing that the company operates a monopoly that protects advertising industry competitors and publishers harms. Google is awaiting a judge’s decision on a motion to dismiss the case and has said the lawsuit is “riddled with inaccuracies and lacks legal basis.”

Meanwhile, US senators have proposed new antitrust legislation that could force Google to divest parts of its ad tech business. And the EU agreed this spring on two new key tech regulations, including the so-called Digital Markets Act, which imposes new fairness obligations on companies like Google.

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Any moves by Google to restructure parts of its ad tech business could rock the digital advertising industry. Advertisers are expected to spend more than $600 billion on digital ads worldwide this year, according to eMarketer, and Google plays an important role as a facilitator in such sales. Last year, Google’s business of facilitating sales of ads on other websites and apps generated $31.7 billion in revenue, about 12% of Alphabet’s total revenue.

Publishing executives have long complained that Google’s market power has allowed the company to charge higher commissions, eroding their digital ad revenue. Competing ad tech firms have also complained that Google is using its market power to drive business away from them.

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WASHINGTON, DC – NOVEMBER 05: Eric Schmidt, Executive Chairman of Alphabet Inc., Google’s parent company, speaks during a National Security Commission on Artificial Intelligence (NSCAI) conference on November 5, 2019 in Washington, DC. The commission up (Photo by Alex Wong/Getty Images/Getty Images)

Many critics say antitrust authorities should have tried to block Google’s 2007 deal to buy DoubleClick, then a well-known ad-serving company for publishers across the web that also ran an exchange where those ads were auctioned off to advertisers. Some competitors say that deal — worth just $3.1 billion at the time — and several others in subsequent years have helped Google build significant power as an ad broker, accounting for a sizeable chunk of its nearly $1.6 trillion deal Alphabet’s market capitalization.

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Today, Google tools can handle every step of buying and selling digital ads, effectively representing both advertisers and publishers as the former ads bid for the latter, using an online auction exchange also operated by Google itself. Regulators have been investigating whether Google is abusing its role in these steps of each transaction. Google has denied obtaining unfair advantages.

“We’re concerned that Google has made it harder for rival online advertising services to compete in the so-called ad-tech stack,” said Margrethe Vestager, the EU’s competition chief, when she announced the probe into the block last year.

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Another point of contention from competitors and regulators was Google’s move over half a decade ago to require advertisers to buy ads on YouTube using Google’s advertising tools, rather than third-party tools. Google ad-tech competitors of the time say the decision is a knee-jerk competition because YouTube is by far the largest online video site and is pushing advertisers to partner with Google more than competitors when buying ads.

That’s partly why some Google critics say that divesting some of Google’s ad tech businesses may be the only way to restore competition.

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A surge in the number of mergers brought to the U.S. Trade Commission for antitrust review is limiting its ability to investigate deals in a timely manner, the FTC said Tuesday. (REUTERS/Andrew Kelly/File Photo)

Google has faced a number of antitrust investigations over the past decade. In early 2013, the company settled a U.S. Federal Trade Commission investigation by agreeing to some voluntary changes to its practices after objections were raised by some agency employees, the Wall Street Journal reported. Google attempted to settle a similar dispute in the EU, but EU officials eventually rejected three separate settlement offers from Google before filing the first of three antitrust lawsuits in 2015.

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EU officials eventually found that in each of its individual cases, Google had broken the bloc’s antitrust laws, fined the company around $8.4 billion and ordered changes to its business practices. Google has challenged all three of these decisions before EU courts, but has had to comply with them in the meantime. Google search results in Europe show product ads from Google competitors, and Android phones activated in Europe prompt users to select their default search engine from a list of options that includes Google competitors.

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