Why Google is facing its most serious antitrust challenge to date

Today let’s talk about a major new antitrust case against Google, and the increasing likelihood that something at the company is going to have to give.

I.

I’ll dive into some of the specifics of the case shortly. But the first thing to note is the growing consensus around the world that Google is too dominant, which has put more pressure on the United States to act.

Since 2017, when the European Commission fined Google a then-record $2.73 billion for self-preferencing with its comparison shopping service, the company has faced a steady drumbeat of regulators accusing it of antitrust violations.

In 2018, EU antitrust regulators fined Google $4.3 billion for requiring smartphone makers to bundle and include the company’s apps with Android.

In 2019, the EU fined Google $1.49 billion for making unfair demands of publishers that sought to use its AdSense for Search service.

In 2020, the United States finally followed suit. A coalition of 10 states, led by Texas, filed a complaint against Google arguing that it maintains an illegal monopoly over the online ad business. That same year, the Justice Department accused the company of maintaining an illegal monopoly over search by signing massive deals with partners like Apple and taking other steps to reduce competition.

Outside some minor changes to the Play Store related to still other antitrust cases regarding payment processing, Google has been largely unaffected by all this. The fines amounted to little more than speeding tickets for a company that is expected to rake in $73.8 billion in digital ad revenue this year. Other, potentially more consequential cases are still wending their way through the courts.

On Tuesday, though, the US government filed what is potentially its most significant case yet against the search giant. Here’s Leah Nylen at Bloomberg:

The 139-page lawsuit calls for Google to divest the Google Ad Manager suite, including both Google’s publisher ad server, Doubleclick for Publishers, and Google’s ad exchange, AdX.

II.

In a blog post, Google said the lawsuit “ignores the enormous competition in the online advertising industry.” “It largely duplicates an unfounded lawsuit by the Texas Attorney General, much of which was recently dismissed by a federal court,” reads a blog post credited to the company’s vice president for global ads, Dan Taylor. “DOJ is doubling down on a flawed argument that would slow innovation, raise advertising fees and make it harder for thousands of small businesses and publishers to grow.”

As with the company’s claims that that the search market is vibrant with challengers, Google’s frequent assertions that the ad market is competitive strain credulity. Just three companies will capture a majority of US digital ad spending this year, according to eMarketer estimates shared by Bloomberg, with Google taking a plurality of the total.

At the same time — and this really speaks to just how much tech regulation lags behind industry developments — Google’s estimated 26.5 percent share is down more than 10 percent from its peak in 2015. (Though it’s higher if you include YouTube, which brings it another 2.9 percent of the market.) The decline is thanks to the continued growth of Meta, the second-place ad company, and even more to the rise of Amazon, which is expected to take 11.7 percent of the market this year by stuffing as many sponsored results on its search pages as its customers will bear.

Previous US government cases have struggled to find their footing. Most famously, a lawsuit against Facebook was thrown out in 2021 for failing to show that the company had a monopoly on social networking, though it was later restored and is still pending.

But there’s reason to believe the government may be on more solid ground with its case against Google. One, it’s rooted in real harms. The government says that the fees on Google’s ad exchanges allow it to keep 30 cents out of every dollar spent on them — a significant tax on struggling digital publishers. As a result, the government says, it was overcharged for $100 million in spending on online ads for federal agencies, including the Army.

Two, these are harms that are very much in line with traditional thinking about the point of antitrust law, which is to protect consumers. Since 2017, some progressives have argued for a more expansive understanding of competition law that takes into account worker wages, unemployment, and other social issues. Lina Khan, who now leads the Federal Trade Commission, was an early advocate for this school of thought, which is (semi?) derisively known as “hipster antitrust.”

Among other things, hipster antitrust was a response to the fact that many of the biggest companies in tech gave away their services for free. How could you argue Google or Facebook or Amazon had an illegal monopoly when a consumer could simply choose to use another free service instead?

Embedded in hipster antitrust was another idea, less often stated aloud, that seemed to drive much of advocates’ thinking: that Big Tech should only ever grow so big; that lightly regulated companies with trillion-dollar market caps pose some sort of inchoate risk to the body politic; and that they should be prevented from endlessly growing bigger by gobbling up smaller companies.

You see this kind of hipster antitrust in the FTC’s (misguided, I think) effort to block Meta from acquiring Within, maker of the subscription fitness app Supernatural. VR is still a relatively small industry; the video game industry has a long history of console makers buying popular studios; and it’s unclear what harm Meta owning a fitness app could cause consumers or the market.

I mention all that because the lawsuit filed against Google by the government today is not that kind of case. This is not a bunch of liberals sitting around trying to redefine antitrust law around some unrelated beef about Google. This is a bunch of Democratic appointees, building on the work of their Republican predecessors, arguing that: a market got too consolidated, prices went up, and users were harmed.

Of course, the case will drag on for years, the ad industry will continue to evolve, and whatever relief consumers (and publishers) may experience if the government wins remains an open question. It would have been far preferable to me had Congress, which spent the past half-decade debating what to do about tech giants in an endless series of theatrical hearings, passed new laws regulating the terms on which companies like Google could compete.

But they didn’t, and so we live in a world where publishers are paying 30 percent of their revenue to Google for every ad served. You don’t have to be a progressive firebrand to wonder what sort of web we might have, and what kind of digital publishing might be sustainable, in a world where they got to keep 80 or even 90 percent of the money they took in.

I hope we find out. The government has filed its share of weak antitrust cases in recent years, but at first blush this doesn’t look to be one of them. Google has managed to swat away other regulators for years now with relative ease. But with the Justice Department now trained on its ad business, the company may be facing its most serious challenge yet.

Zoë Schiffer contributed to this report.