Is it time for Google to spin off its advertising business?

“Google is a company standing at the apex of power in media and advertising, earning revenue over $65bn per quarter, or $712m per day, almost all from advertising”, says one lawsuit against the company. But what would actually happen if regulators and governments forced Google to spin off its advertising business?

One of the many lawsuits Alphabet, Google’s parent company, faces at present includes an introduction which states: “Today, Google is a monopolist and engages in a wide variety of conduct that only a monopolist can accomplish.”

The legal filings describe this “monopolist” conduct as including “deceitfully” using individuals’ personal information to target ads which undermine consumer choice, increase prices, harm innovation, and degrade the quality of ad intermediation.

Alphabet’s last published earnings report for Q3 2021 reported revenue of $65.12bn, of which $53.13bn came from Google advertising such as the sales of apps, in-app purchases, digital content products, hardware and fees received for subscription-based products such as YouTube Premium and YouTube TV.

If regulators and governments decides Google is too dominant, and force a break-up of the company, would it promote healthier competition with other buy and sell-side platforms? Or would it mean a more disjointed experience for advertisers and brands?

Some say dividing up Google is long overdue and regulators are finally “waking up” to the harms its monopoly does for advertisers, publishers and consumers. However, others warn we risk “throwing the baby out with the bathwater” given the online giant’s technological innovations in the field.

Google break-up would take decades but would bring ‘oxygen’

Mathieu Roche, co-founder and CEO of adtech company ID5, told Mediatel News: “The level of control that Google has been able to exert on the digital advertising industry, by being both the largest ad-supported media owner (with Search, Maps, Youtube, etc.) and offering the largest digital advertising management solution (the former Doubleclick platform), is very unhealthy.”

“We have seen many examples of the negative effects of that dominance, including most recently proof that Google was favouring its own supply for the allocation of brands’ advertising budget and even manipulating auction prices to its advantage,” he added.

Google represents buyers and sellers of online display ads, operates the largest exchange AdX and owns YouTube, the biggest online video platform.

Roche said separating Google’s media properties from its ad tech arms would give “welcome relief” to publishers and brands who feel increasingly trapped.

“It would also help oxygenate the market and foster competition in the ad tech industry, by levelling the playing field for all competitors of the platforms formerly known as Doubleclick. This would likely result in the creation of several multi-billion-dollar companies (in a space where there is mainly one today: The Trade Desk) which could compete fairly against each other, foster technical innovation, and drive prices down -for the greater benefit of their employees, their clients and their shareholders,” he said.

Ashley Mackenzie, founder and CEO of Fenestra, predicted that we are “at least five years away” from a separation of this sort taking place.

He added:  “If you are an advertiser using DV360, it is likely that 60% to 70% of anything an advertiser spends their money on will go through entirely Google pipes that some call self-preferencing.”

DV360, or Display & Video 360, used to be called DoubleClick Bid Manager and is a tool for creative, data, and media teams to collaborate on end-to-end campaigns.

This comes under the Google Marketing Platform which launched in 2018, combining the DoubleClick advertiser product and Google Analytics 360 Suite.

Meanwhile Paolo Pescatore, founder, TMT analyst, also agreed that it is “becoming increasingly clear” spinoffs would be forced upon Google by regulators: “While the future seems rosy, numerous challenges lie ahead. Most notably dealing with repeated calls for regulatory scrutiny in the face of burgeoning profits and increasing dominance. Not only Google, but all tech companies and online giants across the world.”

Separation could bring ‘potential unintentional consequences’

Ian Whittaker, media, mar-tech and tech analyst, acknowledged an “obvious conflict of interest” as Google acts as an intermediary and a player in the market. He drew a parallel for many of Google’s practices with the old Yellow Pages industry, where regulators in that industry clearly understood the problems for advertisers from having “a dominant incumbent”.

While he thinks the advertising industry would probably be better off if Google split up its ad business, Whittaker also warned against potential unintentional consequences: “There are serious questions to be asked as to how much the current situation is leading to loss of value for advertisers. This is not just an advertising question. There are clear implications regarding a potential loss in shareholder value from such practices.”

Dan Larden, head of UK at TPA Digital (formerly The Programmatic Advisory), told Mediatel News that to break up Google’s advertising business would lead to loss of effective advertising, particularly from a brand point of view.

“You cannot know the effect that will have for the chain,” Larden explained. “The reason the revenue is there is because they built great advertising technology and proposition. You do not want to throw the baby out with the bath water in that respect.”

Larden added Google has not been as responsible as they should have been with their immense market power, but still questioned the fairness of judging evidence from 2013 with today’s high standards of privacy when programmatic was then relatively nascent.

And then there’s the problem of keeping up investment if Google was split up: “It might not be able to recover the spend if broken up and a lot of people rely on that revenue from a jobs perspective and yield perspective,” Larden said.

Whatever the merits or drawbacks of the break-up of Google’s ad business might be, some are sceptical about the likelihood of it even happening.

Alex DeGroote, TMT analyst and investor said: “There may be trade offs and concessions but they [Alphabet and Amazon] will also be reluctant to do anything that causes ‘dissynergies’ – this basically means they don’t want to lose any value from splitting up their business operations, including advertising and data.

“So I don’t think any break-up will happen and I think the big FAANG names – including Microsoft – will just get bigger and bigger, and powerful.”

Google was reached out to for comment but did not respond.