Yahoo Finance EU wants Google to break up its online ad business
The European Union's antitrust watchdog wants Alphabet's Google (GOOG, GOOGL) to sell part of its online ad business, meaning the tech giant now faces regulatory challenges to a major part of its operations on both sides of the Atlantic.
That message came Wednesday when European regulators officially notified Google that the European Commission had reached a preliminary determination that the company's activity in the ad tech business breached EU antitrust rules by distorting competition in the market.
"Only the mandatory divestment by Google of part of its services would address its competition concerns," the European Commission said in a statement explaining its decision, while noting that its preliminary determination does not prejudge the outcome of its investigation.
A Google spokeswoman said the company will oppose demands to exit or divest its online ad business.
Dan Taylor, vice president of global ads for Google, said the commission's investigation "focuses on a narrow aspect of our advertising business and is not new. We disagree with the EC’s view and we will respond accordingly."
The potential EU action adds to Alphabet's legal troubles. In the US, antitrust authorities and US states have filed antitrust lawsuits against the company.
In January, the US Justice Department and eight US states brought an action saying Google unlawfully leveraged its monopoly in the $278.6 billion online advertising market to block competitors from entering. Nine additional states have since joined in the litigation.
The Justice Department also alleges in a separate suit filed against Google in 2021 that the company is operating an illegal monopoly in the online search business.
In its dispute over Google’s advertising business, the DOJ is asking the court to order Google's divestment of certain ad tech entities, specifically its Ad Manager suite, which would include its publisher ad server DFT, also known as DoubleClick or GAM, and its ad exchange AdX.
The various legal challenges represent a danger to a big portion of Alphabet's business. In 2022, ad sales drove approximately 80% of approximately $224.5 billion in revenue. Google’s online advertising business controls most of the technology in the markets to buy, sell, and serve advertisements online.
'A competitive advantage'
The core of the European Commission's initial finding is that Google abuses its dominance in the European Economic Area-wide markets by leveraging its publisher ad servers and programmatic ad buying tools for the open web.
The Commission said Google favors its own ad exchange, AdX, in ad selection auctions run by Google's ad server, DFP. The regulator said DFP informs AdX in advance of the value of the best bid from competitors.
In addition, according to the Commission, Google Ads was avoiding competing ad exchanges and placing most bids on AdX, and in turn, making AdX the most attractive ad exchange.
"The Commission is concerned that Google's allegedly intentional conducts aimed at giving AdX a competitive advantage and may have foreclosed rival ad exchanges. This would have reinforced Google's AdX central role in the ad tech supply chain and Google's ability to charge a high fee for its service," the agency stated.
In the European Union, Google and other major tech firms must adhere to newly enacted laws that promote competition – The Digital Markets Act, and a companion law, the Digital Services Act. Penalties for violations of the laws can range up to 10% of a company's global revenue.
The new laws seek to enhance competition by prohibiting large tech companies from favoring their own products and services over those from third parties, and also require enhanced transparency.
Even before the EU's latest laws took effect, the European Commission assessed significant antitrust fines against Google. About a decade ago the regulator imposed a $10 billion penalty for blocking search engines from its Android phones.
Years later in 2017, 2018, and 2019, the Commission targeted Google for allegedly abusing its market dominance in online search, mobile device apps, and online advertising, respectively.
In 2019, the Commission fined Google 1.5 billion Euros for adding restrictive clauses in its contracts with third-parties. The Commission said the terms blocked rivals from placing search adverts on certain websites.
Tech under pressure
Regulators in the US have looked into Google before. In 2013, the FTC declined to take action against Google after an agency investigation into its search business.
The decision followed a $22.5 million fine imposed on the company the prior year to settle claims that it violated a privacy settlement with the FTC agreeing that it would avoid placing “cookies” on and serving targeted advertisements to users of Apple’s competing browser, Safari.
Alphabet isn't the only big tech company under new pressure from regulators. The Federal Trade Commission succeeded in obtaining a temporary restraint order from a federal district court in California this week that, for now, squashes Microsoft’s (MSFT) planned acquisition of “Call of Duty” maker Activision Blizzard (ATVI).
The court also plans to rule on a preliminary injunction that could further pause the deal while the FTC conducts an agency review of antitrust concerns.
That review that could prevent the Xbox maker from acquiring Activision Blizzard, which the FTC said in its initial complaint may "enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business."
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