Open Letter To Senators Hatch & Kohl About Google-DoubleClick

Today, US senators Herb Kohl and Orrin Hatch published a letter (PDF) urging the US Federal Trade Commission to carefully consider the proposed Google-DoubleClick deal. Sure, who doesn’t agree with a careful review? But sadly, the letter gets a lot of things wrong, which is alarming coming out of the US Senate. Or perhaps predictable. So let’s go through it, blow-by-blow. Maybe the senators will be reading….

The letter starts out:

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.

Apparently, despite the hearings, the subcommittee seemed to learn little about the situation, as I’ll demonstrate – which makes you wonder why so much effort was wasted with the hearings.

This proposed acquisition would combine the world’s largest Internet search company, Google, with DoubleClick, the leading company that places advertising on the Internet.

True, though search is only part of what Google does. In terms of revenue, I believe it is the world’s largest internet advertising sales company. DoubleClick is primarily an ad serving company. The distinction is important, as I’ll come to in a bit.

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.

Not quite. A core part of Google’s business is selling ads on its own sites and brokering advertising on other sites — and ads of all types, which include:

search
contextual
video
display

Google has long sold display ads. GOOGLE HAS LONG SOLD DISPLAY ADS. Image ads — AKA display ads – were rolled out back in mid-2004. Anyone who thinks Google is just a contextual ad player is seriously mistaken. The idea that Google shouldn’t get DoubleClick because that will let it go into a "new" area and be too dominant is absurd. It’s even more absurd when both Yahoo and Microsoft have been allowed to build up their own display ad capabilities through purchases.

Moreover, DoubleClick doesn’t really SELL display ads. It primarily lets other people manage them. If you’re an advertiser, you use DoubleClick to place ads anywhere you want, on any network or site, and DoubleClick allows you to track how they perform. DoubleClick also allows publishers to serve ads from various sources. Yes, DoubleClick has an advertising exchange, but that’s still only months old and not anywhere near being one of the top ad networks, to my knowledge.

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.

Props for not declaring a conclusion, though you kind of wonder why they bothered with the hearings, then. Surely the FTC can figure this stuff out on its own — and surely the Federal TRADE commission isn’t going to forget its responsibilities in ensuring that trade laws will be respected.

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.

Again, maybe the hearing should have explored these issues, if it was meant to do anything useful. But also again, Google ALREADY SELLS DISPLAY ADVERTISING. What happens if it is denied DoubleClick and still continues to grow its share of display? Does it have to separate the two?

By the way, I don’t think anyone knows the degree of display advertising that Google carries because the company itself doesn’t break that out. We don’t have figures from Google telling us what chunk of revenue comes from search ads versus non-search ads, much less a breakdown of non-search ads by type: contextual, video, static display, feeds, etc. If the senators wanted to do anything, they should have demanded that Google provide a full accounting of those figures.

Think I’m wrong? Here’s a recent IAB release on internet ad spending. "Search" makes up 40 percent but contextual isn’t listed at all. That’s because, last time I checked, the IAB counted contextual as search (it’s not). Moreover, if you ask advertisers and others what they’re spending on, many are likely running display ads through AdSense but considering those contextual because so many in the industry fail to properly distinguish between ad types.

Some of this is sweet justice. Google is the biggest offender in failing to report proper figures and breakdowns, and now might lose the DoubleClick deal because it’s seen as only a "contextual" or "search" company.

By the way, are there barriers to new players? Seriously, the senators are wondering about this? What, $6 billion that Microsoft spent to get aQuantive (without any serious regulatory review) doesn’t indicate a healthy if not bubblicious market? Not to mention purchases by Yahoo and AOL of ad networks? There’s plenty of competition, plenty of money being spent by competitors, but the general fear of Google is causing politicians and agencies to drag out this process into the absurd.

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.

Well, you’d better just break up Google then, rather than block the DoubleClick deal. Google probably already tracks on the scale, if not more, about what people do on the web than DoubleClick. GOOGLE DOES NOT NEED DOUBLECLICK TO TRACK USERS. GOOGLE DOES NOT NEED DOUBLECLICK TO BE A POTENTIAL PRIVACY MONSTER. And by the way, GOOGLE’S COMPETITORS ARE POTENTIAL PRIVACY MONSTERS TOO. Need to understand more? Read:

Everyone Fears Google (Again) & Will The Last Googler To Leave Turn The Lights Out?

Back to the letter:

After this acquisition, Google — already the dominant Internet search company — will also hold a leading position in video content, news, advertising and a myriad of other consumer services.

Wow. Last I looked, AOL News and Yahoo News still had far more users than Google News — but let’s declare Google tops to add some fuel to the fire. And is there anyone not aligned with a site now against Google now to take on YouTube? Are these not all signs of healthy competition?

Antitrust regulators need to be wary to guard against the creation of a powerful Internet conglomerate able to extend its market power in one market into adjacent markets, to the detriment of competition and consumers.

Indeed, so instead of blowing the wad of investigating Google-DoubleClick, why not investigate whether Google is trampling laws by both being a leading traffic source for some web sites while also being their leading revenue generator? Or whether Google simply has too much insight into the web that gives it an unfair advantage; i.e., if it offers free tracking tools, ads, free wireless, free web acceleration tools, and more, does that mean it effectively knows everything happening on the web operating system, so that it can improve the quality of its search and other products in a way that no one else can match. For more on this, see:

You want to have hearings? Take a look at that. But this waste of time exercise over Google-DoubleClick? Approve the deal, and let’s move on.