Google Faces Second Antitrust Trial: What It Means for Your Investments and the Future of Digital Advertising
By Jody Godoy
(Multibagger) - Alphabet (NASDAQ: GOOGL)'s Google is gearing up for a second antitrust trial next week, as the U.S. Department of Justice (DOJ) takes aim at the tech giant's advertising practices. This case follows a significant legal victory for the DOJ last August, where a judge ruled that Google had illegally monopolized online search.
Unpacking the Case: What You Need to Know
The upcoming trial, set to begin in Alexandria, Virginia, will scrutinize Google's lesser-known but highly profitable advertising technology that serves as a bridge between website publishers and advertisers. These ad tools were responsible for generating over 75% of Google's staggering $307.4 billion revenue last year.
"Google is far and away the largest seller of advertising on earth. They touch every part of the industry, if not directly, then indirectly. Everyone has an interest in Google one way or another," said Brian Wieser, an advertising consultant and financial analyst.
The Stakes: Potential Breakup and Market Impacts
The DOJ, along with a coalition of states, seeks to prove that Google violated U.S. antitrust laws through its digital advertising operations. A ruling in favor of the DOJ could lead U.S. District Judge Leonie Brinkema to order a breakup of Google's advertising empire.
Regulators claim that Google has monopolized the ad tech market by tying its publisher and advertiser tools together, thereby securing a "privileged position as the middleman." Google, however, refutes these claims, arguing that it is not obligated to share technological advancements with competitors and insisting that its products are compatible with rival offerings.
Market Dominance: The Numbers
According to the DOJ, Google controls:
- 91% of the ad server market
- Over 85% of the ad network market
- More than 50% of the ad exchange market
Google counters this by stating that its market share is 30% or less when including ads on social media, streaming TV, and apps, emphasizing the fierce competition in these growing categories.
Key Witnesses and the Impact on Journalism
Potential witnesses include competitors like Trade Desk (NASDAQ: TTD) and Comcast (NASDAQ: CMCSA), as well as publishers such as PubMatic (NASDAQ: PUBM). The trial will also spotlight the adverse effects of Google's ad tech on news organizations. According to a Northwestern University study, one-third of U.S. newspapers have shut down or been sold since 2005.
"Journalism is under threat in large part due to consolidation in the advertising market," said Jonathan Kanter, DOJ's antitrust chief, at a June event organized by the Open Markets Institute, an anti-monopoly advocacy group.
Executives from News Corp (NASDAQ: NWSA), the Daily Mail, and Gannett (NYSE: GCI) may testify, shedding light on the challenges faced by news publishers.
Google's Defense and What It Means for Small Businesses
Google plans to call on small businesses and publishers as witnesses, arguing that a breakup would "slow innovation, raise advertising fees, and make it harder" for small companies to grow. The trial will delve into Google's perspective on its ad tech, with testimony expected from over two dozen current or former employees, including YouTube CEO Neal Mohan, a former Google advertising executive.
Analysis: How This Trial Affects You and Your Finances
Let's break it down:
- Investment Implications: If Google is ordered to break up its advertising business, the company's stock could experience significant volatility. Investors should keep a close eye on the trial's progress and its potential impact on Alphabet's market valuation.
- Advertising Costs: A breakup could lead to increased advertising fees, affecting businesses that rely on digital ads for customer acquisition. This could, in turn, impact the prices of goods and services.
- Innovation and Competition: While Google argues that a breakup would stifle innovation, proponents believe it could foster a more competitive market, potentially leading to better ad tech solutions and lower costs over time.
- Journalism and Media: The trial highlights the financial struggles of news organizations in the digital age. A ruling against Google could pave the way for a more equitable distribution of ad revenue, benefiting news publishers.
In summary, this trial is not just a legal battle; it's a pivotal moment that could reshape the digital advertising landscape, affecting everything from investment portfolios to the cost of online advertising and the future of journalism. Stay informed and consider the broader implications for your financial decisions.