On Monday, on the heels of Google’s antitrust loss in search last month (which it plans to appeal), another major antitrust trial involving Google began – this one focused on its adtech business. The case was originally brought by the US Department of Justice (DOJ) in Jan 2023, and joined by a bipartisan group of 17 plaintiff states.

If the DOJ is successful, it could effectively unwind Google’s $3.1B DoubleClick adtech acquisition in 2008 – which was reviewed around that time by the US Federal Trade Commission (FTC) and European Commission – 16 years after the fact. The DoubleClick acquisition came with DoubleClick for Publishers (DFP), Ad Exchange (AdX), and Display & Video 360, among other tools. The DOJ is seeking Google’s divestment of its Ad Manager suite, which currently integrates the DFP publisher ad server and AdX ad exchange.

The 4-week trial is being heard by Judge Leonie Brinkema of the US District Court for the Eastern District of Virginia in a nonjury trial (despite DOJ efforts to turn it into a jury trial). Clinton-appointed Brinkema is an experienced antitrust jurist who has been noted to be no-nonsense, liberal-leaning, and unpredictable. During pretrial, she has already expressed sharp criticism of Google’s auto-deletion of chats as a corporate policy.

According to the DOJ, Google’s technology dominates the sell side, the buy side, and the exchange used in the digital-advertising market, allowing it to keep 36% of the advertising dollars that run through its services. On the sell side, Google’s DFP (now integrated into Ad Manager) is used by 90%+ of online publishers to offer website display ads, despite it being clunky, older technology. (Switching ad servers is a heavy technical lift for publishers.) On the buy side, the Google Ads (formerly AdWords) network for advertisers has 80% of the market, and Display & Video 360 (now part of Google Marketing Platform) for agencies and large ad-buyers has 40% of the market. In the middle “black box” where ads are transacted, AdX (now integrated into Ad Manager) has 50%+ of the market.

The DOJ is alleging that Google uses its power in ways that tip the scale in its favor. The DOJ says Google eliminated competition through its acquisitions of DoubleClick, AdMob, Invite Media, and AdMeld in quick succession, as well as through deals paying off larger potential rivals like Facebook. Among other allegations, the DOJ accuses Google of illegally tying together its publisher ad server with its ad exchange (the latter being the only way for publishers to access Google Ads advertiser demand); and using DFP to preference its own ad exchange (where Google generates the highest fees in its ad stack, about 20% of the bid) and cherry-pick the best ad inventory.

Google has a leading but not overwhelming 26% share of the $303B US digital-advertising market, followed by Meta (21%), Amazon (14%), and then Microsoft and TikTok (3-4% each). This case, however, focuses on website display ads, where Google has a commanding share of the $12B market. As Google has pointed out, this narrow focus ignores apps, social media and connected TV.

Google Network revenues (which include Ad Manager) represent just $31B (10%) of its $307B in total revenue (2023), or 13% of its $238B in advertising revenue. It’s also one of the less profitable areas of Google’s business. (Google pays out 69%+ to publishers that use Ad Manager.)

According to industry watchers, the legal theory underlying the case is not outlandish and the DOJ has a good chance of winning. If the DOJ gets its wish and Google has to divest Ad Manager, it could have broader implications for Google than just the revenue hit. Google’s adtech offers visibility into useful data flows, such as data on user browsing habits and publishers’ businesses, which can help steer ad spend towards Google-owned properties (e.g. YouTube, Search).

The percentage of Google ad revenue going to Google-owned properties has been increasing over time, according to analysts and Google itself. (Conversely, its Network revenues have been declining for 8 straight quarters.) This has had the effect of reducing Google’s traffic acquisition costs (TAC) and increasing its margins – an effect that could be reversed if the DOJ gets its way.

It may not be easy – or even possible – to untangle DoubleClick’s technology from Google 16 years after the fact. According to industry watchers, the technology is so integrated into Google’s systems at this point that employees sometimes call it the “Borg.” On the other hand, Google’s sell-side technologies – what the DOJ is largely focused on – would at least be easier to divest than its buy-side technologies, which are more deeply integrated into Google’s owned properties (e.g. YouTube). Still, given the complexity of the untangling, if Google is forced to divest, there may be ways for it to do so that leave it relatively advantaged.

There’s a broader question as to whether Google divesting its adtech is actually good for publishers. Many websites rely on advertising to sustain, and it’s not clear whether the alternatives to Google would be better. Lower-quality ads and more ad fraud, for instance, would probably mean worse economics for website owners. At the very least, it would be disruptive to publishers who have made technical commitments to Google’s stack.

Google could also see a broader structural order with strong behavioral requirements that go beyond the divestment of Ad Manager. These could include Google being barred from certain lines of business, disgorgement of algorithms, stripping of patents, and required data access for other players. It has the potential to reshape the modern free internet that is currently reliant on advertising.

This isn’t the only antitrust case that Google is facing. By Google’s own account, it is facing multiple investigations by regulators in the EU, UK, Australia, and South Korea, as well as other cases brought by state attorneys general. Just last week, the UK CMA released a provisional statement of objections finding that Google was using its power to hinder competition in the adtech space. If confirmed, the UK’s case could come with its own structural remedies as well as a fine of up to 10% of Google’s global revenue.

Even if Google loses its cases, it could take a while for the ramifications to fully play out. In Microsoft’s case in the late ‘90s, it took 4 years from the time it went to trial to get to a DOJ settlement accepted by the court, including appeals. Court proceedings can take even longer in the EU – for instance, the EU’s top court recently upheld a $2.7B fine against Google that was originally imposed in 2017, and that was already following a 7-year investigation. A lot can happen in that time – especially in the market.

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