The Justice Department and eight states on Tuesday filed a lawsuit against Google over its digital advertising business, claiming the tech giant illegally monopolizes the market for online ads.
It is the second antitrust suit federal authorities have brought against the company's advertising empire, which has for years been under scrutiny over allegations of self-dealing and choking off competitors.
"For 15 years, Google has pursued a course of anticompetitive conduct that has allowed it to halt the rise of rival technologies, manipulate auction mechanics, to insulate itself from competition, and force advertisers and publishers to use its tools," said Attorney General Merrick Garland at a press conference announcing the lawsuit.
In its 140-page suit filed in the Eastern District of Virginia, authorities say Google made acquisitions to boost its advertising division that effectively forced advertisers and publishers to use its products, to the detriment of rival advertising firms.
"One industry behemoth, Google, has corrupted legitimate competition in the ad tech industry by engaging in a systematic campaign to seize control of the wide swath of high-tech tools used by publishers, advertisers, and brokers, to facilitate digital advertising," prosecutors wrote in the suit on Tuesday.
The Justice Department also drew attention to something that has been a thorn in the side of many struggling online publishers: the 30% cut it takes on all digital ads placed through its exchanges.
"On average, Google keeps at least thirty cents — and sometimes far more — of each advertising dollar flowing from advertisers to website publishers through Google's ad tech tools," the suit states.
That forced 2 million advertisers, including parts of the U.S. government, such as the military, to allegedly pay higher rates for ads. According to the suit, federal agencies and departments have purchased more than $100 million in web advertising since 2019 that allegedly included "supra-competitive fees" and "manipulated advertising prices."
While the litigation is expected to drag on for some time, prosecutors took the extraordinary step of asking a federal judge to force Google to break up its advertising segment from the rest of the company. Around 80% of Google's revenue comes from its advertising business.
Bloomberg noted that it marks the first time the Justice Department has pursued a major company breakup since the 1980, when the federal government dismantled the Bell telecommunications business over allegations that it was a monopoly.
Across all U.S digital advertising, Google commands about 29% of the market, according to research firm Insider Intelligence. Facebook parent company Meta controls nearly 20% and Amazon is the third-largest player in online advertising, with an 11% marketshare.
In a statement, Google said the advertising sector has plenty of competition and that prosecutors' case against the tech giant will make buying advertisements more expensive.
"Today's lawsuit from the DOJ attempts to pick winners and losers in the highly competitive advertising technology sector," a Google spokesperson said. "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 if 'Goldman or Citibank owned the NYSE'
Authorities allege that the world of online advertising has been slanted to favor Google "for reasons that were neither accidental nor inevitable."
For instance, in 2017, Google purchased DoubleClick, which makes widely used advertising tools, for $3.1 billion.
It gave Google direct access to the inventory of website publishers and the ad-serving technology used by those publishers.
Google also controls a major online advertising exchange where companies bid in real time to reach an intended audience on the Internet.
The DoubleClick purchase gave the company power on both sides of online advertising commerce: Selling ads to publishers and influence over the tools publishers use to display ads, not to mention the online auction house where the transactions take place.
Prosecutors claim Google abused that power by essentially rigging the system in Google's favor.
The acquisition gave Google "the unilateral power to implement a series of anticompetitive restraints," meaning it allowed Google to build up barriers by locking customers into its system and making it difficult to seek out alternative ways of advertising online. Google used "its dominance on both the publisher and advertisers of the market to inhibit competition across the entire tech stack," authorities wrote in the suit.
The complaint cites internal communication from a Google advertising executive who compared the company's power in multiple parts of the ad-selling process this way: "The analogy would be if Goldman or Citibank owned the NYSE," a reference to the New York Stock Exchange.
They also describe how Facebook shuttered its own advertising exchange when it realized it would be "subject to one bottleneck and intermediary — Google."
The suit has allegations similar to those in a lawsuit brought by a coalition of states in 2020 targeting Google's advertising business. A federal judge in September allowed the case to move forward, while narrowing the scope of the allegations.
ARI SHAPIRO, HOST:
The Justice Department and eight states are trying to break up Google. Today, they filed a lawsuit alleging that Google abuses its vast power over online advertising. They're asking a federal judge to force Google to spin off its ad empire into a separate business.
NPR's Bobby Allyn joins us for more in today's All Tech Considered. Hi, Bobby.
BOBBY ALLYN, BYLINE: Hey, Ari.
SHAPIRO: What is the core of the Justice Department allegation here?
ALLYN: The suit says that Google has spent years building a system for online advertising that boxes out competitors. They argue that Google has a monopoly over online ads and is hurting web publishers and U.S. consumers. And, Ari, here is why the Justice Department thinks so. Google, of course, sells ad space online, but they also own the tools that websites use to display online ads. And they operate the largest auction house where ad transactions take place.
So to hammer their point home, DOJ prosecutors cited an internal email from a Google executive who once raised concerns about this arrangement and put it this way - it's as if Goldman Sachs owned the New York Stock Exchange. Here's Attorney General Merrick Garland at a press conference today in Washington announcing the suit.
(SOUNDBITE OF ARCHIVED RECORDING)
MERRICK GARLAND: For 15 years, Google has pursued a course of anticompetitive conduct that has allowed it to halt the rise of rival technologies, manipulate auction mechanics to insulate itself from competition and force advertisers and publishers to use its tools.
SHAPIRO: So Garland is arguing that Google is abusing its power in the online advertising world. And what are prosecutors asking the court to do about it?
ALLYN: Prosecutors say Google should have to spin off its advertising arm from the rest of the company. Break up Big Tech - we've heard that before. It's long been a rallying cry, right? Well, now the Justice Department is saying that to a federal judge. But Google's advertising business and Google Search are so intertwined that, you know, breaking up the company would be a very daunting and very drawn-out process.
SHAPIRO: And what is Google saying about this?
ALLYN: Yeah. Google says prosecutors are trying to rewrite history. To understand what they're saying, let's back up for a moment. One way Google has become so massive in advertising has been by gobbling up other ad companies. And a very key acquisition happened in 2007, when Google bought a company called DoubleClick, which owned very popular online advertising tools. Now, at the time of the deal, you know, it was approved by federal regulators, including the Justice Department. Now, more than 15 years later, federal prosecutors want to undo the deal. So Google says prosecutors, if they got their way and were able to unwind the company, both advertisers and websites would see their costs go up.
SHAPIRO: And is that true?
ALLYN: You know, Ari, there's really no consensus on this question. Some experts agree with the Justice Department that, yeah, breaking up Google could bring in more competition. And, you know, maybe the way ads are sold online would become more competitive. But others say, you know, it's going to fix one problem and then introduce another, right? The online advertising system right now is highly automated. Advertisers engage in these instantaneous auctions to find the right audience. And some say if that system was less centralized, so if Google owned less of it, it could become a big mess. And yes, it's possible that it becomes more expensive for both the buyers and the sellers of ads.
So it's important to point out here that this comes at a really tough time for Google, right? We heard last week that Google laid off 12,000 employees because of uncertainty around things like advertising spending, which has been trending down in recent months. So Ari, this Justice Department lawsuit just really adds to Google's headaches right now.
SHAPIRO: NPR's Bobby Allyn, thanks a lot.
ALLYN: Thanks, Ari. Transcript provided by NPR, Copyright NPR.