To see the big picture and understand the likely outcome here that the FTC will block Google-AdMob, its helpful to run through the FTC's likely Google-AdMob checklist decision process.
1. Are Google and Admob competitors? Yes.
- By their own admission they are actual direct horizontal competitors.
2. Is the market highly concentrated? Yes.
- Google is the #2 in-app mobile advertising provider with ~25% share and is seeking to buy #1 AdMob, which has ~50% share. See here & here.
3. Are there barriers to entry? Yes.
- Online markets are widely known to be characterized by first mover advantage, network effects, and the scale and scope advantages of inventory, distribution, audience, and client base.
4. Does Google have market power? Yes.
- Per the DOJ's blocking of Google-Yahoo's ad agreement, Google has dominance in search advertising and search advertising syndication.
- Per the FTC in Google-DoubleClick, Google is dominant in "sponsored search advertising."
- Precursor's latest estimates are that Google has >90% of search advertising revenue share.
5. Does the acquisition "substantially lessen competition" the antitrust standard here? Yes.
- Per the FTC/DOJ new antitrust guidelines, the merger eliminates the market's stongest competitor and primary competitive incentive for innovation. Per the new antitrust guidelines:
- "Given this inherent need for prediction, these Guidelines reflect the Congressional intent that merger enforcement should interdict competitive problems in their incipiency and that certainty about anticompetitive effect is seldom possible and not required for a merger to be illegal." (p.1)
- "A merger can enhance market power simply by eliminating competition between the merging parties." (p. 2)
- At the time of acquisition, AdMob publicly proclaimed to be "the world's largest mobile advertising marketplace."
6. Does the extraordinary price and "kill fee" Google agreed to pay AdMob suggest a threat to competition? Yes.
- Per the new FTC merger guidelines:
- "The financial terms of the transaction may also be informative regarding competiive effects. For example, a high purchase price may indicate that the acquiring firm is paying a premium to reduce competition or that the acquired firm has assets not easily replaced." (p.4)
- Google paid an estimated 16 times sales to snatch AdMob from Apple and agreed to pay an unheard-of $700m (93%) guarantee kill fee payment to AdMob, if the deal did not consumate.
7. Have previous Google acquisitions of first-movers like AdMob added to Google's market power? Yes.
- YouTube: Google's acquisition of first mover YouTube in 2006 turned out to have helped tip Google to monopoly dominance of searches. YouTube is now the second largest generators of searches in the world after Google, and YouTube now generates over one quarter of all of Google's searches.
- Moreover, the treasure trove of undisputed facts uncovered by Viacom in the Viacom vs. YouTube copyright infringement case, proves that Google so deeply understood the criticality of first mover advantage to its quest for dominance that it agreed to change its Google Video copyright policy from respecting rights holders to totally disregarding rights holders in order to build dominant share.
- DoubleClick: Google's acquisition of first mover DoubleClick gave Google most all of the advertising clients and publishers Google did not have, which also helped tip Google to monopoly.
- (It is very likely that the FTC learned the lesson from the YouTube and DoubleClick mistakes that playing the role of official enabler in the acquisition of significant online first movers by a dominant online player -- is the functional equivalent of adding gasoline to an anti-competitive fire.)
8. Is there other evidence of a Google pattern to attempt to extend its monopoly into new markets? Yes.
- The Bush DOJ blocked the Google-Yahoo ad agreement 11-5-08 and was reportedly prepared to file a Sherman Section 1 & 2 monopolization case against Google for collusion in attempting to cartelize the wholesale search syndication market.
- The Obama DOJ has twice opposed (here and here)Google's attempt via the Google Book Settlement to illegally corner the market for digital orphan works.
9. Has Google misled the FTC before? Yes.
- The FTC approved Google DoubleClick (4-1) in December 2007 based on strong Google representations that Yahoo would remain a viable competitor. Less than six months later, Google actively broke up Microsoft's proposed acquisition of Yahoo as a "white knight" and proposed an ad agreement deal with Yahoo that the DOJ blocked as a bald attempt at monopolization of the search advertising and search advertising syndication markets.
- When the FTC began investigating Google's overlapping directorates, i.e. Google CEO Eric Schmidt's seat on Apple's Board, Google's Schmidt baldly asserted Google and Apple were not competitors.
- Since then it has become obvious Google has long been preparing to compete with Apple via: Chrome vs. Safari, Droid vs iPhone, Android vs. Apple, Google pad vs, iPad, AdMbob vs. Quattro, etc.
10. Is the FTC serious about the Administration's policy of tougher antitrust enforcement? Yes.
- The DOJ withdrew the previous Adminstration's monopolization report that would make Sherman Section 2 monopolization cases very difficult to bring.
- The DOJ/FTC released new tougher horizontal merger guidelines that have a bias for stopping anti-competitive mergers at their "incipiency."
- Google-Admob is a textbook case of a merger that runs afoul of the new horizontal merger guidelines.
11. Can the FTC win the Google-AdMob case? Yes.
- First, the FTC can't enforce antitrust without being willing to prosecute cases. Simply, the FTC can't win if it does not try.
- Second, Google is likely to back down and not challenge the FTC in court. Despite the trash talk at the time that Google thought it could win the DOJ case against the Google Yahoo ad agreement, Google blinked at the last minute and backed down when when confronted with a resolute antitrust enforcer.
- Google does not want to add fuel to the fire of the many who are calling for a broader monopolization case against Google in the U.S. and in the EU by going to war with the FTC over AdMob.
- Moreover, Google has already achieved many of its real competitive goals in:
- Keeping AdMob from Apple;
- Weakening AdMob as a competitor by putting it on ice for seven months; and
- Learning many of AdMob's competitive/trade secrets through deal due dilligence.
- Furthermore, in court Google risks the Government either bringing up Google's prior and other bad antitrust acts or expanding its case against Google beyond AdMob.
- Thus, Google should be a whole lot more afraid of the FTC than the FTC should be afraid of Google. (Let's also not forget that the FTC is also considering new behavioral advertising regulations that Google opposes.)
- Those that point to potential competition from Apple's nascent iAd platform as a reason that Google could win its case, conveniently ignore that:
- Apple is a new entrant into advertising;
- Quattro is a weak launch pad, seriously inferior to Apple's first choice AdMob;
- Apple serves only part of the market, not all of it like Google and AdMob; and
- Apple and others are not going to be able to replace in the next 1-2 years the competition Google would be able to eliminate by taking out AdMob.
12. Will the FTC keep its promise in approving Google-DoubleClick? "We want to be clear, however, that we will closely watch these markets and, should Google engage in unlawful tying or other anticompetitive conduct, the Commission intends to act quickly.”
- Yes. As a law enforcement agency, the FTC knows it can't talk tough and then not act tough, otherwise they lose credibility and deterrence.
In sum, it is easy for many to over-emphasize the newest or latest twist in an antitrust matter that is largely conducted in secret. That also makes it easy to get myopic and miss the proverbial forest for the trees.
Simply, Google AdMob is very likely to be blocked because the evidence is overwhelming that the acquisition would "substantially lessen competition" the real standard here, and because antitrust authorities know they can't avoid having to confront Google eventually with a court case, if they are going to enforce the law and do their job.
- Even Google's well-known political influence and legendary PR machine can't subvert the law enforcement process or thwart the FTC staff recommendation to prosecute Google-AdMob.
*****
Google-AdMob one-page chart.
30-page Google-Admob backgrounder.
