US sue Google to disband ad unit amid escalating antitrust war

(Bloomberg) – The U.S. Department of Justice and eight states have sued Alphabet Inc.’s Google, demanding the dissolution of the search giant’s advertising technology business over alleged illegal monopolization of the digital advertising market.

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“The damage is clear: website builders earn less and advertisers pay more than in a market where unrestrained competitive pressures could discipline prices and lead to more innovative ad tech tools, ultimately resulting in higher quality and lower transaction costs for the market would lead participants,” the Justice Department said in the complaint, which was filed in federal court in Virginia. “This behavior hurts us all.”

New York, California and Virginia were among the states that joined the complaint.

Google didn’t immediately respond to a request for comment.

Alphabet extended declines on the news, falling as much as 1.4% towards a session low. The stock slipped 23% in the 12 months ended Monday, underperforming the Nasdaq 100 index.

The lawsuit marks the Biden administration’s first major case challenging the power of one of the country’s largest tech companies and continues an investigation that began under former President Donald Trump. It’s also one of the few times the Justice Department has called for the dissolution of a major corporation since it dismantled the Bell telecom system in the 1980s.

Google is the dominant player in the $278.6 billion digital advertising market, controlling most of the technology used to buy, sell and deliver online advertising. The Justice Department said that Google’s dominance allows it to withhold at least $0.30 from every dollar advertisers spend through its online advertising tools. A solution to the case could be years away.

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The lawsuit is the DOJ’s second antitrust lawsuit against Google and the fifth major case in the United States challenging the company’s business practices. Attorneys general have filed three separate lawsuits against Google alleging that Google is dominating the online search, advertising technology and apps markets on the Android mobile platform in violation of antitrust laws.

The allegations in the DOJ’s lawsuit mirror those made by attorneys general in 16 states plus Puerto Rico in 2020. This lawsuit is pending in federal court in New York.

Based in Mountain View, California, the company is ranked #1 in the $626.9 billion global digital advertising market by 2023, with the U.S. being the largest chunk, according to estimates by research firm EMarketer. Alphabet’s advertising business is expected to generate $73.8 billion in US digital advertising revenue in 2023. Most of that, $58.50 billion, comes from Google’s search advertising business. The remaining $15.29 billion comes from display ads. Google operates an ad-buying service for marketers and an ad-selling service for publishers, as well as a trading exchange where both parties complete transactions in lightning-fast auctions.

These exchanges work like online stock trading platforms with an automated bidding process. Competitors and publishers have complained that Google is using parts of this vast network, like its Ad Exchange, to help other areas and competitors. According to EMarketer, Google alone is expected to generate about $65.7 billion in digital advertising revenue in the US this year, accounting for about 26.5% of the market, while YouTube accounts for another 2.9%.

Google argues that the online advertising market is crowded and highly competitive. In court filings and congressional testimony, the company has noted that its competitors include other big players in the ad tech market, such as Amazon.com Inc., Meta Platforms Inc., and Microsoft Corp.

According to EMarketer, the company’s market share has declined over time from a 2015 peak of 37.4% of digital advertising spend in the United States.

The investigation into the department’s control over Google’s control of the ad-tech market dates back to the Trump administration. The DOJ, under then-Attorney General William Barr, instead sued Google over its search business, claiming the company used exclusive distribution deals with wireless carriers and phone manufacturers to eliminate competition. This case is scheduled to go to trial in September.

But the agency under Biden continued to study ad technology. After Kanter was confirmed to head its antitrust division in November 2021, Google asked the Justice Department to consider whether Kanter should be barred from any lawsuits involving the company because of his previous work as a representative of its critics. Kanter was barred from working on Google’s monopoly investigations while the Justice Department debated his possible refusal.

The Justice Department eventually ruled that Kanter could work on Google-related cases.

The case is US v. Google, 23-cv-108, US District Court, Eastern District of Virginia (Alexandria).

–Assisted by Davey Alba and Emily Birnbaum.

(updates with shares in fourth paragraph)

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