With the official conclusion of the FTC antitrust investigation of Google-DoubleClick, what's changed or what's different for Google going forward?
Impact on EU review? The real tactical reason the FTC majority was pushing hard to decide this merger before the end of the year was to try and take the wind out of the sails of the EU's review.
- It will be interesting to see what the impact of the FTC's very Google-friendly approach to market definition will have on the EU review.
- Moreover, it will also be interesting to see if the EU finds an analytical soulmate in Commissioner Harbour's dissent -- which took a more European, common-sense and forward-looking perspective on the merger -- rather than the majority's tortured market definition analysis that is driven by the unique US prosecutorial model -- where the real world standard is not whether the merger is anti-competitive or not, but whether the FTC is confident that it can convince a random Federal judge that it is in fact, legally anti-competitive.
- Thus, the EU process is neither a carbon copy nor a rubber stamp of the American FTC process.
- We could learn sometime in January whether the EU has its own independent concerns about the merger in a possible "statement of objections" procedure, or if the EU is looking to basically follow the FTC's lead.
Enhanced FTC Scrutiny: Before the merger, the FTC, which is the default lead overseer of Internet competition and consumer protection, was not very informed about Google, Internet competition and/or online advertising. However, they are now.
- Now the Internet's de-facto competitive referee has declared to player Google: I "got your number" and will be watching you closely.
- "We want to be clear, however, that we will closely watch these markets and, should Google engage in unlawful tying or anti-competitive conduct, the commission intends to act quickly."
A less friendly future FTC majority? If, as conventional wisdom suggests, the next Administration is a Democratic one in 2009, it is important to remember that Commisioner Harbour opposed the merger, because she disagreed with the majority's conclusions and was concerned that the staff/majority basically ignored the very real problem of "network effects".
- Moreover, Commissioner Leibowitz, while concurring with the majority, was more candid about the difficulty of the many judgements the staff made than the show-no-doubt staff/majority opinion.
- Furthermore, in his statement, Commissioner Leibowitz effectively concluded that Google has market power -- "...given Google's existing market power, presents serious competitive concerns."
Ominous market definition for Google going forward? The good news for Google in this transaction was that the majority concluded that "online advertising does not constitute a relevant antitrust market."
- The bad news for Google is that the FTC analysis obviously subdivided the online advertising market into much smaller market segments.
- It's bad news because the Doubleclick acquisition will almost certainly help increase Google's search share by introducing Google to most all of the hundreds of advertisers and publishers that Google currently does not have.
- In other words, the FTC's narrow market definition freed this transaction to proceed but will also have the additional effect of putting Google on a much tighter antitrust leash in the many sub markets that Google is poised to dominate over time.
- For example the majority acknowledged that:
- "...search engines provide a unique opportunity for advertisers to reach potential customers." (Google's dominant search share is rising steadily.)
- "Google, through its AdWords business, is the dominant provider of sponsored search advertising..."
- The narrower market definition mindset could have the effect of emboldening the FTC to be more enforcement proactive in the future, if they find Google being anti-competitive in these more tightly defined markets...
New Privacy Intervention Momentum: But for this merger, it is unlikely that the FTC would have proposed new privacy guidelines for the online advertising industry like they did today.
- It was no coincidence that the FTC released new privacy guidelines simultaneously with the approval of the merger.
- The new FTC privacy guidelines are very straightforward, measured and common-sense-based. I expect them to attract a lot of consensus going forward.
- They deserve kudos.
In sum, I obviously disagree with the FTC majority's conclusion that the merger is "unlikely to substantially lessen competition" largely because the FTC derived its conclusion from a gerrymandered and tortured market definition that disregards common sense and how this market is currently evolving through convergence.
- It is clear to me that they "missed the forest for the trees" and only looked at a static analysis of the market with little interest in understanding how technological convergence and network efffects are dramatically reshaping the business of online advertising.
- I don't believe history will be kind to this decision. Network effects are real and are extraordinary on the Internet and in online intermediary markets.
- After losing its last few merger challenges in court it is understandable that the staff were gunshy about making any forward-looking judgements at all.
- Unfortunately, their reluctance to make forward-looking extrapolations of well known convergence trends and market network effects yields a static and backward-looking historical analysis that almost by definition will not find any prospective competitive problems.
- Remember the old adage: "you find what you look for."
- It's clear to me that the staff were not looking to understand where this market is clearly going only where it had been historically because that was the prosecutorial constraint reality after losing so many merger cases in court.
