Could Google’s adtech dominance be broken?
The Future of Media London 2024
“Never say never, but we think there’s going to be a negotiated settlement around the adtech case.”
Rocco Strauss, an equity research analyst and partner at Arete Research, told The Future of Media London that while he doesn’t expect the US Department of Justice (DOJ) to necessarily pursue a break-up of Google’s adtech business, there are potential options to consider, such as spinning off the Google Network unit into a public-benefit corporation.
Google is currently facing potential break-ups of its search and adtech businesses amid multiple antitrust trials.
This week, the DOJ revealed in a filing that it is considering the remedy for its search business following a verdict in August that Google has abused its position as a monopolist in the search market. “Google’s anti-competitive conduct resulted in interlocking and pernicious harms,” the filing reads.
In response, Google vice-president of regulatory affairs Lee-Anne Mulholland called the proposal “radical” and “sweeping”.
The tech giant is in the midst of a separate antitrust trial over its adtech division. Google has been accused of illegally monopolising the market for the buying and selling of digital ads on websites and using that monopoly power to favour its own interests.
As Strauss explained, there is “good reason” not to have an advertising exchange, market maker (supply-side platform), broker (demand-side platform) and ad server owned by the same company: “Because there are clear conflicts of interest here.”
Closing arguments for the adtech trial are scheduled for the end of November, with a ruling expected in the subsequent months.
Network spin-off?
Within that context, Strauss considered options for the DOJ to consider, under the assumption that Google loses the adtech case.
Strauss first warned that the DOJ should consider the benefit of not breaking up Google, as well as other Big Tech companies like Meta: because of their benefits to the US export economy; the usefulness of both companies to potential surveillance efforts by the US government; and the need to remain competitive against China in the development of new technologies such as AI.
Although he suggested that this was perhaps the most likely outcome, Strauss noted that DOJ leadership, as well as federal trade commissioner Lina Khan, “need a win”, given their lack of success in litigating against Big Tech in the recent past, and are actively considering more stringent actions.
While Strauss questioned whether a true break-up of Google’s adtech business “is really feasible” given the complexity of disentangling Google’s backend tech, he did propose an alternative solution.
Calling it an “interesting thought experiment”, he suggested the Google Network business could be spun off as a standalone property, worth around $500bn, that could become a public-benefit company with a capped growth target.
Strauss noted that Google Network has been in a decline for eight consecutive quarters, as the company, likely aware of the potential for a break-up, has possibly been “repurposing” some Network revenue via Performance Max into its owned and operated properties.
Still, Google Network is an “enormous” part of the market and would “easily” be “six to seven times the size of The Trade Desk” if spun off.
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Regulatory overhang
Strauss suggested this move could be mutually beneficial for the DOJ, Google and its shareholders.
“Google will get rid of its lowest-margin, lowest-growth business,” argued Strauss. “It would get rid of all of the overhang from the publishers complaining of Google self-preferencing their owned and operated properties.”
He added that intervening to improve competition in the online ad market by spinning off Google Network would “certainly benefit all publishers out there, as it would get more ad dollars into their pocket”.
Meanwhile, Google’s investors would get shares in an additional, large for-profit company on a scale greater than The Trade Desk.
And, for Alphabet, the decision would “lift the regulatory overhang” that could allow the tech giant to unlock greater growth.