Google has reportedly offered to spin off its ad tech business into another company under Alphabet Inc to avoid a potential antitrust lawsuit from the US Department of Justice (DOJ), reported WSJ citing unnamed sources.
Google is already facing a lawsuit, filed in October 2020, from the DOJ for allegedly monopolising search and search advertising markets using anticompetitive and exclusionary practices.
The DOJ is reportedly planning to open another antitrust investigation against Google for abusing its dominant position in online advertising. Google’s offer to split the ad business into a separate company is an attempt to avoid being slapped with a fine or being forced into regulation.
WSJ reported that DOJ officials want deep structural changes in Google’s ad-tech business and are not in favour of a settlement or promises to change business practices.
Google on its part said in a statement that it is “engaging constructively” with regulators to address their concerns. The company reiterated that it has no plans to sell or exit the ad business.
Last month, Meta Platforms (formerly Facebook) had to make a settlement with the DOJ in a lawsuit on discriminatory advertising. Under the terms of the settlement, Meta will stop using its advertising tool for housing ads. It will also develop a new system to address racial and other forms of bias created by its ad system’s personalisation algorithms.
Digital advertising is a lucrative business for both Google and Meta. It accounted for 75% of Google’s revenue in 2021 ahead of cloud and search, as per Statista. Google made $209.49 billion from its ads business in 2021.
Google’s ad-tech business is under investigation in the European Union (EU). Last June, EU antitrust authorities opened an investigation to find out if Google has been favouring its own online display advertising technology services at the expense of rivals.
The company’s ad tech business revolves around two core services-- Ads and AdSense. In Ads, advertisers submit ads to Google with keywords related to a product, service, or business. When a Google user enters any of those keywords in their search, the ads linked to them show up in search engine results. Every time a user clicks on the ads, the advertiser pays Google. On the other hand, AdSense allows businesses or publishers to run ads on their websites, blog posts, or YouTube videos. When a user clicks on the ads businesses get paid.
The problem that most regulators have with Google is that it now plays a gatekeeper's role in what advertisement will be shown to a user.
For instance, in the EU probe, regulators noted that Google collects data to be used for targeted advertising and also sells advertising space, and also acts as an online advertising intermediary. “Google is present at almost all levels of the supply chain for online display advertising. We are concerned that Google has made it harder for rival online advertising services to compete in the so-called ad tech stack,” they added.