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:

• Google: Master Of
  Closing The Loop?
• Google: As Open As
  It Wants To Be (i.e., When It’s Convenient)

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.