-By Scott Cleland
The top Senators overseeing antitrust matters, Senate Antitrust Subcommittee Chairman Herb Kohl (D-WI) and Ranking Republican Member Orrin Hatch (R-UT), wrote a strong letter to the FTC urging serious scrutiny of the Google-DoubleClick merger (see pasted copy of the letter at the bottom of this article).
Having testified before their Senate Subcommittee in opposition to the merger September 27th, I was gratified to learn of the subcommittee’s serious bipartisan concern about the merger and also their very strong grasp of the potential anti-competitive issues arising from the merger.
There are three big takeaways from the letter.
First, the Subcommittee defines the relevant market as Internet advertising: “…combining these two companies’ leading positions in these two forms of Internet advertising could cause significant harm to competition in the Internet advertising marketplace.”
Items:
- The subcommittee has adopted the same market definition as opponents of the deal.
- Google had hoped the subcommittee would, and still hopes the FTC and EU will, define the market as advertising overall.
- If the FTC agrees with their Senate overseers that the relevant market is the ~$20B Internet advertising market, and not the ~$300B overall advertising market, the merger is at higher risk of disapproval.
Second, the subcommittee has concluded Google has market power in Internet search, another key conclusion of opponents of the merger.
- “Google has a dominant market position…”
- “In sum, by virtue of its dominance of the Internet search market…”
- “…powerful Internet conglomerate able to extend its market power in one market into adjacent markets…”
This is the first time antitrust officials of any type have publicly concluded that Google is “dominant” and has “market power.” (Pretty amazing for an eight-year old company.)
Without these two essential building block antitrust conclusions on “relevant market” and “market power,” the Google-DoubleClick merger would not face risk of disapproval in the U.S.
While the Senators have no official decision authority on the merger, the Senate hearing and letter process is the most detailed public review/proxy process and gives an indication of what objective and bipartisan antitrust experts conclude from the detailed facts that they have reviewed.
Finally, the subcommittee succinctly framed the core antitrust question as guarding against Google being “able to extend its market power in one market to adjacent markets, to the detriment of competition and consumers.”
That was the thrust of my Senate testimony and my Googleopoly.net white paper: combining Google’s #1 and #2 market positions in Internet; audience, advertisers and publishers, would allow Google to extend its dominance of search and effectively “corner’” the adjacent markets of ad-serving, behavior metadata, performance analytics, ad brokering, and ad exchanges.
Bottom line: If the FTC examines the market as the bipartisan Senate review has and concludes that online advertising is the relevant market and that Google has market power in search, the Google-DoubleClick merger would be at greater risk of disapproval than conventional wisdom believes.
The anti-trust committee member’s letter follows:
November 19,2007
The Honorable Deborah Platt Majoras
Chairman
Federal Trade Commission
601 Pennsylvania Avenue, N. W.
Washington, D.C.Dear Chairman Majoras:
We are writing to you concerning the proposed acquisition of DoubleClick by Google, now under review at the Federal Trade Commission. Our Subcommittee on Antitrust, Competition Policy and Consumer Rights held a hearing on this proposed transaction and the on-going consolidation in the Internet advertising sector on September 27, 2007. We believe that this merger raises very important competition issues in a vital sector of the economy. We write to you to summarize the results of our inquiry.
This proposed acquisition would combine the world’s largest Internet search company, Google, with DoubleClick, the leading company that places advertising on the Internet. The implications of this for the Internet advertising market – and for the Internet as a whole — are profound and potentially far reaching. A core part of Google’s business is placing contextual advertising – that is, text based ads placed on third party web sites which are relevant to the content or to the likely reader of the web site. Google has a dominant market position with respect to the placing of these contextual ads. DoubleClick has a leading market position in placing another form of Internet advertising – display advertising which also reside on third party web sites.
Industry experts that we spoke to in the course of our inquiry raised serious concerns that combining these two companies’ leading positions in these two forms of Internet advertising could cause significant harm to competition in the Internet advertising marketplace. While we have not reached any definitive conclusion regarding this issue, we urge that you only approve the merger if you determine that it will not cause any substantial lessening of competition with respect to Internet advertising.After our hearing, it is plain that the issues important to this determination are: whether contextual and display advertising are interchangeable and substitutable; the extent to which Google’s services compete with DoubleClick’s ad serving services; whether there are significant barriers to entry impeding new competitors in this market; and the likely effects of this acquisition on the cost of placing Internet advertising.
On a related matter, this acquisition also raises broader concerns beyond the Internet advertising market. Many commentators have voiced concerns regarding the implications of this deal for consumer privacy. In order to be effective, Internet advertising tracks the personal preferences of Internet users and “serves” ads most suited to that individual user based on his or her history of visiting certain web sites and running particular searches. DoubleClick collects an enormous quantity of information on individual web users’ preferences, and privacy advocates have expressed very serious concerns regarding the consequences of this data coming under the control of Google due to the fact that Google is the dominant internet search engine and can also track individuals’ search requests. Therefore, we believe that this deal raises fundamental consumer privacy concerns worthy of serious scrutiny.
In sum, by virtue of its dominance of the Internet search market and its recent acquisitions, including last year’s acquisition of YouTube and its current planned acquisition of DoubleClick, Google is becoming the world’s most important Internet enterprise. After this acquisition, Google — already the dominant Internet searchcompany — will also hold a leading position in video content, news, advertising and a myriad of other consumer services. Antitrust regulators need to be wary to guard against the creation of a powefil Internet conglomerate able to extend its market power in one market into adjacent markets, to the detriment of competition and consumers. We therefore urge that the FTC only approve this merger if it concludes, after a completing a comprehensive investigation, that this merger will not cause substantial injury to competition in the areas outlined above.
Thank you for your attention to this matter.
Sincerely,
HERB KOHL
Chairman
Subcommittee on Antitrust, Competition Policy and Consumer RightsORRIN HATCH
Ranking Republican Member
Subcommittee on Antitrust, Competition Policy and Consumer Rights
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Scott Cleland is one of nation’s foremost techcom analysts and experts at the nexus of: capital markets, public policy and techcom industry change. He is widely-respected in industry, government, media and capital markets as a forward thinker, free market proponent, and leading authority on the future of communications. Precursor LLC is an industry research and consulting firm, specializing in the techcom sector, whose mission is to help companies anticipate change for competitive advantage. Cleland is also Chairman of NetCompetition.org, a wholly-owned subsidiary of Precursor LLC and an e-forum on Net Neutrality funded by a wide range of broadband telecom, cable and wireless companies. He previously founded The Precursor Group Inc., which Institutional Investor magazine ranked as the #1 “Best Independent” research firm in communications for two years in a row. His latest op eds can be seen at www.precursorblog.com.