Google risks forced breakup of ad business as EU alleges shocking misconduct

Google may soon be ordered to break up its lucrative ad business, which amounted to nearly $225 billion in 2022 and represented nearly 80 percent of Google's total revenue. Today, as expected, the European Commission (EC) sent Google a statement of objections, detailing ad tech antitrust charges and explaining exactly why the EC thinks that breaking up Google's ad business may be the only acceptable remedy.

"We are concerned that Google may have illegally distorted competition in the online advertising technology industry," Margrethe Vestager, the EC's executive vice president, said in remarks published today.

According to Vestager, an EC investigation launched in 2021 found that Google may have favored its own ad tech services when serving as an intermediary ad exchange, matching advertiser supply and publisher demand for advertising space online.

To the EC, it seems like Google has its hand in too many pots to be trusted to conduct business fairly. Google operates an ad exchange, AdX, as well as ad tech services for advertisers—Google Ads and Google Display & Video 360 (DV 360)—and services for publishers, DoubleClick For Publishers (DFP).

Vestager said there's potential for misconduct because "Google may hold a dominant position on both ends of the ad tech supply chain" and "appears to have abused its market position" by ensuring that both advertising and publisher services allegedly favored AdX over other ad exchanges when matching advertisers and publishers.

By allegedly favoring AdX, Vestager said that Google was able to charge "a high fee for its 'exchange' services."

Two examples she provided show Google's seeming self-preferencing conduct that has led the EC to expect that Google breaking up its ad business may be the only path forward for the ad tech industry to remain fair.

First, when DFP selects ads for publishers, it is supposed to find ads that "bring the most value to them" by auctioning off the online placement to advertisers who place bids in a "sealed bid auction." This means that each advertiser supposedly had no prior knowledge of how other advertisers were bidding. However, the EC found that Google was allegedly "allowing Google's own participant in that auction, AdX, to open the sealed envelopes of all other rivals before placing its own bid." This allegedly gave AdX an unfair advantage to beat out competitors for DFP placements.

The second scenario the EC pointed to as being potentially problematic focuses on Google Ads practices. When advertisers buy Google Ads, the expectation, the EC suggested, is that Google would place bids on as many ad exchanges as possible to get the highest distribution for ads. That wasn't what Google was doing, the EC alleged. Instead, Google was allegedly only—or "almost only"—placing bids on its own exchange, AdX. This practice, the EC alleged, "make[s] AdX the most attractive marketplace" and "gave it a significant competitive advantage over rival ad exchanges."

These are only two examples of Google's alleged self-preferencing in its ad tech business. Vestager said there are "a number of similar" other examples that concerned the EC.

"We see the risk that Google's conduct distorted competition among ad exchanges: rather than letting the best of the ad exchanges win the race, the helping hand of the powerful Google ecosystem gave Google's own exchange a unique head start over all other rivals in the industry," Vestager said.

Because of this, "AdX could afford to keep its commissions high without losing its advertisers," Vestager said.