You might think of Google as a company that helps you find things on the internet or provides you with a browser like Chrome or email like Gmail, but judged by sheer numbers, Google is an advertising company. Eighty percent of its revenue comes from advertising technology. It’s what the pros call “the ad tech stack,” and it’s precisely what the U.S. Department of Justice is taking aim at in a new lawsuit.
On Tuesday, the Department of Justice, joined by eight states, filed a civil antitrust lawsuit against Google, claiming that the company unfairly dominates almost every aspect of online advertising. Every time you see an ad online, they say, Google is muscling its competitors out. Just like it did with the Bell Telecoms in the 1980s, the government wants to break Google up. But, will that really happen? Just how good is the government’s argument?
On Friday’s episode of What Next: TBD, I spoke with Leah Nylen, a Bloomberg News reporter who covers antitrust, about the possibility that Google might actually, finally, get broken up. Our conversation has been edited and condensed for clarity.
Lizzie O’Leary: What does the DOJ’s lawsuit contend that Google has been doing?
Leah Nylen: The Justice Department is taking aim at this thing that you as a consumer probably never see, which is all of these tools that help buy, sell, and serve online ads. When you pull up a website, a lot of those things are funded by what are called display ads: pictures and texts and videos that will show up alongside whatever it is you’re looking at. Google actually controls the levers and the tools for placing all of those things on websites, because of a bunch of acquisitions it did in the 2009 to 2012 era.
The Justice Department basically says Google did four things to establish and protect its advertising dominance. It bought up competitors, forced website publishers to use its ad tools, distorted the online ad marketplace, and manipulated online ad auctions. Can you walk us through the development of Google’s ad dominance?
Google created this really innovative search platform, and the original way it made its money is by search ads—ll of those ads that you see at the top of a search results page to get you to click on websites or sometimes buy things from there. In 2007, it decided to buy this other company called DoubleClick that did all of the display advertising for the rest of the web. So it was able to combine its genius with search ads with display ads. It proceeded to continue buying up a ton of other companies in this space until it has essentially created this major ecosystem that all websites and all major advertisers have to use to sell their ads online.
Google controls all of the tools that a website publisher uses to offer space on their website. They control all of the tools that advertisers generally use to put their ads online, and they also control this thing called the Exchange, which is essentially a fancy auction house where all of the buying and selling of these ads take place. The Justice Department pointed to this really interesting quote from a Google executive who was pointing out that them owning all of these things was like if Citibank or Goldman Sachs actually owned the New York Stock Exchange. The Justice Department said that because it owns the auction and all of the other tools, it’s been able to manipulate these auctions in ways that ensures that Google always wins.
The government also went after the cut, about 30 cents on the dollar, that Google takes from publishers. Why is that part significant?
That’s really interesting because it’s been unknown in the online ad space how much money from advertisers actually gets to websites. There was this really interesting study that was done by a fancy accounting firm for a group for online advertising, and they found that 25 cents out of every dollar just sort of disappears. They weren’t sure where it went.
There’s this part in the complaint that says, “Since 2019, the United States has purchased in excess of $100 million in open web display advertising. The United States has incurred monetary damages as a result of Google’s anti-competitive conduct.” And it was just like, “Wait a minute, you guys are saying that part of this whole thing is that the Army was overpaying for ads?” That part blew my mind.
It’s super interesting that they put that in there because oftentimes, they don’t try and seek damages on behalf of the federal government, even though the federal government buys all sorts of stuff. So this is pretty novel.
Google has pushed back on this lawsuit, saying in a blog post that the suit “ignores the enormous competition in the online advertising industry.” And yet, when I read your story and I’ve looked at the data, Google controls 29 percent of the ad tech market. That, to me, does not read as enormous competition.
Google controls 26 percent of all online display ads, more if you add in YouTube, but there are all sorts of types of ads that Google doesn’t compete in. Google can’t offer TikTok ads. There are all sorts of other types of ads that exist, yes, but they’re not really in the same market as what we’re talking about here. It’s a different type of ad. And so they’ve been pointing to the fact that, “We have some new competitors here. Apple has started offering advertising. Amazon has started offering advertising.” But the type of advertising that Walmart and Amazon have primarily started offering as merchants putting ads at the top of their search results on their page, that’s not the same thing as an ad on a website, so I’m a little bit skeptical of that argument.
In 2020, a group of state attorneys general, led by Texas’s Ken Paxton, sued Google over its ad tech business, but several parts of that suit were thrown out in federal court. How did that suit influence the current one?
A lot of the things that got thrown out of the Texas suit are actually not in this suit. For example, the Texas case alleged that there is this agreement between Google and Facebook that gives Facebook some advantages in the Google ad auctions, and the Texas complaint said that that agreement in and of itself was illegal. The judge ended up throwing that out. The Justice Department mentions that this agreement exists, but they didn’t put in there that they thought it was illegal. The Justice Department definitely learned from what was accepted in Texas’ suit versus what had gotten thrown out by the court, and that helps shape how they decided to bring their suit.
Google’s dominance of ad tech—that 26, 29 percent number, depending on how you count it—has slipped in the past few years, which makes me wonder: Why is the Justice Department bringing this suit now?
Though Google’s share of online ads is decreasing, if you’re looking at the absolute number, it’s still increasing, because the pool of online advertising is getting bigger and bigger. So, yeah. Google only controls now 26.5 percent, but that’s still billions and billions of dollars, because more and more money has been moving from offline advertising to online advertising.
Casey Newton, who writes about tech and has the newsletter Platformer, laid out this series of suits and actions against Google, and it was interesting to see them all stacked up against one another. Looking at the totality of that, it did make me wonder if the DOJ’s hand was forced by this drumbeat of everyone else taking shots at Google.
The EU has been investigating and bringing cases against Google for a very long time, but none of that action has had much of an impact on Google, because Google just sort of prints money. $10 billion is nothing to them. The EU doesn’t have the authority to force Google to change its business. What’s interesting about the Justice Department suit is they say, “We want Google to have to sell off this stuff and change the way it does business.” And that’s really something that probably only the U.S. government could do because Google is a U.S. company.
This all raises the question of whether the United States should have allowed Google to buy DoubleClick some 15 years ago. Is that embarrassing for the government?
The Federal Trade Commission, which is the other antitrust agency, voted four to one, 15 years ago to let this deal go through, and they issued a closing statement. If you read that closing statement, they said, “This isn’t really a problem because the internet is a really great and innovative space and somebody’s going to come along and build something better. Someone is going to outdo Google tomorrow.” And at least one of the commissioners who voted to approve this has now said that he thinks he was wrong. He thinks that they were overly optimistic about everybody else being able to compete, that they were too dismissive of the concerns of some of the competitors, because Microsoft, AT&T, Time Warner, a bunch of people complained about this acquisition and said that it was allowing Google too much dominance online over advertising. If you read the dissent in that case, the commissioner, Pamela Jones Harbour, said, “We are building a digital colossus.” And looking back at it 15 years later, she was absolutely right.
In some of the previous actions against Google, like with the EU, Google pays some money, the problem goes away, business continues as usual. This feels different. The government is very much saying, “You’ve got to sell this stuff off.” Does this necessarily end with Google selling off part of its ad tech business—or all of it?
It’s definitely what the government wants, and Google did offer a settlement last year to try and head this off. They were offering to spin off their ad tech stuff into a separate unit within the parent company, and the Justice Department said, “That’s not really good enough. We think it needs to be a separate business, not just a separate arm within Google.” And, for the first time in a long time, Google’s stock actually dropped when this happened. It fell 2 percent. I think people really are starting to recognize that this is a real threat to Google’s business. If it has to sell off all of these pipes that underlie online advertising, it’s not going to have as much money.
When I have talked to you before on this show, one of the things we’ve talked about is the variety of tactics that the Biden administration has used to go after big tech companies.
Executive orders, agency action, lawsuits. And one thing that you have pointed out is that many of those tactics are, for lack of a better word, more progressive, more innovative. They’re certainly different than the view of the federal judiciary, which has taken a more narrow, traditional view of antitrust. How is this suit going to run up against federal judges?
The Justice Department clearly thought about that in this case, because for the first time ever, they asked that this case be heard by a jury. In the past, antitrust cases have always been heard by judges. The judge would sit there as the decider, they would hear all the evidence, and then, they would issue an opinion. And here, the Justice Department said, “We want a jury deciding this.” And if you think about it, that’s a little bit crazy, because this is super complicated. We’re going to ask some regular people to come learn about the ad tech market, but I think that they were right, in that we have had this series of cases where conservative federal judges have ruled against some of the antitrust agencies because they have particular views on the intersection of economics in the law. This gets around that a little bit because they’re saying, “We want the people to make a decision about whether Google should have this much power over online ads.”
Where do you see all of this going?
This is the year already that the one of the Google cases was going to go to trial. The big one on Search goes to trial in September. This is probably the year that the FTC is going to decide whether they’re going to sue Amazon. The Justice Department has also been looking at Apple since 2019, so they’re really going to have to decide if they’re going to do something or let it go. By the end of this year, we could have a whole heck of a lot of suits against the big tech companies, in addition to the ones we already have.
Future Tense is a partnership of Slate, New America, and Arizona State University that examines emerging technologies, public policy, and society.