Dont Expect Regulators to Block DoubleClick Deal

 
 
By John Pallatto  |  Posted 2007-04-16
 
 
 

Dont Expect Regulators to Block DoubleClick Deal


Despite the companys assertions to the contrary, Googles acquisition of Internet advertising network DoubleClick for the eyebrow-raising price of $3.1 billion is bound to pose serious antitrust questions in the minds of federal regulators.

The deal has Microsoft and AT&T, among others, claiming that the deal is anti-competitive. Microsoft senior vice president and general counsel Brad Smith said in a statement that the acquisition "raises serious competition and privacy concerns in that it gives the Google-DoubleClick combination unprecedented control in the delivery of online advertising, and access to a huge amount of consumer information by tracking what customers do online."

Microsoft was reportedly one of the parties, along with Yahoo, bidding to acquire the company. Since Microsoft is no stranger to anti-trust litigation, its highly ironic that it is now calling for regulatory intervention to halt a Google acquisition that thwarted its own efforts to become a major force in the Web ad serving business.

But dont expect the Justice Departments antitrust division to ride to the rescue of the ad serving market. While the acquisition will give Google control of a huge portion of this market, it might not be so easy for the government to prove in court that that the merger would violate existing antitrust law.

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Thats the position taken by Scott Cleland, president of Precursor, a telecommunication industry research and consulting firm and chairman of NetCompetition.org, an online forum aimed at promoting "competitive Internet choices for consumers" through an open discussion of "net neutrality" legislation and regulation.

In a report on the antitrust implications of the acquisition, Cleland contends that Google "has figured out an ingenious, predatory, anti-competitive, acquisition strategy that exploits antitrust laws weak underbelly."

The combination of Googles dominance in keyword search, DoubleClick "leadership" in online banner/video display advertising and YouTubes dominance in video search, will enable Google to control in excess of 80 percent of the "overall market for advertisements provided to third-party Web sites."

However, despite this apparent overwhelming dominance, Cleland contends that there is little court precedent for blocking a vertical merger such as the Google/DoubleClick buyout.

The government is also likely to have a difficult time proving that the merger is harmful to consumers because there is "a large and respected body of evidence that vertical mergers can produce real efficiencies that actually benefit consumers."

There is also the argument that the merger will still leave a lot of small fry competitors in the market including Atlas Solutions, Accipiter, Adtech AG, Aquantive, EyeBlaster and Mediaplex.

In fact, Dirk Freytag, CEO of Adtech AG in Frankfurt, Germany, contends the merger will generate new opportunities for his company as well as his competitors.

Next Page: Raising ethics issues.

Raising Ethics Issues


Freytag told eWEEK that advertisers are already so concerned about Googles market dominance that they will take their business to the smaller competitors. "We have gotten the first calls already" from Web publishers looking for another display ad distributor.

While Adtech is headquartered in Germany, it has opened offices in New York and San Francisco, as well as in the Asia-Pacific region, Freytag said. The DoubleClick buyout, "will speed up the process for us moving into the U.S." he said.

Then there is the issue of business ethics and consumer privacy. DoubleClick came under fire by privacy advocates because it tracks what sites Web surfers are visiting and what sort of content they are viewing along with their ad clicking activities.

There was even more concern after DoubleClick paid $1.7 billion to acquire Abacus Direct, a data collection service. There were fears that DoubleClick would compromise consumer privacy by combining anonymous Web surfing information that it collected with the personal identity information that Abacus Direct compiled from the Web.

In response to such criticism, DoubleClick said it wouldnt integrate the Abacus information with its Web surfing information and instituted business practices to protect Web surfers privacy. But the public concerns remain.

Google business tenet No. 6 posted on its corporate site states: "You can make money without doing evil. But the DoubleClick acquisition raises the question of whether Google can remain true to this tenet when it buys a company that only helps it improve its ability to track the publics Web surfing habits.

Can any company avoid doing evil when it is driven to grow ever larger by acquiring more assets, by gaining access to huge new stores of Internet user information and constantly looking for new ways to search and mine that information for new revenue generating opportunities?

Google already holds tremendous power in its hands because its search engine can track key words that Web surfers enter and what sites they visit from the search results. This power has only increased with the DoubleClick acquisition.

Google has tried to demonstrate that it respects users privacy by resisting government demands for information that reveals peoples search habits. But the fact remains that it has to honor any subpoena that is validated by the courts.

Having paid top dollar to buy DoubleClick, the company is unlikely to compromise the value of those assets by limiting or cutting back on DoubleClicks data collection capabilities.

Since it appears unlikely that the government wont be able to block the DoubleClick acquisition, Google will still have to demonstrate to the public that it wont use any market advantage to consumers detriment.

If Google wants to retain users trust and avoid future regulation and litigation, it has to demonstrate every day that it can serve as a trusted guardian of users privacy and the integrity of their personal data.

John Pallatto is a veteran journalist in the field of enterprise software and Internet technology. He can be reached at john_pallatto@ziffdavis.com.

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