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Google's Biggest Customers Oppose Goohoo Ad Pact!

Google, you have a problem. The verdict of your biggest customers is in -- and you've been found guilty of not pursuing your clients' best interests.

  • The ANA, the nation's largest association of advertisers and marketers representing ~9,000 brands, just wrote the DOJ formally recommending that the DOJ oppose the Google-Yahoo advertising partnership as anti-competitive.  

I have two big takeaways for you:

  • First, despite the ANA letter, Google continues to claim that Google knows better what's best for their advertiser clients than their advertiser clients do.
  • Second, at core, the DOJ is investigating the Google Yahoo ad pact for illegal price fixing collusion; this is relevant because DOJ antitrust chief Tom Barnett has stated that prosecution of price fixing is his Division's highest enforcement priority.

First Takeaway: Google clearly doesn't subscribe to the old adage -- the customer is always right. Google knows best and isn't afraid to tell most of its biggest customers they are wrong -- in public. 

Rather than publicly respond to the anticipated ANA letter with respectful comments about how Google looks forward to better explaining how the ad pact will benefit Google's customers, Google essentially wagged their finger at their customers in public telling them they don't know what's best for themselves.  

Listen to the tone of Google spokesman Adam Kovacevich's response to the letter per Reuters and judge for yourself:

  • "While some have raised questions about the agreements' potential impact on ad prices, advertisers care far more about getting a good return on their advertising dollar than they do about buying cheap ads that don't bring in customers, and this agreement will clearly help advertisers reach Yahoo users more efficiently," Kovacevich said."
  • Kovacevich also said: "numerous advertisers have recognized that this agreement will help them better match their ads to users' interests, and that ad prices will continue to be set by competitive auction."
  • Translation: Google is really saying: The ANA is wrong and doesn't know what it is talking about. Unlike the ANA, smart advertisers appreciate the return on advertising dollar that Google uniquely gives them -- so they shouldn't worry their little heads about competition, market concentration, price, or talking to the DOJ.  Advertisers need to get with the times -- that the world does not revolve around advertisers anymore, it revolves around Google.

Second Takeaway: Conventional wisdom that the Google-Yahoo partnership will pass DOJ muster is based on a false process assumption -- that this DOJ investigation is essentially like the common merger review process where most mergers are approved and where this DOJ has a reputation of being merger-friendly.   

The process at play here is described in a DOJ antitrust primer called: "Price Fixing & Bid Rigging -- They Happen: What they are and what to look for." 

Listen to what the DOJ says in this primer:


  • "The competitive process only works, however, when competitors set prices honestly and independently. When competitors collude, prices are inflated and the customer is cheated. Price fixing, bid rigging, and other forms of collusion are illegal and are subject to criminal prosecution by the Antitrust Division of the United States Department of Justice."
  • "...Under the law, price-fixing and bidrigging schemes are per se violations of the Sherman Act. This means that where such a collusive scheme has been established, it cannot be justified under the law,..."
  • "Collusion is more likely to occur if there are few sellers. The fewer the sellers, the easier it is for them to  get together and agree on prices, bids, customers, or territories."

Also listen to what DOJ Antitrust Division Chief Thomas Barnett said in testimony before the House Judiciary Committee on September 25, 2007: 

  • "The detection, prosecution, and deterrence of cartel offenses such as price fixing, bid rigging and market allocation continue to be the highest priority of the Antitrust Division. There is no plausible procompetitive rationale for this behavior."

Conventional wisdom assumes it understands this process -- it doesn't -- it is assuming the wrong process.

  • Unlike the working assumption in the merger process that most all mergers get approved by the government, the working assumption for this type of investigation is that price fixing is per se illegal -- in lay mans terms, price fixing is assumed under the law to be illegal. 
  • Where Google and Yahoo may be most vulnerable is that a core assertion in their defense -- that inventory is always priced by competitive auction -- is simply false.
    • A substantial number of Google and Yahoo's ad sales do not experience any competitive bids -- so both Google and Yahoo in fact frequently set the floor price for that type of common sale. 
    • An obvious concern of DOJ investigators must be that price fixing must be going on with those set prices -- if Google is confident enough in advance to guarantee Yahoo almost one billion dollars more than Yahoo could earn on its own in a competitive marketplace. In other words, Google would have to persuade the DOJ that the ad arrangement only generates new volume benefits and does not generate any pricing power whatsoever. That's a very tall order.  

Bottom line: The critical fact that responsible representatives of a majority of Google's largest customers oppose the Google-Yahoo ad pact, make it more likely than not that the DOJ will oppose the Google-Yahoo partnership as proposed.

  • Simply, it is unlikely, in a per se price fixing case, that the DOJ will side with Google and Yahoo -- over thousands of mainstream advertisers asking the DOJ to enforce what the DOJ says is highest enforcement priority.