Google Gets US Go-Ahead On DoubleClick Buy

December 25, 2007 0

The $3.1-billion bid to buy DoubleClick still faces scrutiny by regulators in Europe…

San Francisco — Google Inc.’s $3.1 billion bid for Internet advertiser “DoubleClick” gained federal approval Thursday despite objections that it might pose a threat to competition and tread on consumer privacy in the fast-growing Internet advertising world.

“The approval leaves the European Commission as the last hurdle still facing the $3.1bn purchase of DoubleClick from a San Francisco private equity firm.”


The Federal Trade Commission voted 4-1, ending its eight-month investigation. “After carefully reviewing the evidence, we have concluded that Google’s proposed acquisition of DoubleClick is unlikely to substantially lessen competition,” as some rivals, including Microsoft, had argued, the commission’s majority wrote.

“The decision disappointed many privacy advocates, who had urged the FTC to consider the data-tracking implications of the merger.”

“The FTC’s support sends a clear message that this acquisition poses no risk to competition and will benefit consumers,” said Google chairman and chief executive Eric Schmidt. “We hope that the Commission will reach the same conclusion.”

But they also expressed concerns about consumer privacy in that rapidly evolving marketplace, in which companies are increasingly using technology to track people’s digital footprints to follow them around the Web and target ads to their activities.

The merger, which combines Google’s dominance in pay-per-click Internet advertising with DoubleClick’s expertise in display ads, still faces scrutiny from European antitrust officials, who opened a four-month review last month.

The deal cannot be consummated yet, as Google still needs approval from the European Union to complete the acquisition. Google has said it is hopeful it can close the merger by early 2008.

“Google announced its intention to purchase DoubleClick in April, but the deal drew the attention of regulatory agencies worldwide.”

Google’s competitors, particularly Microsoft Corp., petitioned against the acquisition, arguing that it would give Google a huge database of customer information that would threaten user privacy.

“They complained that adding DoubleClick’s online advertising technology and customer base would give the search giant an insurmountable lead in Internet advertising.”

The FTC dismissed those concerns, as well as requests by privacy groups that the commission block the deal or enact restrictions to protect consumer data.

“Not only does the commission lack legal authority to require conditions to this merger that do not relate to antitrust, regulating the privacy requirements of just one company could itself pose a serious detriment to competition in this vast and rapidly evolving industry,” the FTC majority said in a statement.

Commissioner Pamela Jones Harbour dissented, saying the FTC should have addressed the significant privacy and competition concerns.

“The truth is, we really do not know what Google/DoubleClick can or will do with its trove of information about consumers’ Internet habits,” she wrote in her dissent. “The merger creates a firm with vast knowledge of consumer preferences, subject to very little accountability.”

Although the FTC approved the deal, its members were concerned enough about the advertising practice known as behavioral targeting that they released a set of principles for self-regulation in behavioral marketing. Such advertising involves tracking a consumer’s activities online, including Web searches and sites visited, to target advertisements to individual interests.

Still, the approval represents a significant victory for Google, especially since it came without any conditions.

“The markets within the online advertising space continue to quickly evolve, and predicting their future course is not a simple task,” the FTC says in its ruling. Accounting for the dynamic nature of an industry requires solid grounding in facts and the careful application of tested antitrust analysis. Because the evidence did not support the theories of potential competitive harm, there was no basis on which to seek to impose conditions on this merger.

“We want to be clear, however, that we will closely watch these markets and, should Google engage in unlawful tying or other anti-competitive conduct, the commission intends to act quickly,” the FTC adds.

“Consumer advocates offered modest praise for the move.”

“The FTC recognized that behavioral advertising poses a menace to consumer privacy and that the business model may be inherently unfair,” said Ed Mierzwinski, federal consumer program director at U.S. PIRG, a federation of state public interest research groups.

But the FTC’s actions were not enough for some privacy groups that fear the ramifications of adding DoubleClick’s data to the storehouse of information that Google collects from its search engine and advertising programs.

Although the FTC did not rule on the privacy implications, Sterling Market Intelligence founder and principal analyst Greg Sterling expects the European Commission to pick up where the US left off.

“I would guess that the Europeans will force Google to take some concrete measures on privacy as a condition of approving the deal, if it is to be approved,” Sterling wrote in an article posted to a company blog.

“Those groups hope that more consumer-friendly regulators in Europe will enact restrictions, which some analysts said was possible.”

“The Commission is due to make its decision on the deal by 2 April 2008.”

Google’s Schmidt says it hopes the European Commission reaches the same conclusion as the FTC. “This acquisition poses no risk to competition and will benefit consumers,” he said in a statement.

Google, based in Mountain View, Calif., dominates the market for targeted text-based ads, both those linked to the results on its hugely popular search engine and those delivered to other websites. New York-based DoubleClick is a leading provider of technology for delivering large display ads on websites and tracking who views them.

Google has said it is committed to preserving privacy and has promised to uphold the existing contracts DoubleClick has with its clients that limit how it can use customer data.

Critics of the merger, announced in April, argue it gives Google a stranglehold on the $40 billion Internet-advertising market and threatens the privacy of users.

“The FTC is basically solidifying Google’s position as the dominant power in the digital marketing space and as an aggregator of targeting data of Americans,” says Joseph Turow, a professor at the University of Pennsylvania Annenberg School for Communication.

The FTC said Google and DoubleClick provided different advertising services and did not compete directly. The merger is the latest machination in a rapidly consolidating online-advertising industry.

This year, there were more than $11 billion in acquisitions. Microsoft bought online advertising network aQuantive for $6 billion, Yahoo snapped up online ad network BlueLithium for $300 million, and Time Warner’s AOL unit bought Tacoda, which provides ad-targeting software, for an undisclosed sum, as evidence that the online ad market was evolving and “at most, moderately concentrated.”

“Just Wednesday, Viacom Inc. announced a five-year, $500-million deal with Microsoft to replace DoubleClick as the provider of ads to its network of websites.”

The FTC noted that Microsoft, Yahoo and Time Warner “have access to their own unique data stores” of online advertising information and that the companies “appear to be well-positioned to compete vigorously against Google in this new marketplace.”

“At bottom, the concerns raised by Google’s competitors … really amount to a fear that the transaction will lead to Google offering a superior product to its customers,” the commission said.

Google’s deal created significant regulatory drama, spending more than six months under review, while other acquisitions – Yahoo’s buy of Right Media and Microsoft’s $6 billion takeover of aQuantive — won prompt approvals.

“Google shares got a modest bounce from the news in morning trading Thursday, rising almost 1 percent to $683.40.”