The U.S. Justice Department sued Alphabet Inc’s (GOOGL.O) Google on Tuesday of exploiting its dominance in digital advertising, threatening to destroy a key business at the heart of one of Silicon Valley’s most profitable internet companies.
The government said Google should be compelled to divest its ad manager suite, tackling a business that made nearly 12% of Google’s revenues in 2021, but also plays a significant role in the search engine and cloud company’s overall sales.
“Google has used anticompetitive, exclusionary, and unlawful means to eliminate or severely diminish any threat to its dominance over digital advertising technologies,” the antitrust complaint said.
Google, whose advertising business is accountable for about 80 percent of its revenue, said the government was “doubling down on a flawed argument that would slow innovation, raise advertising fees, and make it harder for thousands of small businesses and publishers to grow.”
The federal government has said its Big Tech probes and lawsuits are intended for leveling the playing field for smaller rivals to a group of powerful companies that includes Apple Inc (AAPL.O), Amazon.com (AMZN.O), and Facebook owner Meta Platforms (META.O).
“By suing Google for monopolizing advertising technology, the DOJ today aims at the heart of the internet giant’s power,” said Charlotte Slaiman, competition policy director at Public Knowledge. “The complaint lays out the many anticompetitive strategies from Google that have held our internet ecosystem back.”
Tuesday’s lawsuit by the administration of President Joe Biden, a Democrat, comes after a 2020 antitrust lawsuit filed against Google during the term of Donald Trump, a Republican.
The 2020 lawsuit claimed violations of antitrust law in how the company acquires or retains its dominance with its monopoly in online search and is scheduled to go to court in September.
Eight States In Google Lawsuit
Eight states took part in Tuesday’s lawsuit, including Google’s home state of California.
California State Attorney General Rob Bonta said that Google’s practices have “stifled creativity in a space where innovation is crucial.”
Colorado Attorney General Phil Weiser said that Google’s dominance had resulted in higher charges for advertisers and less money for publishers with ad space to offer. “We are taking action by filing this lawsuit to unwind Google’s monopoly and restore competition to the digital advertising business,” he said in a statement.
Google shares plunged 1.9% on Tuesday.
Besides its widely known search, which is free, Google generates revenue through its interlocking ad tech businesses. The government called for the divestiture of the Google Ad Manager suite, including Google’s ad exchange, AdX.
Google Ad Manager is a suite of tools including one that enables websites to provide advertising space for sale and an exchange that acts as a marketplace that automatically links advertisers to those publishers.
Advertisers and website publishers have accused Google of not being transparent about where ad dollars go, particularly how much goes to Google and how much to publishers.
The lawsuit sparks concerns about certain products in the ad tech stack, where advertisers and publishers use Google’s tools to buy and sell ad space on other websites. That business was around $31.7 billion in 2021 or 12.3% of Google’s total revenue. Almost 70 percent of that revenue goes to publishers.
An ad tech divestiture “may not be a game changer but it could be sneaky important to Google’s ad targeting capability,” said Paul Gallant with the Cowen Washington Research Group.
“It connects to all of Google’s other businesses and ties them together. I think Google might be more concerned about losing ad tech down the road than people might think,” Gallant said.
The company made a string of purchases, including AdMob in 2009 and DoubleClick in 2008, to help make it a dominant player in online advertising.
While Google hangs on as the market leader by a long shot, its share of the U.S. digital ad revenue has been weakening, dropping to 28.8 percent in 2022 from 36.7% in 2016, according to Insider Intelligence.
The Justice Department requested a jury to decide the case, which was submitted to the U.S. District Court for the Eastern District of Virginia. The lawsuit details several of Google’s attempts to dominate the advertising market.
The complaint discussed header bidding, which was a way that firms could sidestep Google to bid on ad space on websites.Buy Crypto Now
It details a series of projects including one dubbed “Project Poirot” named after Agatha Christie’s master detective, Hercule Poirot.
The project “was designed to identify and respond effectively to ad exchanges that had adopted header bidding technology.”
The 149-page complaint said Google doubled down after Project Poirot’s initial success in manipulating its advertisers’ spending to lower competition from rival ad exchanges. Rivals OpenX would lose 42%, AppNexus/Xandr lost 31 percent of DV360 advertiser spending, Pubmatic would lose 26%, and Rubicon would lose 22%, the complaint said.
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