Will Google’s Empire Crack Under Regulatory Pressure?

Experts expect the tech giant to give its ad stack a shake-up to ward off a breakup

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Regulatory scrutiny of Google's market dominance continues to ramp up. Photo Illustration: Trent Joaquin; Source: Google
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Key insights:

Google is facing unprecedented public scrutiny, both in terms of user privacy and how it makes smaller companies use its advertising tools. And some well-positioned industry observers are forecasting seismic changes in how the tech giant’s interwoven ad stack—Google controls access to the ad inventory and owns the ad exchange, and its algorithm helps decide which ad impressions to buy (on Google’s ad exchange or those of third parties)—is used to direct the flow of ad dollars.

Regulators all over the world are more intensely scrutinizing Google’s sprawling empire and questioning whether its dominance in ad tech, search and mobile operating systems is inhibiting innovation in the wider market. Some now believe Google may voluntarily divest itself of its less lucrative assets like its ad stack in an attempt to convince governments it’s not a monopoly guilty of stifling innovation in online ad targeting and delivery. Alternatively, the U.S. government could force Google’s hand.

Either outcome would result in an ad-tech market that looks significantly different than the one we have today.

Scrutiny

This is not the first time Big Tech has faced regulatory scrutiny, but industry sources believe a major change to how third parties can access Google’s ad-tech stack is on the horizon. As Attorney General William Barr intensifies his focus on Big Tech’s dominance of certain sectors (and in online media, that means Google), some insiders believe it’s just a case of whether Google will make such changes of its own volition or the government will force it to.

This week, on the same day the Senate Judiciary Committee explored “self-preferencing by digital platforms” in a hearing on Capitol Hill, Sens. Josh Hawley, R-Mo., and Richard Blumenthal, D-Conn., jointly penned a letter to the U.S. Department of Justice calling out Google’s dominance of the search market.

This came soon after the DOJ hosted a conference in the wake of the IAB’s annual leadership meeting at which industry experts and investors were invited to share opinions on Google’s dominance of the sector. In particular, investigators were interested in whether or not the dominance of Big Tech is stifling investors’ willingness to fund startup alternatives in the sector.

Survey of 143 ad-tech industry insiders

The complex maze that is Google’s ad stack

Sources told Adweek that DOJ investigators are particularly interested in how Google’s complex ad stack, historically known as DoubleClick, is intertwined and whether the algorithms underpinning it contain inherent bias.

For instance, questions persist over whether Google’s ad server, commonly known as DFP, favors its ad exchange, AdX, as an inventory supply source for publishers at the expense of third-party supply-side players. Additionally, Google’s 2015 third-party ad serving changes on YouTube, such as restricting access to third-party demand-side platforms, have been the subject of much controversy in recent years.

In her testimony at this week’s Senate hearing, Sally Hubbard, director of enforcement strategy at the Open Markets Institute, said that by purchasing “every spoke of the ecosystem,” Google has affected competition in the market.

“If Google had not bought DoubleClick and then Admob, the leading mobile advertising company, plus a slew of other ad-tech companies, things could have been different,” Hubbard testified, adding that Google’s acquisition of multiple ad-tech tools significantly hindered market competition.

At the same hearing, Gene Kimmelman, senior advisor for Public Knowledge, told senators, “This type of behavior would allow Google to charge higher prices for advertisers than they might in a more competitive market and allow Google to pay less out to publishers for the right to advertise on their content.”

Sacrificial moves?

Such pressure has many experts believing Google may sacrifice some of its ad-tech assets, such as its ad exchange or DSP, in an attempt to placate regulators probing how the company manages to lay claim to more than one in three ad dollars spent in the U.S.

Ciarán O’Kane, CEO of WireCorp, said the imminent demise of the third-party cookie means Google’s ad-tech business “really doesn’t matter to them anymore,” as the demise of such infrastructure could upend its value proposition.

O’Kane also told Adweek that Google parent Alphabet breaking out its YouTube revenue for the first time during its most recent quarterly earnings filing was a significant move that may be an indicator of its future plans.

“I think Google may be getting out of ad tech altogether, but if you really wanted to [break up Google] properly, you’d have YouTube as a stand-alone business,” O’Kane said, adding that Google’s dominance of the search market and YouTube is where its fortune lies.

“I think that its recent YouTube numbers were a case of them telegraphing to the market that they’re going to make a sacrifice to the DOJ just to get them off their backs … and I think that’d be their ad-tech stack,” he said.

Survey of 191 ad-tech industry insiders

Limitations

Ari Paparo, CEO of DSP Beeswax, said government authorities could force Google to stop sharing data among the various components of its ad stack should it want to stoke competition in the space. “They could also force Google to be interoperable with other people, such as allowing DSPs to buy YouTube inventory,” Paparo said. “In very broad swaths, that’s what could happen.”

In spite of indications of an imminent breakup of the Google empire, other analysts point to the privacy zeitgeist and how it’s playing into the hands of Big Tech. Some maintain that walled gardens are simply better for user privacy because the fewer players there are in the market, the less opportunity there is for data leakage.

In the aftermath of his testimony before a Congressional committee investigating digital marketing, privacy and competition last year, influential ad-tech figure Brian O’Kelley, the co-founder and former CEO of AppNexus, advocated a self-regulating body similar to FINRA, which has oversight of participants in the financial services market under the direct supervision of the SEC.

“These are really complicated issues that are not just hard to explain; they’re hard to break into their component parts,” he wrote in a blog post. “How do you address privacy without thinking about whether you’re increasing Google’s power over the advertising ecosystem?”


@ronan_shields ronan.shields@adweek.com Ronan Shields is a programmatic reporter at Adweek, focusing on ad-tech.
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