Approval of Google's acquisition of DoubleClick may hinge on whether or not the companies are deemed competitors or complementary.
Approval of Google's acquisition of DoubleClick may hinge on whether or not the companies are deemed competitors or complements. At yesterday's hearing before a U.S. Senate Judiciary Subcommittee, pros and cons of the proposed merger representing Google, Microsoft, privacy advocates, and free-market thinkers tossed around analogies, juggled antitrust with consumer privacy concerns, and sometimes exposed misunderstandings of the increasingly complex online ad industry and the technologies that drive it.
Recognizing "advertising is the fuel that drives the Internet," Subcommittee Chairman Senator Herb Kohl and fellow Senators came together for the two hour session in the hopes of clarifying whether Google's DoubleClick buy will stifle competition or benefit consumers and industry, but a jumble of analogies intended to provide explanation seemed only to confuse matters.
"Google is to DoubleClick what, say Amazon is to FedEx. Amazon sells books, and FedEx delivers them, and by analogy we sell ads and DoubleClick delivers them," said Google SVP Corporate Development and Chief Legal Officer David Drummond in his testimony. He contended the acquisition will protect consumer privacy, spur greater competition, and help small businesses thrive. "Google and DoubleClick do not compete with each other," he added.
Turning Drummond's metaphor on its head, an opponent of the deal said, "Google is already Amazon and is already FedEx. Now, they're proposing to be the post office."
Acquisition opponent Scott Cleland, president of tech industry research and consulting firm Precursor, suggested the companies compete for the same ad dollars and are "interrelated" by sharing the same viewers, advertisers, publishers and data. "It's like saying your eyes and your ears don't compete for your brain's attention," Cleland said, later adding, "Google will create a brain where it controls all of the major networks [of viewers, publishers, advertisers and data.]"
The analyst, little known in the interactive advertising arena, appears to support free-market competition when it comes to net neutrality, however. He's chairman of NetCompetition.org, a net neutrality-related "forum" funded by broadband telecom, cable, and wireless firms. The group's Web site claims members believe "Market-based competition benefits consumers more than government-managed competition."
By joining, Google and DoubleClick will create the "largest database of user information the world has ever known," said Microsoft SVP and General Counsel Brad Smith in his testimony. Microsoft has been vocal about its opposition to Google's DoubleClick acquisition, suggesting it raises competition and privacy concerns.
DoubleClick has stressed the data that flows through its system to manage online ads belongs to its advertiser and publisher customers. Since announcing the proposed purchase, Google has insisted DoubleClick data will remain the property of DoubleClick clients.
Smith said the acquisition raises questions regarding the economic implications of allowing the "largest company in Internet advertising" to buy its "most significant competitor." It will be bad for publishers, advertisers and consumers, he concluded.
DoubleClick doesn't sell the ads, and Google doesn't serve them, said Drummond. "Yes, we have our own fleet of trucks, but we don't offer any trucking services to anyone else," he said, continuing the mixed-metaphorical theme of the hearing.
Though Google doesn't offer the robust ad management services DoubleClick's business is based on, the fact is Google does serve ads onto other Web sites outside of its own search property through its AdSense network, something Precursor's Cleland mentioned in the hearing.
Drummond implied Microsoft, commonly accepted to be a main competitor of Google, is contradicting its statements about its own foothold in the online ad industry. That foothold has been significantly boosted by its recent FTC-approved purchase of direct DoubleClick competitor aQuantive. AQuantive owns ad management company Atlas, as well as Avenue A/Razorfish, an agency representing advertisers who buy media from companies like Microsoft's MSN.
Smith stated if the DoubleClick purchase is approved, it will create a barrier preventing the emergence of new industry competitors. With that, Senator and Subcommittee Member Arlen Specter noted what he recalled as Microsoft's longtime contention that an entrepreneur working out of his garage could put the Redmond giant out of business. "If someone writes a better algorithm...users will jump to the entrepreneur's site and perform [their] searches there," he said, asking Microsoft by way of Smith, "Why not build a better product?"
The Senate hearing piggybacks an ongoing investigation of the merger by the Federal Trade Commission, following outcries from Microsoft and privacy watchdogs. There to represent consumer privacy advocates leery of the acquisition was Marc Rotenberg, executive director of the Electronic Privacy Information Center. "Unless the Federal Trade Commission imposes substantial privacy safeguards," he said, "this merger should not go forward."
Senator and Subcommittee Member Charles Schumer also expressed data privacy concerns, noting he's met with Google CEO Eric Schmidt to discuss the issue, as well as growing a high tech industry in the Senator's home state of New York. Schumer said Schmidt had sent him a letter outlining Google's plans to protect consumer privacy by providing more notice to consumers about data gathering and usage, the ability to opt-out of Google tracking, and experimentation with "crumbled cookies," which would store user data in disparate places as opposed to a single cookie.
"There is no evidence to support assertions that consumers are being harmed or would be harmed," when it comes to data privacy or industry competition, said Dr. Thomas Lenard, senior fellow at The Progress and Freedom Foundation, a free-market think tank. He argued blocking the acquisition could raise hurdles for startup investment, potentially stifling innovation.
"These [government] reviews are much more difficult when the markets are changing rapidly as they clearly are here," he said.
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Kate Kaye was Managing Editor at ClickZ News until October 2012. As a daily reporter and editor for the original news source, she covered beats including digital political campaigns and government regulation of the online ad industry. Kate is the author of Campaign '08: A Turning Point for Digital Media, the only book focused on the paid digital media efforts of the 2008 presidential campaigns. Kate created ClickZ's Politics & Advocacy section, and is the primary contributor to the one-of-a-kind section. She began reporting on the interactive ad industry in 1999 and has spoken at several events and in interviews for television, radio, print, and digital media outlets. You can follow Kate on Twitter at @LowbrowKate.
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