United States vs. Google: The Most Important Event of the Year

Forget sipping rosé while strolling down La Croissette in your summer attire. Forget year-end awards ceremonies when you’re struggling to decide between lamb and chicken. Even forget Google’s U-turn on phasing out third-party cookies. The biggest event of the year in digital advertising is about to get underway. On September 9, just days before ATS London 2024 (okay, don’t forget about that!), Google is set to face the US Department of Justice in the most significant antitrust case in decades.

In this article, ExchangeWire Research director Mat Broughton outlines the potential fallout from the Google case and its impact on the media and marketing industries.

Where are we now?

In essence, the Justice Department alleges that Google, through a series of acquisitions and subsequent manipulative actions designed to achieve its own preferences, forced as many transactions as possible through its own set of advertising technologies, to the detriment of entities throughout the digital advertising supply chain.

Despite the DOJ’s initial wishes, the case will be heard by a single judge (US District Judge Leonie Brinkema) in a trial by jury rather than a jury. Google managed to avoid a jury trial by paying $2.3m (£1.8m), the maximum damages payable to the government. That 0.003% of quarterly revenue will really hurt.

As of this writing, we’re currently going through the pretrial machinations. Documents are being redacted to avoid disclosing confidential business information (such as ad rates); claims and counterclaims are being filed based on testimony given at the hearing. The Justice Department’s witness list is massive, including a slew of former and current Google executives, as well as ad tech luminaries from across the media supply chain, including executives who have been very vocal about how Google’s anticompetitive behavior has hurt their businesses.

Funnily enough, Google has filed nearly 1,200 objections to witness testimony with the Justice Department, alleging “improper lay witness opinion” (rude), and more than 1,700 objections have been attributed to testimony that is “speculative; lacks personal knowledge.” Given that the witness list is comprised of people who built ad tech companies from the ground up and successfully ran them for years, Google’s legal approach here seems a bit haphazard.

Potential consequences for Google

Option I: Settlement

Given how far along we are in this case, the strength of the DOJ case, and Google’s likely desire to maintain as much control over its stack as possible, a settlement between the two sides is unlikely. However, Google will likely want to make sure that no compromising corporate details are revealed during the trial—the company previously got a slap in the face when one of its own witnesses revealed that it gives Apple a 36% share of Safari search ad revenue.

Furthermore, Google will be weighing its chances as the case progresses. If it looks like the case (and more importantly, the judge) is going against it, executives could voluntarily sign a consent decree, essentially allowing the ad tech stack to be split but without admitting liability. While this would meet all the criteria for Option II (see below), the distinction is important because it would likely prevent further damages claims from advertisers, publishers, and tech companies, which would undoubtedly result in billions of dollars in losses.

Option II: Breaking Up Google

The original DOJ complaint, filed in early 2023, is unusually vocal in its call to break up Google’s ad tech stack. In its own words, it calls for “an order to, at a minimum, dispose of the Google Ad Manager suite, including both Google’s publisher ad server, DFP, and Google’s ad exchange, AdX, along with any additional structural relief needed to redress any anticompetitive harm.”

Google’s recent moves suggest that this is at least contingency planning in case it spins off GAM or other parts of its stack. Unfortunately for the industry, Google is clearly taking a scorched earth approach rather than allowing a potential competitor to fully benefit from a spin-off of GAM/AdX:

• Google is black-boxing media buying in PMAX, likely forcing more resources into its own services (YouTube, Search, Gmail, Maps)
• Moving the Privacy Sandbox listing to Chrome or a trusted execution environment (i.e. Google’s cloud, with the only other alternative being another major tech company, Amazon)
• Privacy Sandbox auction requirements that Google act as top seller BEFORE non-Google bids are submitted, and then Google itself finalizes the winning bid. Judge, jury, cat.

While Google’s third-party ad stack is still a huge business in its own right, its growth has stagnated in recent years. According to Google’s latest results (released on Tuesday 23 July), revenue from its web segment (i.e. money made on third-party sites via its ad stack) fell 5.2% to $7.4bn (£5.7bn). Google’s web revenue has now fallen year-on-year for eight consecutive quarters, and has been dwarfed by YouTube’s sales for the previous five quarters.

After all, no American company has been forced to break up since AT&T in the early 1980s. But antitrust crackdowns are intensifying around the world, and U.S. regulators may want to take a stance before the presidential transition early next year.

Option III: Nothing to see here

Google will either get away with it or have to pay a fine of 0.0000x% of its annual revenue. Move on.

Impact on the broader ad tech ecosystem

If Google were forced to divest GAM, or did so willingly to avoid a more drastic split of its ad tech operations, it would certainly give a fresh boost to the entire industry – especially the open/unauthenticated web. In particular, Google’s monopoly on seller-side monetization would be broken and the ad server market would be opened up for independent ad tech to fill and innovate.

By creating a more level playing field, advertisers will have to work even harder to differentiate themselves from competitors, which will likely see gains in areas like dynamic creative optimization. Smaller ad networks may be able to focus on niche and growth sectors, offering more tailored solutions than a company the size of Google.

If Google said, “We’ll spin off GAM into a separate business within Alphabet,” that would probably be unacceptable to the DOJ. So the valuation of the divested business will be interesting, with estimates hovering around $300bn (£232bn) based on a 10x multiple. But the relationship between divested GAM/AdX and Google would be critical, because Google’s ad stack thrives on Google demand. If you split that off, the future (and of course valuation) of divested GAM would be more uncertain.

This prospect becomes even murkier due to Google’s actions around its Privacy Sandbox APIs. As discussed above, under the guise of increasing user privacy, Google has been quietly putting together plans to move the auction environment away from traditional ad servers and onto its own Chrome browser. How much of an impact a stripped-down GAM or third-party ad servers would have on the Privacy Sandbox would theoretically be a key part of this case, but Google’s late announcement that it will retain the third-party cookie (while potentially mitigating it with an App Tracking Transparency-style opt-in mechanism) will likely put a damper on this strategy in court. Your move, regulators.

What happens next?

The next key pretrial date is Monday, August 19, when Google and the DOJ will file their “proposed findings of fact and conclusions of law,” which will provide a clear picture of the arguments and counterarguments that will likely be argued in court.

In addition, unless a settlement is reached on a final date, the trial will begin in earnest on Monday 9 September. We will keep you updated with all the latest developments regarding the trial, which will also be discussed in detail at the ATS London 2024 conference on Wednesday 11 September.