Senators Urge FTC to Continue Google/DoubleClick Investigation

Congress may be on Thanksgiving break, but leaders of a Senate Judiciary Subcommittee inspecting Google’s proposed DoubleClick acquisition managed to get a letter to the Federal Trade Commission yesterday. The crux: Stringent review of the deal is needed to ensure competition in the online ad industry.

Following a September hearing on the controversial $3.1 billion acquisition, Antitrust, Competition Policy and Consumer Rights Subcommittee Chairman Herb Kohl and Ranking Republican Member Orrin Hatch sent a cautionary missive to FTC Chairman Deborah Platt Majoras.

“Antitrust regulators need to be wary to guard against the creation of a powerful Internet conglomerate able to extend its market power in one market into adjacent markets, to the detriment of competition and consumers,” wrote the Senators. The letter later states, “While we have not reached any definitive conclusion regarding this issue, we urge that you only approve the merger if you determine that it will not cause any substantial lessening of competition with respect to Internet advertising.”

The FTC is investigating the proposed merger, and has the ability to disapprove it if judged to be anti-competitive. Congress can act to influence the FTC’s decision, as in the case of the letter sent by Kohl and Hatch.

“We have already worked with the FTC to address each of the questions raised in this letter, and we remain confident that the FTC will conclude that this deal is good for consumers, advertisers and Web site publishers,” Google Manager, Global Communications and Public Affairs Adam Kovacevich said in a statement responding to the letter.

The letter summarizes the Senators’ understanding of Google and DoubleClick and the firms’ roles in the online ad industry, suggesting the acquisition could have “profound” implications for the industry.

“A core part of Google’s business is placing contextual advertising — that is, text-based ads placed on third-party Web sites, which are relevant to the content or to the likely reader of the Web site,” noted the letter. “Google has a dominant market position with respect to the placing of these contextual ads. DoubleClick has a leading market position in placing another form of Internet advertising — display advertising, which also reside on third-party Web sites.”

In actuality, Google already serves display advertising within its contextual AdSense network, and DoubleClick manages a wide variety of ad formats in addition to display advertising, including in-stream video and mobile advertising.

The letter suggests the FTC focus on key points including the extent of competition between Google and DoubleClick, market barriers to entry, effects on online ad pricing if the deal goes through, and “whether contextual and display advertising are interchangeable and substitutable.”

Indeed, display advertising and contextual advertising are not mutually exclusive. “Display” refers to a type of ad format; display ad units such as standard banners or leaderboards are typically image-based. “Contextual” advertising, on the other hand, refers to the way an ad — display, text, or otherwise — is targeted. Ads targeted to or served according to the context of information on a Web page, such as an ad for running shoes on a running Web site, are considered contextual.

The Senators also paid notice to privacy concerns voiced during the September 28 hearing, although the FTC’s decision on the deal cannot be guided by considerations involving consumer data privacy and security. “DoubleClick collects an enormous quantity of information on individual Web users’ preferences, and privacy advocates have expressed very serious concerns regarding the consequences of this data coming under the control of Google due to the fact that Google is the dominant Internet search engine and can also track individuals’ search requests. Therefore, we believe that this deal raises fundamental consumer privacy concerns worthy of serious scrutiny.”

The letter is bound to please Google competitors including Microsoft as well as privacy watchdogs who have panned the deal as anti-competitive and potentially damaging to consumer privacy safeguards.

In his statement, Google’s Kovacevich noted, “though the FTC has stated publicly that privacy is not a factor in its review, Google is committed to protecting our users’ privacy and has taken a number of industry-leading steps to do so.”