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Google-AdMob: An FTC Antitrust Enforcement Watershed -- Lessons from Google-DoubleClick & EU

Will the FTC strictly enforce antitrust laws in its review of Google's AdMob acquisition? Google-Admob is a watershed decision for the FTC given that:

  • Google recently blew off the DOJ's serious antitrust objections to the pending Google Book Settlement;
  • The EU opened a preliminary investigation of antitrust complaints against Google from companies in the UK, France and Germany; and
  • The DOJ had to play backstop to the FTC and block the Google-Yahoo Ad Agreement, less than a year after the FTC incorrectly assumed in their 4-1 approval of the Google-DoubleClick deal that:
    • Yahoo and others would provide sufficient competition to Google; and
    • Google acquiring DoubleClick would not "substantially lessen competition" or tip Google to a monopoly.    

A recent New York Post article: "FTC inclined to approve Google's acquisition of AdMob" states the deal "may just squeak by federal regulators."

  • It's pretty obvious the article's source came from the Google camp and not the FTC, given the political nature of the source's views: the FTC "will likely not rule until Obama nominees" are confirmed by the Senate, strongly implying that the:

Why is this Google spin on the FTC's inclination likely false?

First, this is a straightforward, bread and butter horizontal antitrust case where the facts are powerfully against approving a Google-AdMob transaction on the legal basis that it would "substantially lessen competition." 

  • Unlike Google-DoubleClick which was approved 4-1 by the FTC, Google can't credibly argue that Admob is not a direct competitor; the evidence proves AdMob is in fact Google's primary and leading competitor in the in-application mobile display advertising market.
    • "We look at mobile applications as a real competitor. People download apps and they skip doing the search" said Google antitrust counsel Kevin Yingling yesterday.  

As I summarized in "Googleopoly V: Why the FTC should block Google-AdMob:"

  • "Google-AdMob would combine the #1 & #2 mobile in-application display advertisers in a highly concentrated and exceptionally-strategic gatekeeper market, effectively eliminating Google's only substantial rival competitive platform in this market."
  • "Acquiring AdMob's ~50% share would catapult Google to >75% share of the mobile in-application display advertising market."

Generally, antitrust authorities object to an acquisition in a highly-concentrated market that concentrates 30-40% of that market's share. Google-AdMob would concentrate the relevant market share over two times more than this normally acceptable threshold.

  • The anti-competitive risk here is even greater than the >75% shares would indicate, because AdMob clearly has "first mover" advantage, which naturally creates even higher relative barriers to competitive entry, and strongly suggests that the market and competition cannot heal itself in this instance. 
  • Exacerbating the anti-competitive risk here even further is the obvious real world experience with Google concerning its last two major acquisitions of first movers: YouTube and DoubleClick.
    • YouTube, combined with Google's already dominant share of users, advertisers and publishers, catapulted YouTube to the second largest generator of searches in the world (per ComScore) and to over one quarter of all Google searches, in just a couple of years
    • DoubleClick, combined with Google's already dominant share of users, advertisers, and publishers, effectively tipped Google to a de facto monopoly market position by allowing Google to acquire via acquisition (not through competing) what DoubleClick earned competitively but Google did not
      • Hundreds of Global 1000 advertiser relationships;
      • ~25% viewer share of the Internet audience; 
      • ~30% of user click data; and
      • 51% share of publisher tools.
    • The lesson the FTC has learned here is that one plus one equals much more than two, when Internet dominance is added to a substantial new first mover in a super fast growth market.
      • More specifically, combining Google and AdMob would bring Google's monopoly demand to AdMob's first-mover dynamic, allowing Google to acquire a de facto monopoly over the strategic gatekeeper market of in-application mobile advertising very rapidly without having to compete for it in the marketplace.   

Second, Google itself has long argued in its 10k public filings to the SEC, that one of the biggest competitive risks to Google is if they cannot sufficiently establish a competitive position in mobile comparable to its market position on the PC. 

  • In other words, Google itself has spotlighted how important the mobile advertising marketplace is to the competitiveness of PC based search and the Internet more broadly. 

Third,  Google has established an astonishingly long track record of misleading the FTC. 

  • It's almost gotten to the point of establishing a Google-FTC "Peanuts comics" dynamic where Lucy repeatedly promises Charlie Brown that she won't pull away the football when he tries to kick it... and then at the last minute... Lucy repeatedly does just that... 

In Google-DoubleClick:

  • Google assured the FTC that Yahoo and Microsoft would provide enduring competitive discipline to the deal to ensure it would not be anticompetitive. However, just six months later Google proposed a partnership with their #2 competitor, Yahoo, and less than six months after that, the DOJ had to block Google's attempted cartelization of the search syndication market.
  • Google also misrepresented to the FTC that Yahoo's purchase of Right Media and Microsoft's purchase of AcQuantive would offset any anti-competitive effect of Google acquiring Doubleclick.
    • Experience has proved that to be a misrepresentation as Yahoo's and Microsoft's supposedly augmented display businesses have contracted while Google's has grown substantially and taken significant market share from Yahoo and Microsoft. 
      • Analysts in a recent Business Week article estimate that Google will grow roughly five times faster in display than the overall display market will grow. This means analysts expect Google to take massive display share from Yahoo, Microsoft and the rest of the market in the years ahead as they leverage their monopoly power in search advertising into DoubleClick's display advertising business.
      • This is yet more evidence that the FTC badly misjudged the network effects and anti-competitive synergies at work in allowing Google to synthetically combine with DoubleClick via acquisition.
  • In addition, Google misrepresented to the FTC (and to the DOJ in Google-Yahoo) that search and display were separate markets and that combining them via acquisition/agreement would not have any "potential" synergistic anti-competitive consequences. However, Google's recent comments to Business Week show that was another gross misrepresentation to the FTC/DOJ: 
    • "Neal Mohan, the executive in charge of Google's display business, says Google will draw on its strength in search-related advertising to expand into display. It became the leader in search by using algorithms to help it know which ads to place where. 'Our goal is to bring the science of search to the art of display,' Mohan says."  
  • When Google announced Google-AdMob, it made a blanket statement: "We don't see any regulatory concerns with this deal."
    • That blanket assertion has proven grossly misleading, given that the FTC already has asked for a second request, which happens in less than one percent of all transactions and only when the FTC has "concerns" that require further investigation.    

During the FTC's Clayton Act investigation of Google and Apple concerning their overlapping boards of directors, Google's CEO publicly claimed that Google and Apple were not competitors.

  • Subsequent to those assertions, Google launched the Droid and Nexus One smartphones, which are direct competitors to the iphone, and launched the Google Pad that competes directly with Apple's iPad. And that is on top of Google's operating system and browser that competes directly with Apple's operating system and browser. Furthermore, Google reportedly outbid Apple in the competition for AdMob. 
    • Google and Apple are obviously competitors, despite Mr. Schmidt's public obfuscations to the contrary.

In the context of the FTC's investigation of the Google-Apple relationship, it is relevant for the FTC to discern what assurances Google may have made to Apple in Google's arrangement with Apple for Google to be the exclusive search engine for the iphone.

  • This exclusive arrangement, which happened underneath the FTC's antitrust oversight nose, is highly relevant to the Google-AdMob review, because its market impact obviously showed how powerful it was to combine Google's search dominance with a powerful first mover like the Apple iphone. That search exclusive helped rapidly propel Google's dominance of search on the PC to search onto the mobile handset. Surveys show that Google now commands as much as 97.5% share of mobile search per NewMarketShare.com.      

Fourth, this is not an average deal review that has little precedential or process impact. This deal has the potential to be a big deal for the DOJ-FTC working relationship and for the working relationship of U.S. antitrust authorities and their European counterparts.

  • Given the reported arrangement between the DOJ and the FTC to alternate antitrust review of Internet deals like this, the FTC would be loathe to make another mistake on the merits and require the DOJ to play backstop to the FTC again... and have to address the anti-competitive fall-out of an approved Google-AdMob, like the DOJ was forced to address the anti-competitive fallout from an FTC-approved Google-DoubleClick in blocking the Google-Yahoo ad agreement.
  • Given the preliminary EU investigation of the serious antitrust complaints complaints against Google in the UK, France and Germany, it is also unlikely that the FTC would approve the ADMob deal. FTC approval potentially would effectively goad the Europeans into a full blown antitrust case against Google, because Europeans could easily leap to the conclusion that the U.S. is simply not up to legally challenging its politically-connected, favorite-son, and national champion -- Google.
    • Giving Google an antitrust pass on Google-Admob, when the evidence proves it to be way over the line, would send a strong signal to the marketplace that competitors should forum shop to Europe to get their their competitive complaints best acted upon.
    • This could further shift the antitrust enforcement balance of power away from the U.S. to the EU, a shift that grew substantially during the last Administration, which was widely viewed as the most lax in antitrust enforcement in memory.
  • Given that Google has blown off DOJ antitrust concerns in the Google Book Settlement, it is also unlikely for the FTC to give AdMob an antitrust pass.
    • It is more likely and logical that the FTC and DOJ will work together to prevent being divided and conquered by Google.
    • It is noteworthy that both the DOJ and FTC have their own ongoing antitrust investigations of Google. Thus it is more likely that the FTC and DOJ will compete to see which can be the more effective antitrust law enforcer, rather than which one can can give Google a bigger political benefit of the doubt. 

In sum, there are a lot of strong factual, legal and process reasons why the New York Post take on the FTC's review of Google-AdMob is likely to be false. 

Politics generally do not trump the prosecution merits of an antitrust case, especially one of this importance to the Internet and to the overall market. 

  • And finally, to the extent that this Administration seeks to have meaningfully tougher antitrust enforcement than the relative laxness of the last Administration (which reportedly was prepared to file a Sherman Section 1 & 2 monopolization case against Google), Google cannot be seen to get special political treatment to shield it from the consequences of the rule of law.     

 

  

 

 

 

 

 

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