Wednesday, January 4, 2012

DOJ closes investigation into Google’s acquisition of Admeld Inc. (Article)

By Pola Karolczyk, Attorney at law, LL.M. candidate

On December 2, 2011 the DOJ announced its decision to close the investigation into Google’s acquisition of Admeld Inc. allowing Google to complete its $ 400 million merger. The DOJ’s investigation focused on the potential anticompetitive effects of the proposed transaction in the display advertising industry. This decision is significant for Google’s business because it allows it to strengthen its advertising branch, being the major source of Google’s revenue.

To understand why the Google and Admeld merger was scrutinized by the DOJ in the first place, a short insight into Admeld’s business is needed. During the initial years of the online advertising industry, website publishers sold space on their websites directly to advertisers. However, as the number of online publishers and advertisers grew exponentially, one-on-one transactions became impractical. Advertisers needed an agent which would help them to reach targeted websites, while at the same time online publishers needed a manager who would effectively sell their online views (“impressions”) to advertisers for the best price. This market loophole was filled by ad networks. Ad networks serve as a single point of entry, both, for advertisers and online publishers matching supply with demand. In addition, to further optimize online publishing, ad networks take part in the ad exchanges which allow them to bid for online impressions. Soon, however, this system started to create new dilemmas for online publishers, who now had to decide which numerous ad networks and ad exchanges they should choose to monetize their impressions in the most efficient way. This is the moment when Admeld entered stage. 

Admeld provides one of the largest Supply Side Platforms (“SSP”) which allows large online publishers to work with multiple add networks and retain direct access to add exchanges. By using SSP, online publishers can determine the highest value partner to which they will deliver their inventory. Inventory can also be purchased directly from SSPs.

Google also offers advertising platform services to web publishers through its two programs: AdWords and AdSense. In addition, Google uses its Google Display Network to locate places for ads for advertisers. As DOJ indicates in its statement – both Google and Admeld “provide services and technology to web publishers that facilitate the sale of those publishers’ display advertising space”. Interestingly, however, the DOJ statement does not conclude that Google and Admeld are direct competitors in the display advertising industry. 

Even though it is not clearly stated in the DOJ’s statement, it seems that the DOJ’s major concern was that the merger will create a closed system in which Google provides ads to publishers and at the same time controls an optimization platform, which helps them to figure out which ads will perform the best on their sites. The risk arising from such concentration is Google’s potential ability to favor their own advertisement even if it is not the most beneficial option for the publishers. In addition, the Antitrust Division also carefully evaluated whether Google’s acquisition of Admeld could enable Google to extend its market power in the Internet search industry to online display advertising through anticompetitive means.

Fortunately, for Google the DOJ concluded that online advertisers tend to rely on multiple display advertising platforms (“multi-homing”) and therefore, any anticompetitive attempts of Google can be counterbalanced by other popular platforms (for example Facebook). As a result, if prices or quality of placement of ads will decrease due to the Google-Admeld merger, publishers would likely react by moving their ads to a different platform. In addition, the DOJ found that the display advertising industry is still developing and there are new entries to this market. 

The approval of the acquisition of AdMeld by the DOJ opens up new important business opportunities for Google – particularly in the mobile phones and tablets ad business. AdMeld’s real-time bidding capabilities which allow identifying the real-time location of a consumer can be used for personal targeting of ads in a manner not possible before. 

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