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These are perilous times for Google. Still the world’s fourth most-valuable company, earning $100 billion last year, regulators in the U.S. and Europe are increasingly frustrated by Google’s monopoly or near-monopoly. And with several court cases underway on both sides of the Atlantic, regulators and industry players are now talking about breaking Google’s monopolies — possibly by breaking up the company.
But after more than 15 years as the dominant force in internet search, browsing, and advertising, breaking Google’s monopolies, or even breaking up Google, is hardly a straightforward business. Weekend Brief spoke with a number of players and observers in the worlds in which Google operates to learn about the problems, possibilities, and potential pitfalls of ending Google’s upper hand.
What’s the problem?
Google’s in trouble on two major fronts: The Federal Trade Commission says Google has monopolized the internet search industry, and the Department of Justice says Google has monopolized the internet ad industry. There’s a third case in the U.S. relating to Google’s app store, brought by an app maker named Epic Games. In the search case, Judge Amit P. Mehta of the U.S. District Court for the District of Columbia ruled that the way Google runs its search business is illegal and monopolistic. He’s scheduled hearings on a solution for next spring and said he’ll issue a ruling next summer. The trial in the ad case began this month in Virginia.
The problem, say the government and people in the ad industry, is that Google owns all three pillars of the ad business: selling ad space for the platforms and websites that host the ads, buying ad space for the companies that want to advertise their products, and then running the exchange on which all the transactions take place.
“There’s no check on Google,” said Matt Wasserlauf, CEO of Blockboard, a company that manages and verifies online advertising for brands. “A $2 trillion company is pretty much calling its own shots, grading its own homework, and doing a lot of destructive damage in this industry.”
Google used the classic monopoly-building tactics of eliminating competitors through acquisitions, locking customers into using its products, and controlling how transactions occurred in the online ad market, Julia Tarver Wood, a Justice Department lawyer, said in her opening statement in the Virginia trial. “Google is not here because they are big, they are here because they used that size to crush competition,” she said.
One of the key problems from advertisers’ perspective is that Google keeps a lid on all the data about who its ads are targeting and how they are performing. The Association of National Advertisers says some $22 billion of paid advertising a year, or one in every four programmatic advertising dollars, is not being seen by the people advertisers are paying to reach. Instead, much of it goes to what the industry calls MFAs, websites that are “manufactured for advertising,” also known as click-farms.
“The practical effect is $22 billion of ad fraud,” Wasserlauf said. “Not only is [your ad] not going to the demographic you bought, it’s not even going in front of people.”
A locked box
And advertisers don’t know the scope of the problem because Google has been allowed to keep its data in a locked box, industry players said.
“Nobody has had access to these algorithms, nobody has any reporting or transparency to what has gone on with their ad spend for the last 15 years,” said Ted Sfikas, field chief technology officer for Amplitude, a data analytics company that focuses on advertising. “And if we ask why we lost a bid, for instance, they’ll just say, ‘Next.’ They won’t tell you anything.”
His own company has a hard time getting customers who use Google Ads because those customers are already locked into Google’s own analytics platform, and even if it’s not giving the best data, it’s good enough for many advertisers.
One ad industry player, who spoke on condition of anonymity because his company is involved in a legal dispute with Google, explained why Google is able to keep its dominant position even if it’s creating a relatively inefficient business for its customers: “If I’m an advertiser and I can make $2 million by spending $1 million on Google ads that appear mostly on YouTube, I’m like, that’s fine. My CFO is happy, I’m happy, and they’re not thinking too deeply about where did the money go.”
But because Google controls its data and algorithms, it can also claim a commission for every sale. So it’s not just advertisers who leave money on the table that gets sucked up by inefficient ads, media (including companies like Quartz, that get paid to host ads) also lose out on advertising opportunities, and consumers lose out because they get ads they don’t want (like the repeat ads for the shirt you just bought) and because Google claims commissions for purchases made by consumers it has identified, and those commissions are bundled into the cost of the product, said the player.
How Google got here
After building its near monopoly position in the search market, Google began sewing up the online ad market more than 15 years ago, first with the purchase of online ad marketplace DoubleClick in 2007 for $3.1 billion. The DOJ says DoubleClick now controls more than half the ad market for open-web display transactions. Google then acquired Invite Media and AdMeld, giving it access to advertisers looking to buy ad space and the ability to connect them with publishers. These deals ultimately gave Google control of both the supply and demand sides of online advertising, as well as the exchange where the prices are set and the deals are made.
Wood said Google built a “trifecta of monopolies” through the acquisition, and its sheer size, controlling more than 60% of all online ad spending, makes it almost impossible for competitors to enter the market. And given Google’s size and no access to the data it collects or the algorithms that run its business, the few competitors that are out there have little chance to grow.
“Market competition is the answer and regulation is where market competition comes from,” said Davi Ottenheimer, a data scientist at Inrupt, a company focused on web decentralization.
Ottenheimer said that innovation comes from focus and regulation, and that in effect, Google has been its own worst enemy by becoming an effective monopoly — positioning itself for an eventual fall.
“What’s lacking here is that Google wasn’t regulated in a way that kept them honest and [that] allowed them to set up a system that is patently unfair for almost everyone who’s interacting with it, except for them,” Ottenheimer said. “No one has been as egregious as Google in trying to set up monopolization as a business model.”
What regulators will do is unclear. One choice is to simply split the three pillars into separate companies and ban them from privately coordinating with one another — a common requirement in antitrust breakups. Another would be to require Google to open up its locked box of data, or to prevent it from placing the ads it brokers onto its own platforms, particularly Google Search and YouTube.
“I’d love for them to break it up,” said Lance Wolder, head of strategy at PadSquad, a digital advertising agency. Not only would that lower costs for advertisers and increase revenue for publishers by allowing new entrants into the ad business. It would also unleash opportunities for new creativity, Wolder said: “It would be really meaningful for us to be able to look at the web and look at all the pieces that Google touches as a new canvas to create cool things in terms of the ad experience.”
Fixing search
Fixing search is a more complicated business. There is no silver bullet that, alone, would adequately address both Google’s scale and distribution advantage, as well as ensure that Google cannot circumvent its obligations.
The FTC, in its case against Google search, focused on the tens of billions of dollars that Google pays Apple and other smartphone companies each year to make its search engine the default choice on their devices. But Gabriel Weinberg, CEO of search engine DuckDuckGo, a Google competitor, said there’s no one remedy to end Google’s monopoly and come up with better results.
“The ‘remedy’ must be a package of remedies that work together to effectively counteract the unlawful competitive imbalance,” he wrote in a recent blog post.
His key recommendation: “The best and fastest way to level this playing field is for Google to provide access to its search results via real-time APIs.”
If Google is forced to license its search results, existing search engines and new players could build on top of Google’s modules and indexes to offer consumers “more competitive and innovative alternatives,” Weinberg added.
The caveats
At the end of the day, the government’s case may be too narrow, and after what would likely be years of appeals, regulators may end up applying remedies that no longer work. The scrutiny may be enough to change the way Google operates, and to make advertisers and consumers aware that they do have some choice in how they advertise or search.
But any fixes may also come too late for Google. “The next curve of innovation is AI driven and they have competition,” said Jonathan Adler, chief marketing officer at experiential marketing agency FGPG. OpenAI, Perplexity and other AI-driven platforms are already encroaching on Google’s home turf, the search for answers — answers to what causes earthquakes or where to buy dishwasher detergent. “I don’t think they’re scrambling,” Adler said, “ but they’re having to be very strategic with their AI investment to make sure that they hold on to their competitive advantage and build on the data they already have.”
Have a great weekend, and if you don’t know what to do with your free time, Google it!
— Peter Green, Weekend Brief writer