Google will face questions over the state of the online advertising market…
“Google and Microsoft squared off as usual Thursday, but this time instead of the competitive battlefield, they met on Capitol Hill, where lawmakers are weighing the question of whether Google’s purchase of DoubleClick will create an unfair online advertising monopoly.”
Washington — U.S. senators on Thursday injected themselves into a high-stakes dispute between Google and Microsoft over whether the search giant’s proposed acquisition of display advertising company “DoubleClick” presents antitrust or privacy concerns.
“Google plans to tell a Senate committee Sept. 27 that its proposed $3.1 billion acquisition of DoubleClick will not limit competition in the online advertising market. The deal is currently pending FTC (Federal Trade Commission) antitrust review.”
“Opponents of the deal tell U.S. lawmakers that the proposed merger would create a giant that would control a huge portion of online advertising and hurt the Internet.”
Allowing Google and DoubleClick to merge would be “bad for publishers, bad for advertisers and, most importantly, bad for consumers,” Brad Smith, Microsoft senior vice president and general counsel, told lawmakers on Thursday.
“Both Microsoft and Google testified before a Senate Committee on the Judiciary subcommittee that is evaluating the deal.”
Google Inc.’s proposed merger with online advertising server DoubleClick Inc. would create a giant that would control a huge portion of online advertising and hurt the Internet, opponents of the deal told U.S. lawmakers Thursday.
Appearing before a Senate antitrust panel hearing into the merger, an executive from Mountain view, Calif.-based Google was forced to respond to allegations that the combined company would overly dominate the Internet advertising market.
Google painted a far different picture and, argued that Google and DoubleClick are complementary businesses that do not compete with each other, David C. Drummond, Google chief legal officer and senior vice president of corporate development, told the committee.
“DoubleClick is to Google what FedEx or UPS is to Amazon.com,” Drummond said, adding that Google is confident the deal would not raise antitrust concerns as a result. While Google focuses on text-based ads, DoubleClick’s core business is display advertising, he added.
“Our acquisition of DoubleClick does not foreclose other companies from competing in the online advertising space,” Drummond added.
“Google is already Amazon and is already Fed Ex and now they are trying to buy the post office,” said Smith.
Microsoft, of Redmond, Wash., had wanted to buy DoubleClick but Google beat it to the punch. Microsoft has since announced the $6 billion buy of DoubleClick rival aQuantive, while others including Yahoo Inc. and the U.K.’s WPP Group PLC have also recently bought online advertising firms.
“Online advertising is rapidly emerging as the fuel that powers the Internet and drives our digital economy,” he said, citing forecasts that within four years, the amount spent on Web ads will be equal to what is now spent each year on TV and radio advertising combined. “Online ads will increasingly provide the economic foundation for a free press and for political life more broadly,” Smith added.
While Google already dominates search advertising, the DoubleClick merger, Smith said, will enable Google to “obtain a dominant gateway position” over non-search ads as well.
The hearing came as the Federal Trade Commission (FTC) continues to evaluate the merger nearly six months after it was first announced. Lawmakers could press the FTC to stop the hearing or urge that Google make concessions aimed at assuaging concerns about the combination.
Senator Herb Kohl, the Democrat of Wisconsin who heads an antitrust subcommittee, said at the outset of Thursday’s hearing that the transaction “warrants close examination” by federal regulators. But afterward, he said there was “no clear winner” among the deal’s supporters and opponents — most notably Microsoft.
“Senators cannot block the deal, but they can express their concerns to antitrust regulators about combinations they oppose.”
Several lawmakers expressed concern that the takeover raised privacy concerns.
Senator Charles E. Schumer, Democrat of New York, appeared satisfied with a letter from Google, dated Tuesday, that made commitments to take “important steps” to improve privacy standards. It also promised that the combined company would increase its work force in New York.
“I believe the American consumer must be made aware of the fact that when they use search engines or click on an advertisement, there is a strong possibility that personal information is being collected and stored,” said Orrin Hatch, a Republican Senator from Utah.
The merger, proposed in April, would create “extreme market concentration,” said Scott Cleland, chairman of Netcompetition.org, an advocacy group representing large broadband providers. The merger would leave online advertisers with “no real competitive choice,” he told the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights.
The acquisition would combine two of the biggest players in online advertising. Google’s text-based AdSense business is based on clickable links, while DoubleClick’s technology places targeted banner ads and other display advertising on popular online sites.
In addition to the antitrust issues raised at the hearing, Marc Rotenberg, president of the Electronic Privacy Information Center, voiced concerns that the merger will have a huge effect on consumer privacy. The combined company would control a huge database of customer data, Rotenberg said.
Regulators in the U.S., Canada, Australia and Europe “appear to be in agreement that there is no merger that poses a more significant threat to online privacy than Google’s proposed acquisition of DoubleClick,” Rotenberg said. “This is going to be a real problem for the Internet if it is allowed to go forward.”
The rash of acquisitions that followed in the wake of the DoubleClick announcement earlier this year “underscore the strong competition in the online advertising space,” Drummond noted.
Drummond points to those deals that include Microsoft’s $6 billion acquisition of online advertising firm aQuantive, which already has received the FTC’s blessing — a deal worth nearly twice as much as the DoubleClick buy –Yahoo’s purchase of Right Media and several smaller deals, AOL’s purchase of AdTech and Tacoda as proof of a vibrant online advertising business, including buys made by traditional advertising agency WPP, which bought 24/7 Real Media for $679 million.
“Each of the acquisitions following our purchase of DoubleClick demonstrates that there are many sophisticated, well-financed and competitive companies that believe that the online advertising space merits more investment and remains open to competition,” Drummond states in his prepared remarks.
Drummond acknowledged that, while Google does have a large market share of text-based Web advertising, it has little presence in display or graphic ads that appear on Web sites, a key motivation behind the deal for DoubleClick.
The clash between Microsoft and Google over DoubleClick is the latest in a growing spat between the two companies over a range of public policy and commercial issues of late.
Representatives of both companies testified before a subcommittee of the Senate Committee on the Judiciary — which reviews antitrust cases — examining the deal and its implications for consumers, both in terms of antimonopoly laws and potential risks to consumer privacy.
Also testifying Thursday was Scott Cleland, president of Precursor, a telecommunications consulting firm. Cleland called the merger a “watershed moment” for Web competition.
“I believe Google-DoubleClick is clearly one of the most far-reaching, least understood and important mergers this subcommittee has ever reviewed,” he said, urging lawmakers to block the merger because no conditions will make it palatable. “The best outcome is maintaining Internet competition and denying the merger to keep DoubleClick a viable competitor to Google.”
Lawmakers will be listening to the testimony, however, and may be swayed based on what they hear and may punt the ball back to regulators at the FTC. “This is a very complex case that raises numerous questions that are not easily or quickly answered,” said Sterling Market Intelligence analyst Greg Sterling.