Senate Prepares Grill For Google

Google will find out if the $580,000 spent on lobbying this year, and the addition of in-house lobbyists to complement the firms they employ in Washington, will have yielded a good return on investment.

The Washington Wire blog at the Wall Street Journal said Google will face the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights on September 27th for a 2 pm examination of the merger.

Washington Wire blogger John R. Wilke expects Microsoft and Yahoo to have participants in attendance to challenge Google’s attendees over the transaction. Microsoft in particular has stridently objected to a deal that could create an online ad monopoly, in their view.

Scott Cleland of Precursor is expected to attend, and present the case for blocking the merger on antitrust grounds. Thomas Lenard, acting president of The Progress & Freedom Foundation, will appear in support of Google’s proposal.

We noticed Google has a little something going on with DoubleClick already, related to their debut of Gadget Ads. One of the help questions related to the new product noted that Gadget Ads will run on DoubleClick’s DART network as well as sites participating in Google AdSense.

A Google spokesperson contacted for additional details about Gadget Ads could not comment further on DoubleClick’s role in participating with the new service.

We’re betting the Senate Judiciary Subcommittee won’t appreciate ‘no’ for an answer next week.

Google, DoubleClick Cast As Net Neutrality Fight

Cleland’s assessment of the merger, freely available from his Googleopoly website, contends the Federal Trade Commission likely has enough reasons to block Google’s DoubleClick purchase.

Citing his experience criticizing a proposed Worldcom/Sprint merger, Cleland said he expected pushback from those in favor of a deal that in his analysis won’t pass an evidence-driven antitrust test.

To illustrate, Cleland showed what a potential Google/DoubleClick rival would need to own in order to compete effectively:

To equal Google-DoubleClick’s level of market concentration in the intermediary online advertising market, one single financial services company would have to own:

•  The top 15 Wall Street banks/asset managers;

•  ~60% of the hedge fund and private equity industries;

•  The New York and London Stock Exchanges;

•  The two leading providers of financial analytical tools: Bloomberg and Factset;

•  Two of the three national providers of credit profiles: Experian and Equifax; and

•  ~60% of the Federal Reserve’s and U.S. Census Bureau’s raw market and consumer data.

The overall impact of the deal lessens competition in the online advertising market, Cleland said in the white paper. His position found little favor with the Computer and Communications Industry Association, whose CEO, Ed Black, penned a press release slamming the Googleopoly report.

Black and CCIA painted Cleland’s analysis as coming from "a coalition of incumbent telecom and cable companies that want to smear Google and its vigorous support for neutral broadband access."

CCIA’s comparison of the Google review by the FTC to past antitrust cases involving IBM, AT&T, and Microsoft differs from the DoubleClick deal, Cleland said in response. "The flaw in their logic is that IBM, AT&T and Microsoft were not merger review cases like Google-DoubleClick," he said.

All three of those companies were attacked for their established monopolies, as those who have followed the tech industry will recall. Google isn’t being hauled before the FTC on those grounds, but the potential for the DoubleClick merger to put the search company into a monopoly position.

Google is on the path to becoming an "enduring monopoly" today, Cleland said in his report. No startup can possibly match the resources required to compete. Google’s closest competitors, Yahoo and Microsoft, can’t offer the same return to a third-party website when it comes to making a search and advertising deal:

Why this matters is that Google’s economics (and market power) directly derive from its overwhelming relative audience size. When Google/Yahoo/Microsoft approach a third party content provider to be the wholesale provider of search and ad-serving services for a high traffic website, they bid on how much revenue they will provide to the third party.

Because Google has 2-3 times the size audience as Yahoo it can afford to bid a dollar amount 2-3 times more than Yahoo can.

Because Google has 5-6 times the size audience as Microsoft, it can afford to bid 5-6 times higher than Microsoft to win that third-party search/ad-serving business.

It’s going to be easy for net neutrality proponents to dismiss Cleland’s message because he is the messenger. But the report merits reading by anyone with an interest in the online advertising market.

His assessment of Yahoo’s failures to make inroads against Google in search – Yahoo is a retailer of content, Google is a wholesaler of technology – said Yahoo’s Panama search ad system will continue to disappoint the marketplace.

Evidence of that came from Yahoo, where profits dropped despite revenue rising. In Cleland’s analysis, Panama’s struggles will be "an excellent case study for antitrust authorities" in weighing the Google/DoubleClick merger.

Indirectly, Yahoo could have a bigger impact on Google in antitrust than it does in search advertising, simply by operating normally. Antitrust considerations just aren’t a net neutrality fight.