Confidential
Summary of Antitrust Analysis:
Google’s Proposed Acquisition of DoubleClick
I. Introduction
· Advertising is the fuel that powers the Internet. By combining the dominant network for sales of online advertising with the dominant provider of ad-serving tools (which are the advertiser and publisher “portals” to the online advertising market), Google will obtain dominant control over the “pipeline” for online advertising. The transaction will put Google in a position to extract an increasing portion of the money flowing between advertisers and publishers through the pipeline. It will also enable Google to use its access to, and control over, a predominant share of publisher “inventory” (the ad space on a Web page available to be seen by users) and valuable user information to impair its rivals’ ability to compete to sell and serve ads.
· By acquiring the dominant provider of ad-serving tools that publishers use to manage and make their inventory available to advertisers, Google will force other online ad networks to build and market their own ad-serving tools. Unless and until Google’s competitors are able to obtain access to competitively neutral and unbiased ad-serving tools like those currently provided by DoubleClick, the ability of Google’s rivals to create viable alternative pipelines will be very difficult, if possible at all. Moreover, by the time competitors are able to assemble their own pipelines, given the network economics that characterize online advertising, Google likely will have obtained in non-search advertising the same unbeatable market position that it now enjoys in search advertising.
· If the transaction is allowed to proceed, Google will control so much of the publishers’ inventory and such a large portion of advertisers that Internet competitors trying to catch up will not have access to sufficient inventory and advertisers to mount a credible competitive challenge to Google.
II. Relevant Markets
· Ad-serving Tools (publisher tools and advertiser tools)—Ad-serving tools provide the functionality that determines which advertiser gets access, and what ad gets served, to particular ad space on a particular Web page. The tools also gather information about the user (for example, by placing cookies on a user’s browser and then reading the cookies when that user returns). The tools also store user information, and provide analytics for interpreting the information in order to target ads to the user dynamically as each Web page appears. Publisher tools thus can convey to publishers how their ad space performed (e.g., which ads were served at what price) and advertiser tools can provide advertisers information about how their campaigns on one Web site performed versus other Web sites.
· DoubleClick currently is the dominant provider of standalone tools to publishers and advertisers with approximately 65% and 52% share, respectively. It has only two distant competitors, 24/7 (recently acquired by WPP) and aQuantive (recently acquired by Microsoft).
· Google is a major player because the advertiser and publisher ad-serving functionality is integrated into AdSense. In addition, Google is in the final stages of developing and testing its own standalone tools.
· Financial Intermediation—Participants in this market provide a mechanism for transacting sales of publisher inventory to advertisers. Early in the history of online advertising, virtually all sales were made directly, or “by hand,” by the publishers’ sales force dealing directly with advertisers or their agents. More recently, ad networks and ad exchanges have developed to facilitate the automated sales of inventory that was previously sold directly or is being offered by publishers too small to field a direct sales force. Typically, the ad network obtains access to this inventory, referred to as “discretionary” or “remnant” inventory, which the network then sells to advertisers. The network retains some portion of the revenues and passes the rest back to the publisher.
· Google used its dominant AdWords network to become the leading non-search ad network. It currently has a lock on smaller publishers in the “long tail” of the Internet and has used search syndication deals to get exclusive control over portions of the inventory of larger publishers.
· While directly sold ads in many cases yield significant premiums for publishers who can afford a direct sales force, networks have been closing the gap through sophisticated targeting techniques that allow the networks to enhance the value of inventory aggregated across publishers.
III. Elimination of Competitive Overlaps
· Elimination of actual competition
· The acquisition eliminates the existing competitive overlap between DoubleClick’s ad-serving tools, DFP and DFA, which are currently sold on a stand-alone basis and the ad-serving capabilities integrated into Google’s AdSense. As a result of the acquisition, Google will serve—on a revenue basis—almost 78% of all non-search ads served to third-party Web pages (that is, 78% of all ads served to the Web pages of publishers who do not have proprietary ad-serving tools—today, only MSN and Yahoo! have such tools).
· Elimination of important potential competition
· Prior to entering its agreement to acquire DoubleClick, Google was in the process of launching its own ad-serving tools to compete directly with DoubleClick’s DFP and DFA offerings.
· We understand that these tools are called Google Ad Manager for Publishers and Google Ad Manager for Advertisers (referred to in the industry as GFP and GFA, respectively) and were being marketed by Google even before they agreed to buy DoubleClick.
· Under DOJ’s Non-Horizontal Merger Guidelines, Google’s acquisition of DoubleClick would harm competition by eliminating potential competition: 1) assuming, arguendo, it is a separate market, DoubleClick dominates standalone tools for publishers (with a 65% share) and for advertisers (with a 52% share); 2) entry into tools is difficult; and 3) Google is unique in its willingness and ability to enter this space.
· Similarly, DoubleClick recently launched a full-featured ad exchange (DoubleClick Advertising Exchange) that, in the absence of the acquisition, would have created a formidable direct competitor to Google’s AdSense.
IV. Harm to Competition from Combining Related Dominant Positions
· Combining DoubleClick’s dominant (and previously neutral) ad-serving tools with Google’s dominant online ad networks, will give Google end-to-end control of the dominant, integrated pipeline for online advertising. Advertisers and publishers wishing to buy and sell non-search online advertising will have no real alternative for transacting online non-search advertising.
· As a result of its acquisition, Google will control access to an enormous share of publisher inventory. By denying or degrading other networks’ access to DoubleClick (and through it to the inventory), Google will make it virtually impossible for other networks to get sufficient scale to compete with Google.
· By making DoubleClick’s DFA the only ad-serving tool that is fully and seamlessly integrated with AdWords and AdSense (today, Google’s exclusionary practices effectively prevent any ad-serving tools to integrate with Google’s ad networks), Google will similarly be able to trap advertisers and make it more costly for competing networks to attract sufficient advertiser demand to compete with Google.
· Given the large portion of advertisers who already view Google’s ad networks as a “must buy,” and given the huge share of publisher inventory and data to which the combined Google/DoubleClick will have access, the combination will enjoy network effects that will compound the exclusionary impact of the merger on rival networks and ad-serving tool vendors.
· Under established precedents, a merger of dominant firms in vertically related (or complimentary) markets can violate the antitrust law. That is particularly true when the acquired party controls assets that competitors of the acquiring party have relied on to reach the market and that cannot be duplicated in a timely fashion once the assets are acquired by the dominant rival. One recent example is Monsanto/Delta & Pine Land, where the Department of Justice challenged a vertical transaction under analogous—and arguably less compelling—facts.
· The Department’s Non-Horizontal Merger Guidelines articulate a conservative analytical framework for vertical mergers that may have adverse effects on horizontal competition.
· Increased Barriers to Entry
· First, the Non-Horizontal Merger Guidelines recognize that a vertical merger can raise barriers to entry if: (i) the result of the merger is that insufficient unintegrated capacity is left at one level to accommodate competitors at another level, resulting in those rivals being forced simultaneously also to enter the first level in order to compete; (ii) the requirement of two-level entry makes entry more difficult and less likely; and (iii) at least one level is not competitive.
· All three factors are present here: Google’s acquisition of DoubleClick would result in Google controlling a virtual monopoly share of the ad-serving capacity currently available to third-party publishers and thus would raise barriers to entry/competition to insurmountable levels (and require competitors to confront a rival that is dominant in every component of the pipeline and that can manipulate network effects to make entry even more difficult).
· Given Google’s history of providing software or services for free in exchange for the right to have and use data, it is not a stretch to predict that Google will offer DFP for free in exchange for, among other things, giving Google a “first look” at the publisher’s remnant inventory. As a result, Google will be able to “cream-skim” the most valuable publisher inventory and/or use the publisher’s cookie data in a more extensive manner than they already do. This conduct would further exacerbate the already significant inventory and data barriers to entry and weaken the ability of rival ad networks (and others) to compete on the merits.
· Moreover, today, Google affirmatively discourages the integration of AdWords into buy-side tools. Google demands that third-party tools segregate keywords on the AdWords network from keywords on other networks and manipulates the API required to access AdWords. Because AdWords is a “must buy” for advertisers, these policies inhibit the ability of vendors to develop tools that reduce the cost and time that advertisers must spend managing ad campaigns on multiple platforms like those of Google, Yahoo, and Microsoft. Google will be willing to relax these exclusionary practices only for its wholly-owned DoubleClick. As a result, Google will be able to trap advertiser demand for both search and non-search online advertising and to increase the cost and time required for competing networks to attract sufficient demand to compete with Google.
· Monitoring competitors’ prices
· Second, the Non-Horizontal Merger Guidelines recognize that a vertical merger may adversely affect competition by providing the merged firm with access to competitively sensitive information of its rivals, making it easier to monitor price. By acquiring access to DoubleClick’s tools, Google will have access to real-time information on the alternative prices (and other competitively sensitive information) at which publishers can sell their inventory and advertisers buy inventory. Using this information, Google will be able to minimize Google’s price (or portion of the total ad revenue that Google passes through) to publishers for their inventory, to maximize the price it charges advertisers, and to extract the maximum amount of revenue flowing between advertisers and publishers.
V. No Countervailing Justifications
· The fact that Google was on the verge of introducing ad-serving tools that compete with those of DoubleClick indicates that this merger is not necessary to generate any consumer welfare benefits. Moreover, the fact that Google does not depend on DoubleClick’s ad-serving tools indicates that this transaction is not intended to reduce “double-marginalization.”
· Any “efficiencies” from the combination of DoubleClick’s information with that of Google or from integrating DoubleClick’s information into AdSense and/or AdWords are not merger-specific. Rather, they result from a calculated choice by Google and are nothing more than an expansion of Google current exclusionary practices that prevent other networks and tool vendors (including DoubleClick) from interoperating.
· Significant companies like Microsoft, Time Warner and Yahoo! that continue to make investments in non-search advertising will be unable to counter the anticompetitive impact of this transaction. One need look no further than search advertising to see that despite Microsoft’s size, technical prowess, and strong incentives, it has been unable to compete effectively with Google in search and that Google’s lead in search advertising has continued to grow because of network efforts.
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