September 30, 2007
Scott Cleland - Imagine one company was allowed to become the world's de facto editorial filter by which Internet content gets found, the only revenue collector for most Web sites and the dominant gatekeeper for any business seeking to reach Internet users and Web sites.
Imagine further that one company had "private dossiers" on most all Internet users that could, with substantial accuracy, tell the company any individual's religion, politics, health status, income level, sexual preference, gender, age and personal secrets — and had an economic incentive to secretly exploit those individuals' private information for financial gain. Finally, imagine that company had little accountability to consumers, competition, regulators, or independent third-party oversight.
One doesn't have to imagine this company at all, because these are the very real stakes in the merger review of the pending Google-DoubleClick transaction by the antitrust authorities at the U.S. Federal Trade Commission and the European Commission. While most everyone knows Google as the worlds most popular search engine and leading brand, few are familiar with privately-owned DoubleClick, which is the behind-the-scenes global leader in serving online ads to Web sites around the world. These antitrust reviews will determine if combining the No. 1 and No. 2 global networks of Internet advertisers, Web sites and viewers would be anti-competitive.
The public relations challenge for antitrust authorities is the "Internet choice paradox." How can the Internet, which offers consumers so much content choice at the same time present so little real choice for businesses to monetize their content on the Internet? It turns out the same extraordinary global scale distribution efficiencies and minimal transactional friction costs that make the Internet so easy for any consumer to use are also "winner-take-all" advantages, which in the hands of the two most dominant global companies in online advertising, Google and DoubleClick, become a deadly chokehold on Internet competition.
Consider the compelling evidence of this "Internet choice paradox" and the extreme market concentration of the online advertising market:
(1) A combined Google-DoubleClick would control a 90 percent share of the 500,000 companies advertising online globally (William Blair & Co.), and 85 percent of the top 20 Web sites globally (DoubleClick).
(2) A combined Google-DoubleClick could also reach more than 90 percent of the Internet viewers given that Google's search share is 65 percent and DoubleClick's ads are viewed by 85 percent of Internet users (shares from Hitwise, EPIC).
(3) A combined Google-DoubleClick would control 78 percent of the advertising publisher tools market segment (LECG's David Evans, a Microsoft consultant).
(4) Google appreciates that the most effective way for Google to "tip" its 75 percent share of search revenues to a much larger share is to cross-pollinate the targeting of DoubleClick's 60 percent share of display ads with Google's 75 percent share of search ads (shares from eMarketer, SEC filings).
So what's at stake? This merger review is about whether governments grant one company de facto bottleneck control over online advertising, the only proven monetization engine for Internet content globally.
These high stakes only become extreme because of obvious Internet trends. First, online advertising revenues eclipsed radio advertising revenues this year (eMarketer) and they are projected to surpass TV revenues, the No. 1 advertising medium, in 2011 (Veronis Suhler estimates). They will continue because online advertising is so much more targeted, relevant and measurable than offline ads.
Second, most all content — news, books, audio, video, research, databases, etc. — are rapidly being digitized and migrating to the Internet, because of the extraordinary global scale and scope efficiencies of Internet distribution. Thus, the Google-DoubleClick merger, which will have unique business access to 90 percent of Internet viewers and 90 percent of Internet advertisers, will be uniquely positioned to become the supreme unregulated utility or market standard gatekeeper for monetizing content on the Internet.
Bottom-line, if a business wants its content to succeed on the Internet, it would have no choice but to use the Google-DoubleClick-YouTube online advertising platform. No real competitive choice, that is.
The stakes increase even further. Will Google be allowed to acquire the business building blocks to construct an online advertising "platform" where Google could leverage its "must buy" status in search, with DoubleClick's "must-buy" status in display ads, with their joint "must-have" consumer click database and analytic tools, to corner the potentially bigger online markets of ad brokering and ad exchanges? Or will lax merger enforcement and the enablement of a monopoly Internet bottleneck force individual countries to regulate the Internet in the absence of sufficient competition, therefore Balkanizing and undermining the Internet's universal value?
In sum, will lax antitrust enforcement enable the ultimate Internet gatekeeper? Will the Internet become Google's net?
Scott Cleland is president of Precursor LLC.
