U.S. states are leaning toward spun off Google's advertising technology business.
State attorneys general investigating google's potential antitrust irregularities are leaning toward pushing for a spin-off of its advertising technology business as part of an expected lawsuit, people familiar with the matter told CNBC.
Fifty attorneys general have been investigating Google's business practices for months, while the U.S. Department of Justice is leading a similar investigation. The people told CNBC that the states and the Justice Department want to file lawsuits against the Internet giant as soon as next months.
The state and Justice Departments have not yet formally decided whether to merge the expected lawsuits, but they have been working closely together, the person said. Both have been investigating Google's search, advertising and Android businesses.
Prosecutors investigating Alphabet's Google have not explicitly ruled out promoting alternatives to its advertising technology business, such as imposing restrictions on how it operates, one of the sources said. The lawsuit could also include promoting the program and splitting the advertising technology business.
If the attorney general actively pushes to dismantle Google's advertising technology business, that will be remarkable. While regulatory law enforcement agencies have recently tended to take "structural remedies" - spin-offs and divestitures - regulators have some less demanding solutions, such as a consent decree banning certain practices.
Once the attorney general files their expected lawsuit, they have a number of tools to use to demonstrate their intention to promote the dismantling of Google's advertising technology business. This includes the content of their allegations, the evidence they bring in, pre-trial briefings and press conferences.
In Google's case, pushing for a split in its advertising technology business can be difficult, some lawyers say, because it does not exist as a stand-alone unit and can easily be spun off. Its two main deals, DoubleClick in 2007 and AdMob in 2009, were years ago.
"The courts are very concerned that by splitting a company, it hurts consumers and makes those who don't have the expertise worse." Stephen Houck, one of Microsoft's government lawyers in the antitrust case 20 years ago, said.
While most of Google's $161 billion in revenue comes from advertising sales, it receives far less from the software and technology that is the backbone of the business. Its network membership businesses, which include AdMob, AdSense and Google Ad Manager, generated sales of about $22 billion last fiscal year.
Google retired doubleClick in 2018 and added its ad-oriented DoubleClick product to Google Analytics 360 as a "Google marketing platform." It then puts doubleClick products and DoubleClick advertising exchanges for publishers into Google Advertising Manager.
While the government has successfully fought for the dissolution of corporate giants in the past, including Standard Oil in 1911 and AT?T in the 1980s, recent cases have led to weaker remedies. BOTH IBM IN THE 1980S AND MICROSOFT IN 2000 ENDED ANTITRUST LAWSUITS WITHOUT BREAKING UP THEIR RESPECTIVE COMPANIES.
Still, recent policies appear to be bad for big tech companies.
President Donald Trump joined other Republicans in accusing companies such as Google of censoring conservative content, a claim Google denies. He signed an executive order earlier this month vowing to crack down on liability protections for Internet companies such as Google through Section 230 of the Communications Dignity Act.
The signing ceremony was attended by William Barr, the justice secretary, whose deputy recently led the Justice Department's antitrust investigation into Google after Makan Delrahim, the country's top antitrust official, recused himself.
Presidential candidate Joe Biden has served as Obama's vice-president, and Obama has been criticized for allowing technology companies to become too powerful under his nose. Biden has said that as president, he will set up a new department within the Justice Department to look back at the mega-enterprises that have taken place and are being proposed.
A Google spokesman told CNBC in a statement: "We continue to participate in the ongoing investigation sourcing the Justice Department and Attorney General Paxton, and we have no updates or comments on the speculation." "
"It's clear," she added, "that our digital advertising products compete with hundreds of competitors and technologies in a crowded industry and help advertisers and consumers reduce costs." "
A spokesman for Texas Attorney General Ken Paxton, who is leading the investigation into advertising technology, declined to comment. A Spokesman for the Justice Department did not respond to a request for comment.
What's at stake.
Critics say Google has tied its advertising tools together, making it unmatchable to competitors, and its operations of search results, YouTube, Gmail and other services have hampered advertising competition. They also say that Google has an unfair advantage in all aspects of the "auction exchange" that buys and sells ads.
Google argues that it competes with a number of vertically integrated companies, including AT?T, Comcast and Verizon. Meanwhile, the price of digital advertising has fallen by more than 40 percent since 2010, according to the St. Louis Fed.
While it remains unclear how the attorney general might push for a split in Google's advertising technology business, Google's $3.1 billion acquisition of DoubleClick gives it an important foothold in advertising technology. The U.S. Federal Trade Commission voted 4-1 to decide it would not seek to block the deal, ruling that it was not anticompetitive.
Pamela Jones, who opposed the vote, said at the time that she feared the deal would give Google too much power through the data provided by DoubleClick.
"By acquiring DoubleClick, Google will gain data that will help and exacerbate the network effect," she wrote. "As a result, the Google/DoubleClick combination is likely to 'tilt' the search and display markets toward Google and make it harder for any other company to challenge the merged company."
Mr Jones added that the combined Google and DoubleClick would have access to "unparalleled data sources" that would allow them to connect buyers and sellers of ads that their competitors could not do.
A lawyer for Google told a Texas court earlier this year that the attorney general's investigation was seeking the names of Google's advertising technology customers and details related to product pricing, according to court records obtained by CNBC. He said the focus of the inquiry was on Google's DoubleClick and AdMob businesses.
In a blog post last year, Google argued that the advertising technology industry was "notoriously crowded" and cited rivals such as Telaria, Rubicon Project and Trade Desk. It also says publishers use their technology to "get demand from hundreds of partners," while advertisers use its technology to buy advertising space on "more than 80 exchanges."
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