Google Divesting Its Ad-Tech Stack Won't Dent Its Dominance

Google’s ad-tech business has been accused of squelching rivals, siphoning money from publishers and tying the hands of advertisers. All of which has spurred a growing clamor from lawmakers to break up the company. But, if tomorrow Google divested its ad-tech business—which could include its exchange, its supply-side technology for publishers (part of Google Ad Manager) and demand-side platform (Google Display and Video 360)—many of the problems of digital advertising would remain. Google would maintain the upper hand in the online ad industry given its dominance in search, browser and consumer data, five industry sources told Adweek. In any case, the ad-tech business generates a small amount of revenue for the company overall. "[Divesting the ad-tech stack] doesn’t mean Google will release to the wild opportunities to create solutions around identity," said Mike Woosley, COO of identity-focused ad-tech firm Lotame. "They remain kind of the gatekeeper." Ad tech is not Google's only business in regulators' crosshairs (the Department of Justice initiated a formal investigation into search in 2020), but it has come under particular scrutiny of late. Last week the European Union and the U.K. opened a formal antitrust investigation into whether Google and Facebook illegally cooperated to protect Google’s advantage in ad tech, a scheme first detailed in a lawsuit against Google from a group of U.S. attorneys general. Why Walmart’s New DSP With The Trade Desk Is a Sign of Things to Come Despite this attention, the ad-tech business is projected to generate a low single-digit percent of parent Alphabet's total net revenue and operating profits in 2022, according to Mark Mahaney, head of the internet research team at investment bank Evercore. Sources said that the ad-tech business may be more important to regulators than to Google itself. “Google’s dominance in ad tech is the clearest and cleanest example of their economic dominance,” said David Chavern, CEO of publisher trade body News Media Alliance. A Google spokesperson said the ad-tech industry is highly competitive, citing the growth of the advertising businesses of companies like Walmart and Amazon, and that Google's software is interoperable with 700 rival advertiser platforms and 80 rival publisher platforms to maximize choice in the market. While it wouldn't change the status quo, Google's divestment of its ad-tech business could undermine its other business lines and open some green space for the indie ad-tech scene, without radically changing how publishers and advertisers buy and sell digital inventory, sources said. The trojan horse for Google's other businesses Google’s ad-tech business' greatest value lies more in how it enhances Alphabet’s other business lines. Thus, an ad-tech divestment could weaken Google's other businesses in hard-to-measure ways, but unevenly benefit the rest of the market. Consider that Google's technology creates a one-stop-shop for advertisers to select and transact media, which is especially useful for small businesses without media buying expertise. This benefits Google's media business as much as its ad technology, Woosley said. “These technologies funnel business to their media properties,” Woosley said. “A bigger impact [of divestment] is the loss of the natural funnel to the people using their technology tools for buying advertising on a giant media empire. Every search page result is media.” But the synergy between Google's ad-tech and media businesses is not always a boon for advertisers. Several sources said a particular frustration on the buy-side is that YouTube inventory can only be transacted through Google's demand side-platform DV360. If an advertiser uses a non-Google DSP to buy CTV ads, they cannot also use it to transact the other main source of video inventory, YouTube, said Ali Manning, co-founder of supply path optimization ad-tech startup Chalice, and a former Google employee. "If YouTube allowed TradeDesk [and other DSPs] to buy their inventory, that would be better for everyone," said Ari Paparo, founder of DSP Beeswax and also a former Googler. The Google spokesperson said the YouTube arrangement is standard industry practice, noting that other publishers sell their own inventory exclusively through their own platforms. Moreover, Google's ad-tech business gives Google a rich pool of data to make the targeting on its platforms more effective, Chavern said. What is also valuable about its ad network, that doesn't show up in financials is "a huge pipeline of data about whose placing ads and whose getting converted,” Chavern said. While Google will certainly lose out by not having this data, it's not clear if another owner of its ad-tech business would be able to extract the same value, Chavern said. “If the ad network was spun out would anyone be able to benefit as much as Google?" Chavern said. "How much value would be left over to split up?” Opening up greenspace in ad tech If Google sold its ad-tech unit, it might slightly hurt the company, but it could be a windfall to rival ad-tech firms, said Adam Heimlich, also a co-founder of Chalice. "These are little incremental gains," Heimlich said, also noting that without its ad-tech business, Google would still be dominant in digital advertising. "For a company like mine, these tiny incremental gains are my entire livelihood." Heimlich added that Google's divestment could free up venture capital dollars, which have been deterred by the lack of competition in the space. "The ad-tech industry is a little beaten down and a little beleaguered since Cambridge Analytica. There’s not a lot of pride in what we do," Heimlich said. "Google getting out of the business would have a lot of solidarity effects." Philosophically, publishers are some of the loudest supporters for divestment and could gain from the leveling playing field in ad tech without Google's dominance. "There’s a lot of value that sits between a reader and a publisher, and Google is draining as much of it as you can," said Chavern. Marketers could benefit in the long term from more innovation in ad tech, but in the immediate aftermath of divestment, there could be headaches for those who are used to relying completely on Google's technology. But currently, it is mostly rival ad-tech providers that bear the brunt of this frustration. "Many advertisers would prefer to choose whatever vendor they do and have them interoperate as well as Google does," said Paparo, but "they can’t because Google restricts."

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Why Google Divesting Its Ad-Tech Stack Won't Dent Its Dominance

A Google without ad tech is still a behemoth in digital advertising, experts say

Catherine Perloff

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Catherine Perloff