Google emails show unease over advertising dominance

ALEXANDRIA, Va.—Trial proceedings in the U.S. government’s antitrust case against Google’s advertising business have provided a rare window into internal company anxieties about its central role in the buying and selling of ad space online.

The Alphabet unit is on trial over its software used to place display ads, those ubiquitous digital billboards served in fixed boxes on millions of websites every day.

The Justice Department spent nearly two weeks presenting evidence for its claims that Google has a stranglehold on this advertising technology, and abuses that dominance to extract anticompetitive rates from advertisers and publishers who sell ad space.

Government lawyers have said some of their strongest evidence is in Google’s own internal communications.

Witnesses so far included YouTube Chief Executive Neal Mohan, who previously ran Google’s display-ads business and faced heat on the witness stand for an email he wrote to colleagues in 2010. At the time, a new crop of ad-tech companies were threatening Google’s bottom line.

“One way to make sure we don’t get further behind in the market is picking up the one with the most traction and parking it somewhere,” Mohan wrote.

Google ended up buying one such company, AdMeld, for $400 million in 2011. Google shut down AdMeld two years later, after incorporating some of the startup’s technology into its ad exchange, known commonly as AdX.

The Justice Department argued that AdMeld was part of a larger trend: Google acquiring nascent rivals to corner the market and then locking customers into using its products by conditioning access to one software tool on them paying for another.

Under friendly cross-examination by a Google lawyer, Mohan denied that he was suggesting to buy AdMeld to eliminate competition. The acquisition filled a gap in Google’s product offerings, allowing it to deliver better results for customers, he said.

Rather than taking a larger slice of the pie for itself, Google was “growing the pie for every part of the industry,” he said.

In a 2016 email introduced by the government, Google executive Jonathan Bellack asked colleagues: “Is there a deeper issue with us owning the platform, the exchange, and a huge network? The analogy would be if Goldman or Citibank owned the NYSE [New York Stock Exchange].”

On the witness stand, Bellack, who has since left the company, testified that he wasn’t saying Google had conflicts of interests but rather airing potential concerns of other market participants.

The Justice Department also cited a 2018 email from another then-executive, Chris LaSala, who raised concerns internally over the 20% cut that Google takes from many of its AdX customers, saying Google was extracting “irrationally high rent” from users.

“I don’t think there is 20% of value in comparing two bids,” wrote LaSala. “AdX is not providing additional liquidity to the market. It is simply running the auction.”

Another former Google executive, Eisar Lipkovitz, testified that Google’s omnipresence in ad-tech gives rise to conflicts of interest. Lipkovitz was rebuffed when he tried to get Google to lower the cut it took from AdX, he testified in a prerecorded deposition.

The Justice Department finished presenting its case on Friday. Other witnesses included Google customers. One was Stephanie Layser, a former News Corp executive, who said she felt she had no choice but to use Google technology because the search giant has such market power that switching to another ad server would have meant losing out on millions in advertising revenue.

Layser now works at Amazon.com. News Corp, The Wall Street Journal’s parent company, has been an outspoken Google critic and was among the companies contacted by antitrust investigators.

Google’s legal team in the civil case will spend the coming week presenting its defense. The company says the government has presented a contorted view of the advertising market. It makes no sense to focus on display ads, Google argues, when the industry is shifting to apps, social media and streaming services.

Far from monopolizing the space, Google is actually losing ground, Google lawyer Karen Dunn said in her opening trial statement earlier this month.

“There will be no witness in this case who can say with clarity where this industry is going in the next five years,” Dunn told the court. “Not even in the next year.”

The case will be decided by U.S. District Judge Leonie Brinkema in Virginia. It could be several months before she issues a ruling.

If she rules against Google, she could order the company to sell off parts of its ad-tech business, which by some estimates is worth upward of $100 billion.

Brinkema has given little indication of her views. But one question she posed to a witness suggested she is weighing how a breakup of Google would affect the market.

During the testimony of Jed Dederick, an executive at Google ad-tech competitor The Trade Desk, Brinkema asked what would happen to the ad-buying experience “if, as a result of this litigation, Google were blown apart” and data were “spread out among 10, 15, 20, and 30 little entities.”

Dederick responded that the resulting lack of scale wouldn’t be a problem for market participants.

“Publishers wouldn’t let their ads go unsold,” he said.

Write to Jan Wolfe at jan.wolfe@wsj.com and Miles Kruppa at miles.kruppa@wsj.com