Forget sipping rosé as you promenade in your summer finery down La Croissette. Forget the end of year awards festivities as you wrestle with the choice of lamb or chicken. Forget even Google’s u-turn on the deprecation of the third-party cookie. The biggest event of the year in digital advertising is about to kick off. On September 9th, just days ahead of ATS London 2024 (ok, don’t forget that one!), Google is set to face the US Department of Justice in the most significant antitrust trial in decades.

In this feature article, ExchangeWire research lead Mat Broughton lays out the potential outcomes of the case for Google, and how these would affect the media and marketing industries. 

Where are we now?

Essentially, the DOJ’s case alleges that Google, via a host of acquisitions and subsequent manipulative self-preferencing actions, forced as many transactions as possible through its own ad tech stack, to the detriment of players across the entire digital advertising supply chain.

Despite the DOJs initial wishes, the case will be tried by a single judge (US District Judge Leonie Brinkema) in a bench trial rather than by jury. Google managed to avoid a jury trial by paying USD$2.3m (£1.8m), the maximum damages payable to the government. That 0.003% of the revenue it makes per quarter is really going to sting.

At the time of writing, we’re currently going through the pre-trial machinations. Documents are being redacted to avoid divulging business-sensitive information (such as ad take rates); claims and counterclaims are being made on deposition testimony. The DOJ’s witness list is a whopper, containing a whole host of former and current Google executives alongside ad tech luminaries from across the media supply chain, including executives that have been very vocal in terms of how Google’s anti-competitive actions have harmed their businesses.

Quite hilariously, there are nearly 1,200 objections from Google on the DOJ’s witness depositions imply “improper opinion by lay witness” (rude), and over 1,700 objections attributed to “speculative; lack of personal knowledge” testimony. Given that the witness list consists of individuals who have built ad tech companies from the ground up and ran them for many years successfully, Google’s legal approach here seems a little bit straw-clutchy. 

Potential ramifications for Google

Option I: Settlement

Given how far down the road we are, the strength of the DOJ’s case, and Google’s likely desire to keep as tight a hold on its stack as possible, a settlement between the two parties is unlikely. However, Google will likely be keen to ensure that no embarrassing corporate details are revealed over the course of the trial - the company previously got egg on its face when one of its own witnesses revealed that it gives Apple a 36% cut of all search ad revenue from Safari.

Moreover, Google will weigh its odds throughout the court proceedings. If it looks as though the case (and more importantly the judge) is going against them, executives may voluntarily sign a consent decree, essentially allowing the breakup of its ad tech stack but without any admission of liability. While this would tick all the boxes of Option II (see below), the distinction is important as it would likely prevent further compensation claims from advertisers, publishers, and technology companies alike, which would undoubtedly result in billions of dollars worth of damages.

Option II: The breakup of Google

The initial complaint by the DOJ, filed back at the start of 2023, is remarkably vociferous in its call to breakup Google’s ad tech stack. In their own words, it calls to “Order the divestiture of, at minimum, the Google Ad Manager suite, including both Google’s publisher ad server, DFP, and Google’s ad exchange, AdX, along with any additional structural relief as needed to cure any anticompetitive harm.”

Recent moves from Google suggest it’s at the very least contingency planning for a spinout of GAM or other elements of its stack. Unfortunately for the industry at large, Google is seemingly taking a scorched Earth approach, rather than allow a potential competitor to benefit fully from a divested GAM/AdX:

• Google is obfuscating media buys within the black box of PMAX, likely forcing more inventory towards its own properties (YouTube, Search, Gmail, Maps)
• Moving Privacy Sandbox auctions to running within the Chrome browser, or a trusted execution environment (ie Google’s cloud, with the only alternative option being another big tech firm in the form of Amazon)
• Requirement within Privacy Sandbox auctions that Google acts as the top seller BEFORE non-Google auction bids are even submitted, then Google itself finalises the winning bid. Judge, jury, executioner.

While Google’s third-party ad stack is still a massive business in its own right, its growth has stagnated in recent years. According to Google’s latest results (published on Tuesday 23rd July), revenue for its Network segment (ie money made from third-party sites via its ad stack) declined 5.2% to USD$7.4bn (£5.7bn). Google Network revenue has now declined year-over-year for eight consecutive quarters, and has been outshone by YouTube sales for the previous five quarters.

Ultimately, no US company has been forced to break up since AT&T in the early 1980’s. However, antitrust action has been ramping up globally, and US regulators may be wanting to make a stand before the changing of the presidency at the start of next year.

Option III: Nothing to see here

Google gets off scott free or has to pay a fine worth 0.0000x% of its annual revenue. Move along.

Impacts on the wider ad tech ecosystem

If Google were forced to divest itself of GAM, or did so of its own volition to avoid a harsher breakup of its ad tech operations, it would certainly give a fresh impetus to the industry as a whole - particularly the open/non-authenticated web. Specifically, Google's stranglehold on sell-side monetisation would be broken, and would open up the ad server market for independent ad tech to fill and innovate.

By creating a more level-playing field, advertisers will need to work even harder to differentiate themselves from competitors, likely driving gains in fields such as dynamic creative optimisation. Smaller ad networks may have the opportunity to focus on niche and developing sectors, offering more tailored solutions than a company the size of Google could. 

If Google were to say, “We'll spin GAM out into a separate business within Alphabet”, that would likely be unacceptable to the DOJ. Therefore, the valuation of the divested business will be interesting, with estimates floating around USD$300bn (£232bn) based on a 10x multiple. However the relationship between a divested GAM/AdX and Google would be critical, as Google’s ad stack thrives off of Google demand. If you disconnect that, the future (and of course valuation) of a divested GAM would be more uncertain.

That outlook is made more unclear by Google’s actions around its Privacy Sandbox APIs. As discussed above, under the guise of enhancing user privacy, Google has been quietly coalescing plans to move the auction environment away from traditional ad servers towards its own Chrome browser. How much influence a divested GAM, or indeed third-party ad servers, have on Privacy Sandbox would in theory form a critical part of this case, however the late timing of Google’s announcement that it will retain the third-party cookie (while potentially easing it out via App Tracking Transparency-esque opt-in mechanics) will likely put paid to that strategy in court. Your move regulators. 

What happens next?

The next key pre-trial date is Monday August 19th. This is when Google and the DOJ will file their “proposed findings of fact and conclusions of law”, which will give a clear picture of arguments and counterarguments likely to be discussed in court.

Beyond that, barring a deadline day settlement agreement, the trial kicks off in earnest on Monday 9th September. We’ll keep you posted on all the latest on the trial, which will also be discussed in depth at ATS London 2024 on Wednesday 11th September.