Google May Have To Sell Off Ad Business

Regulators in Europe have threatened to break-up Google. They say it could be the only way to prevent anti-competitive behavior in the ad market.

While Google has been fined eye-watering sums for breaking competition laws in Europe before, they've proven a poor deterrent given the company's huge revenues. This time, though, the penalty may be a forcible sale of some of its ad business.

The key to the legal problem is that Google is a major player in all three elements of online advertising: businesses buying ads, businesses selling ads, and the technology that brings together buyers and advertisers at a price that works for both sides through an auction mechanism.

The last of these is known as an ad exchange and Google's AdX is the most dominant, used by around 70 percent of buyers and sellers. The European Commission believes the way Google buying and selling services work alongside AdX gives it an unfair competitive advantage over other ad exchanges. (Source: theregister.com)

Google Tips Off Self

On the buying end, it notes that when people who want to buy ads use Google's service, it will mainly place bids for them on AdX rather than any other exchange. In simple terms that violates a key European competition principle: favoring your own sister businesses can be OK, dominating a market can be OK, but combining the two may go too far.

Perhaps the more serious allegation is with the selling end. The European Commission believes Google's ad-selling business DoubleClick For Publishers unfairly passes on information about buyer activity to AdX. That means AdX can tweak its results so that businesses get better results from using it rather than other ad exchanges.

Google To Respond

In principle these two factors may mean that although ad exchanges are meant to give efficient results for both sides, in reality buyers may pay more, sellers get less, and rival ad exchanges could lose out.

For now the European Commission has simply issued a "preliminary view" and asked Google to respond to its concerns. However, it says the setup is such an "inherent conflict of interests" that it seems "that only the mandatory divestment by Google of part of its services would address its competition concerns." (Source: europa.eu)

What's Your Opinion?

Do you agree with the European Commission's argument? Does it matter if the market for online ad sales isn't competitive? Do you think online advertising is a good long-term funding model for many websites?