The evidence is increasingly difficult to ignore that the FTC & DOJ, over the last two Administrations, repeatedly failed to enforce Section 7 of the Clayton Antitrust Act, and have allowed Google's acquisitions of YouTube, DoubleClick, and AdMob to illegally "substantially... lessen competition" and "tend to create a monopoly."
- This analysis will spotlight that Google's display advertising and mobile businesses would not be tending to monopoly, and would not be anti-competitively lessening competition, but for the illegal acquisition of market power via YouTube, DoubleClick, and AdMob.
- This analysis is also a sobering backdrop of the exceptionally high stakes for the competitiveness of the online travel vertical if Google is allowed to acquire even more market power via its proposed acquisition of ITA Software.
I. Absentee Antitrust Enforcement & Market Failure
Free markets depend on both the rule of law and the equal enforcement of the law to prevent illegal monopolization.
- Importantly, achieving a monopoly via excellence is not illegal, however, acquiring market power and a tendency toward monopoly is illegal.
- Just like heavy handed government regulation can cause market failure on one hand, on the other hand, absentee antitrust law enforcement that facilitates monopolization via acquisition also can cause market failure.
- While antitrust forward-looking analysis can be difficult and be prone to understandable errors in judgement, not investigating three years of experience and mounting evidence after the fact is much less difficult and not an understandable error in judgement.
- Moreover, Section 1 & 2 of the Sherman Antitrust Act provide the DOJ and FTC the means to revisit whether Google's representations, and the DOJ's and FTC's many market and deal assumptions, were accurate or not, given the last three years of real world experience and evidence to the contrary.
- If antitrust authorities are unwilling to revisit previous prosecutorial market predictions and assumptions, based on new evidence to the contrary, justice can not be served and Google's illegal monopolization will continue to rapidly proliferate like a cancer throughout the digital economy.
The premise of this analysis is simple: Google has illegally acquired market power. (Importantly, getting up-front DOJ/FTC approval of YouTube, DoubleClick and AdMob is not a permanent "Monopoly" "get-out-of-jail-free-card," if the original approvals prove to be based on erroneous representations and assumptions. There is no double jeopardy concept here, just the discomfort of having to revisit previous decisions that did not withstand the test of time and the facts.)
- It is telling that the only non-search billion dollar businesses that Google has discussed publicly to date, are Google's announced $2.5b annualized display advertising business and its $~1b annualized mobile business.
The purpose of this piece is to spotlight that Google's super fast-growing display and mobile businesses are not "new businesses," but basically acquired businesses, or acquisition-dependent businesses that are performing extraordinarily only because of the acquired illegal market power.
- Google loves to claim that all of its success is a result of organic Google excellence and innovation.
- The deep fissure marring that claim is the stark dichotomy of Google's performance, before and after Google acquired market power via acquisition.
II. YouTube
When Google proposed to buy YouTube in 2006, the DOJ declined to conduct a second request, i.e. a more detailed investigation to determine if there were potential anti-competitive concerns. Experience and results since then strongly suggest its deserved much closer scrutiny then and as it does now.
- Before Google bought YouTube, Google's organic offering, Google Video was a weak online video competitor. The DOJ now knows how weak because the Viacom vs. Google-YouTube copyright infringement suit before the Second Circuit Court of Appeals, has a raft of undisputed facts and evidence that confirms this.
- Since Google bought Youtube, YouTube has become the second largest generator of search queries in the world, easily surpassing Google's main search competitors, Yahoo or Google, and comprising more than one quarter of all Google searches -- per ComScore.
- Moreover, ~75% of Google's search gains from 7-06 to 7-10 are attributable to YouTube per Googleopoly VI p.11.
- So after Google bought YouTube, Google went from a weak Google Video offering, to by far the most dominant online videocaster in the world, a "monocaster" (per Googleopoly VI p. 14,15) that:
- Reaches 80.4% of the Internet video viewing audience (the next largest reach is Yahoo with 30.9%);
- 45 billion ads served daily;
- 2 billion ads monetized weekly;
- 160m mobile streamed views daily; and
- 94 of top 100 Ad Age advertisers.
III. DoubleClick and Display Advertising
Google was not a material competitor in display advertising before it bought DoubleClick because that was one of the reasons the FTC justified approving Google's acquisition of DoubleClick 4-1 in December of 2007.
- DoubleClick, a decade old mature business in 2007, had revenues of just ~$300m when Google bought them.
- Google boasted on its earnings call last week, that Google has a $2.5b annualized display advertising business.
- That is an unnatural growth rate off a mature $300m base of ~833% over three years or about a ~200+% annual growth rate for Google's display advertising.
- That compares with online advertising growth of ~20% over three years or ~6% annual growth per the IAB.
- It would seem that someone at the DOJ and FTC would want an explanation of how a monopoly-integrated service could grow 41 times faster than the overall market without any illegal market power at work from the YouTube and DoubleClick acquisitions.
IV. AdMob and Mobile
Now Google is now boasting ~$1b annualized mobile business even though it gives its Android operating system away for free. (It is important to note that this ~$1b is double counted with the ~$2.5b display advertising business as they are different slices of the same thing.)
That said, Google understands that it already has acquired what it needs to acquire in order to extend its dominance in PC-advertising to dominance in mobile-advertising.
- Statcounter estimates Google's mobile search market at 98%.
- With YouTube, Google streams 160m daily video views to mobile devices, vastly more than anyone else.
- With DoubleClick, Google serves vastly more ads than any other provider (45b ads served daily overall and 2b video monetized ads weekly).
With the FTC's approval of AdMob, the FTC allowed Google to acquire half of the in-app advertising market, and triple their market share of that market from 25% to 75%, because the FTC feared that the new entrant to the market, Apple would not be malleable FTC witness at trial.
Since Apple has not acted as the FTC feared, the only thing the FTC has to show for its antitrust enforcement efforts -- is having tipped Google to monopoly with DoubleClick by giving Google most all the users, advertisers, and publishers that Google did not have, and is having ceded the mobile-advertising market to Google as well.
V. Conclusion
The evidence is overwhelming that the DOJ and FTC's forward-looking predictions and assumptions in YouTube, DoubleClick and AdMob have proven horribly wrong and have created a serious market failure. As a result, Google's monopolization efforts are rapidly proliferating like a cancer throughout the digital economy.
Unlike the FTC, the DOJ has shown strong backbone in standing up to Google's monopolization efforts.
- DOJ threatened a Sherman Section 2 case to get Google to back off the proposed Google-Yahoo ad agreement.
- DOJ has twice opposed Google's efforts to monopolize book-related markets in the proposed Google Book Settlement.
- The DOJ sanctioned Google via a Consent Decree to prevent Google from anti-competitively preventing their employees from earning a market rate for their services.
At a minimum, the DOJ needs to block Google's acquisition of ITA Software and end Google's illegal serial acquisition of market power.
Most importantly, the DOJ needs to investigate and file a Sherman Section 1 & 2 monopolization case against Google to clean up the serious mess created by tipping Google to monopoly and extending Google's monopoly via acquisitions.
- If the Clayton Act Section 7 antitrust standard that companies cannot acquire market power is to have meaning or credibility in the future, the DOJ has to correct the big mistakes the DOJ and FTC have made in enabling Googleopoly -- the biggest antitrust threat of the 21st century by far.
