Google's Dominance in Advertising Business

By Rupin Chopra and Apalka Bareja

Introduction

Google’s dominant position in the online advertising industry has drawn the attention of antitrust regulators in Europe. With a 34% share of the $118 billion European Union (for brevity “EU”) digital ad market, Google’s influence extends across various layers of the advertising ecosystem. Critics argue that the company’s packaging and pricing strategies stifle competition, enabling it to command an unfairly large portion of online ad transactions. In light of this, the EU antitrust regulator, the European Commission, on June 14, 2023 ordered the breakup of Google’s Ad Business, raising concerns about the company’s market power and pricing practices.

In order to contextualise European Commissions’ findings better, below is a brief overview on how Google has established itself as a force to be reckoned with in the digital ad space.

Google is an advertising company, not a technology company

Google’s dominance in the advertising market is a result of its strategic positioning and the extensive data it collects from its various services. Advertising plays a critical role in supporting publishers and delivering content to users, making it a lucrative industry. Google’s reach extends across multiple advertising formats, including text ads and display ads, including video, which appear in search results, websites, social media feeds, and videos.

The selection of ads to serve to users is based on varying degrees of targeting, ranging from broad categories of recipients to specific individuals. Targeted ads have a higher likelihood of converting into sales, making data a crucial component of advertising. Google leverages data to enable precise ad targeting, with search and location data allowing for specific contextual advertising.

With billions of users across its platforms such as Google Search, Maps, Gmail, YouTube, Play, Chrome, and Android, Google acts as a data refinery. It processes an enormous amount of data each day, with over 8.5 billion searches³, more than 1.8 billion active Gmail users, 3.6 billion active Android phones, and YouTube’s over 2 billion⁴ monthly users watching billions of hours of content daily. This vast amount of data is monetized through digital advertising.

Google’s advertising business is driven by three monopolies: what users want(Google Search), where they have been(Doubleclick digital advertising)⁵, and where they are (Android OS). Through Google Search, the company gathers specific contextual data on users’ search queries and clicked search results, providing insights into their purchase intentions and potential buying locations.

The DoubleClick cookies employed by Google generate data on the websites users visit, encompassing over 2 million web pages. As the world increasingly shifts to mobile devices, Google’s dominance of the Android mobile platform further strengthens its advertising reach. Android, being the largest operating system for smartphones, enables Google to reach users across devices, apps, and sites, providing a comprehensive view of their activities.

One of the most valuable types of data for advertising is location data. Similar to search data, location data allows for personalized advertising at an individual level. Google continuously collects vast amounts of location data on its users through tracking enabled location services, as well as through more covert means such as WiFi mapping, Bluetooth beacons, and cell tower communications.

Moreover, Google’s dominance extends beyond advertising to web browsers, where Chrome holds a significant market share. This further enhances Google’s ability to collect data on users’ browsing habits, contributing to its data-driven advertising ecosystem.

In summary, Google’s advertising dominance stems from its ability to collect data at an unprecedented scale. The company’s vast array of services, such as Google Search, Android, YouTube, and Chrome, generate copious amounts of user data. By leveraging this data, Google can deliver targeted ads that maximize the chances of conversions. However, this extensive control over data and advertising raises concerns about anti-competitive behaviour, as Google’s market power and data-driven practices give it an unfair advantage over competitors in the advertising industry.

The European Commission’s Decision

The European Commission’s decision of ordering the breakup of Google’s ad business stems as a response to concerns over Google’s anti-competitive and monopolistic position in the digital advertisement market. This move marks a significant escalation in the EU’s crackdown on Big Tech companies, as it goes beyond imposing fines and delves into structural changes within the industry. The preliminary findings of the European Commission’s investigation, which was initiated in June 2021, indicate that Google violated the bloc’s competition rules⁶ by favouring its own online display advertising technology services over rival publishers, advertisers, and advertising technology services.

The European Commission accuses Google of leveraging its dominant position as the region’s most dominant provider of ad-buying and ad-serving tools to throttle competition. Specifically, since at least 2014⁷ , Google has been accused of favouring its ad exchange, AdX, over competitors during the automated ad bidding process. This practice has allowed AdX to charge higher fees from buyers, stifling competition and distorting the digital advertising market. The investigation also scrutinized Google’s conduct regarding YouTube, assessing whether the company exploited the video-sharing platform’s dominant position to prioritize its ad-buying services and impose restrictions on rivals.

The European Union’s decision follows a proposed legislation in the United States, the “Competition and Transparency in Digital Advertising Act,”⁹ which aims to restrict companies processing over $20 billion in digital ad transactions from owning multiple parts of the ad ecosystem. With Google controlling nearly 25%¹⁰ of the global digital advertising business, including the demand side platform (DSP), supply side platform (SSP), and ad exchange, its dominance has raised concerns about anti-competitive practices in both the EU and the US¹¹.

Margrethe Vestager¹² , Vice President of the European Commission, emphasized that Google holds a dominant position on both sides of the ad-selling market, abusing its power to favor its own ad exchange and setting rules that reinforce its ability to charge high fees. Vestager highlighted the inherent and pervasive conflicts of interest arising from Google’s simultaneous representation of buyers and sellers in the advertising ecosystem. To address these concerns, Vestager suggested that divesting parts of Google’s services, such as its real-time marketplace for buying and selling ads or tools for publishers to manage their ads, could put an end to these conflicts of interest.

Conclusion

In conclusion, the European Commission’s decision to order the breakup of Google’s ad business reflects the growing concerns over the tech giant’s dominance and anti-competitive behavior in the digital advertising market. The investigation revealed that Google favored its own ad technology services, imposing restrictions on rival publishers, advertisers, and ad-tech providers. By leveraging its position as the leading provider of ad-buying and ad-serving tools, Google was able to manipulate the market and charge higher fees, stifling competition and distorting fair practices.

This move by the European Union marks a significant escalation in its efforts to rein in Big Tech companies, going beyond monetary fines and demanding structural changes to address competition concerns. It sets a precedent for other regulators around the world to take similar action and foster a more level playing field in the digital advertising industry.

The European Commission’s findings resonate with ongoing discussions in the United States regarding legislation aimed at restricting the power of companies with significant control over the digital ad ecosystem. With Google’s vast control over various aspects of programmatic advertising, including the demand side platform, supply side platform, and ad exchange, there are growing concerns about monopolistic practices and the need for greater transparency and competition.

Google now has the opportunity to defend itself before the final decision is issued, but the initial findings clearly highlight the inherent conflicts of interest and abuse of dominant position by the tech giant. If confirmed, those conducts would infringe Article 102¹³ of the Treaty on the Functioning of the European Union that prohibits the abuse of a dominant market position. The European Commission’s suggestion of divesting certain parts of Google’s services aims to address these conflicts and restore fair competition in the market.

Shantam Sharma, Associate at S.S. Rana & Co. has assisted in the research of this article.

EU on Google’s dominance in Advertising Business

Google is an advertising company, not a technology company

The European Commission’s Decision

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