Google’s ad-tech dominance is easier to fix than its search monopoly
Summary
- Alphabet’s antitrust setbacks will hurt it but needn’t threaten its future. Remedies for Google’s ad business dominance can easily be executed. And punishing Alphabet in AI will only reduce competition in a vital market—so that seems safe.
Targeted advertising is the business model that created much of the modern internet, and no company has benefitted more than Google. Last week in the US, a district court judge handed down a ruling that threatens to dismantle part of that money-printing machine. Finally, there’s a Big Tech antitrust case with an obvious and effective remedy.
Of course, this decision will set off a costly and complex round of appeals that could take years and may walk back some of the judge’s conclusions. Still, as it stands now, it’s a significant blow to Google’s business, one that comes on the heels of losing another blockbuster antitrust trial last year.
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In that first case, the US Justice Department convinced a judge that Alphabet’s unit unfairly showered billions of dollars on companies like Apple to remain the default search engine on browsers and other important parts of digital real estate.
The most recent case dealt with how Google made money through advertising. Google has a tool that lets publishers sell ad space on their sites and a system for auctioning that space. The creepily specific ads users see as they browse the web have been part of a rapid-fire automated bidding war—you might call it one of Google’s most significant innovations. You can now also call it an illegal monopoly.
The judge didn’t rule entirely against the company, however—the judge said prosecutors failed to make the case that Google held a monopoly in the market of tools used by companies to buy ad space.
The two cases are similar in that they accused Google of exploiting its size to entrench its dominance. By being the default choice for most people, Google became an even better almost untouchable search engine. Google’s advertising business became more profitable thanks to the company’s control of several parts of the buying and selling chain.
In both cases, the judges ruled that Google had exploited that power in a way that harmed customers—Google Search would be better, maybe less crammed with ads, if it had competitors. And Google would be forced to offer better prices for advertisers if other advertising platforms were able to compete on a level playing field.
Where the two cases differ is in how simply they can be solved.
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In the search case, the horse has bolted. Even if Google were told it could not strike exclusive deals to be the default browser, most users would probably choose Google anyway. If Google were forced to spin off its Chrome browser business or the Android operating system—as is on the table—most would find it a real head-scratcher. How would those two products survive independently? And what problem would it solve, exactly?
Perhaps reflecting that search engine competition was past a point of no return, prosecutors had also suggested holding Google back from making investments in AI—in effect punishing past bad behaviour by putting the company in the penalty box for the next technological innovation cycle. Thankfully, the most recent filings suggest the Justice Department is no longer chasing this remedy.
As I wrote in November, holding back Google on AI would only serve to reduce competition in a market that may prove vastly more important than anything that has come before it.
In stark contrast, the remedies in the ad tech case are much clearer, even as Google executives warned of some engineering challenges. Split up Google’s ad business. Take the ad server side and the ad exchange side, slice it right down the middle, and divest. This won’t cripple the company.
As The Information notes, what’s at issue in this case is just one part of the overall online advertising market, which includes things like in-app ads and ads displayed on streaming platforms, where Google does not dominate. The majority of Google’s ad revenue comes from ads that appear alongside its own properties, like Search, Gmail and YouTube. In 2024, revenue from its ad network segment was $30.4 billion—11% of Google’s total ad revenue. It will survive.
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This is reflected in the market reaction. Alphabet shares fell, but only by about 1%. Smaller ad tech platforms surged. As of lunchtime in New York last Thursday, Trade Desk was up more than 7%, Magnite surged 15% and PubMatic was up 12%.
And the ad tech disruption might not be over yet. Meta is also in the midst of an antitrust trial that could see it forced to split up its ‘family’ of apps that include Instagram and WhatsApp. If it loses, “the digital advertising landscape could be unrecognizable in 5 years," remarked Emarketer analyst Evelyn Mitchell-Wolf, reacting to the Google news. Frankly, that sounds like healthy competition to me. ©Bloomberg
The author is Bloomberg Opinion’s US technology columnist.
