WASHINGTON, Jan 24 (Reuters) – The U.S. Justice Department accused Alphabet Inc’s ( GOOGL.O ) Google on Tuesday of abusing its dominance in digital advertising by threatening to dismantle a core business at the heart of one of Silicon Valley’s most successful Internet companies.
The government said Google should be forced to sell its ad manager suite in 2021, battling the business, which generates about 12 percent of Google’s revenues but also plays an important role in the search engine and cloud company’s overall sales.
“Google has used anticompetitive, exclusionary, and unlawful means to eliminate or substantially reduce any threat to its dominance over digital advertising technologies,” the antitrust complaint said.
Google, which accounts for about 80% of its ad business revenue, said the government was “doubling down on a flawed argument that slows innovation, raises advertising fees and makes it harder for thousands of small businesses and publishers to grow.”
The federal government said Big Tech investigations and lawsuits are aimed at leveling the playing field for smaller rivals to a powerful group of companies that includes Amazon.com ( AMZN.O ), Facebook owner Meta Platforms ( META.O ) and Apple Inc. (AAPL.O).
“By suing Google for monopolizing ad technology, the DOJ today targets the core of the Internet giant’s power,” said Charlotte Slaiman, director of competition policy at Public Knowledge. “The complaint reveals multiple anti-competitive strategies by Google that are undermining our internet ecosystem.”
Tuesday’s lawsuit by Democratic President Joe Biden’s administration follows a 2020 antitrust lawsuit filed against Google under Republican Donald Trump.
The 2020 lawsuit alleges violations of antitrust law over how the company obtained or maintained its monopoly on online search, and is scheduled to go to trial in September.
EIGHT STATES IN CLAIMS
Eight states joined the lawsuit Tuesday, including Google’s home state of California.
California Attorney General Rob Bonta said Google’s practices “stifled creativity in a space where innovation matters.”
Colorado Attorney General Phil Weiser said Google’s dominance led to higher fees for advertisers and less money for publishers with ad space to bid. “We are taking action by filing this lawsuit to end Google’s monopoly and restore competition to the digital advertising business,” he said.
Google shares fell 1.9 percent on Tuesday.
In addition to its popular search, which is free, Google generates revenue through its affiliated ad technology businesses. The government requested the cancellation of Google’s Ad Manager suite, including AdX, Google’s ad exchange.
Google Ads Manager is a set of tools that allow websites to offer ad space for sale and a marketplace that automatically matches advertisers with those publishers.
Advertisers and website publishers complain that Google is not transparent about where its ad money goes, specifically how much goes to publishers and how much goes to Google.
The lawsuit raises concerns about certain products in the ad tech stack, where publishers and advertisers use Google’s tools to buy and sell ad space on other websites. This business accounted for approximately $31.7 billion in 2021, or 12.3 percent of Google’s total revenue. About 70% of this income goes to publishers.
Paul Gallant of Cowen Washington Research Group said the ad tech repeal “may not be a game-changer, but it could be secretly important to Google’s ability to target ads.”
“It connects to all of Google’s other businesses and integrates them. I think Google may be more concerned about losing ad tech down the road than people think,” Gallant said.
The company made a series of acquisitions, including DoubleClick in 2008 and AdMob in 2009, to help it become a dominant player in online advertising.
“THE POIROT PROJECT”
While Google has long remained the market leader, its share of US digital ad revenue fell from 36.7% in 2016 to 28.8% last year, according to Insider Intelligence.
The Justice Department has requested a jury trial in the U.S. District Court for the Eastern District of Virginia.
The lawsuit reveals several attempts by Google to dominate the advertising market.
The complaint discussed header bidding, a way companies can bypass Google to bid for ad space on websites.
It features a number of projects, including Project Poirot, named after Agatha Christie’s master detective Hercule Poirot. The project is “designed to identify and effectively respond to ad exchanges that have adopted header bidding technology.”
The 149-page complaint says Google doubled down after Project Poirot’s initial success in manipulating advertisers’ costs to reduce competition from rival ad exchanges. Competitors AppNexus/Xandr DV360 will lose 31% of advertiser spending, Rubicon 22%, OpenX 42% and Pubmatic 26%, the complaint said.
Reporting by Diane Bartz and David Shepardson; Additional reporting by Sheila Dang; Edited by Chris Sanders and Grant McCool
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